South Korean telcos eye tax credits for urban data centers – reportSouth Korean telcos eye tax credits for urban data centers – report

The Korea Telecommunications Operators Association (KTOA) has reportedly asked the South Korean government to revise the law to allow tax breaks for data centers located in metropolitan areas.

Gigi Onag, Senior Editor, APAC

January 14, 2025

2 Min Read
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The Korea Telecommunications Operators Association (KTOA), along with 38 other IT organizations, has reportedly asked the South Korean government for tax incentives for data centers built in the metropolitan area.

According to ChosunBiz, KTOA and the other organizations have submitted a request to the country's Ministry of Strategy and Finance to amend the enforcement decree of the Restriction of Special Tax Treatment Act to include metropolitan data centers among the infrastructure investments that would qualify for tax deductions.

Under the Restriction of Special Tax Treatment Act, AI and cloud companies can receive tax credits for 20% to 30% of research and workforce development expenses and 3% to 12% of facility investment costs.

AI and cloud businesses have been designated as new growth technologies.

However, ChosunBiz reported that facilities located in metropolitan areas such as Seoul and Gyeonggi are excluded from the tax credit to prevent the over-concentration of major infrastructure in the metropolitan area. This infrastructure includes data centers.

Disconnected from reality

Citing industry insiders, the report said the provisions of the Restriction of Special Tax Treatment Act are "disconnected from the reality faced by IT companies," estimating that 70% of data centers in the country are located in metropolitan areas.

Despite the government's push to encourage new infrastructure development outside major cities, the data centers of telecom operators and Internet service providers such as SK Telecom, KT, LG Uplus, Naver and Kakao, are mostly located in the Seoul and Gyeonggi areas, with some exceptions in Busan, Daegu and Chuncheon.

Similarly, IT companies in the country have also built data centers close to their headquarters in the metropolitan area.

According to ChosunBiz, industry insiders believe that telcos cannot immediately avail themselves of the tax reductions particularly for new data centers built outside the metropolitan area.

The new data centers will "take at least three years to become operational," the report said.

In urging the government to provide tax relief for urban data centers, the KTOA and its technology peers cited provisions under the current law that allow certain "business-use fixed assets" such as broadcasting equipment, exchange facilities, transmission facilities and information processing facilities to qualify for tax reductions, even if they are located in the metropolitan area.

The KTOA and the other 38 IT organizations have reportedly asked the Ministry of Strategy and Finance to revise the enforcement decree to include data centers in the definition of "information processing facilities."

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About the Author

Gigi Onag

Senior Editor, APAC, Light Reading

Gigi Onag is Senior Editor, APAC, Light Reading. She has been a technology journalist for more than 15 years, covering various aspects of enterprise IT across Asia-Pacific.

She started with regional IT publications under CMP Asia (now Informa), including Asia Computer Weekly, Intelligent Enterprise Asia and Network Computing Asia and Teledotcom Asia. This was followed by stints with Computerworld Hong Kong and sister publications FutureIoT and FutureCIO. She had contributed articles to South China Morning Post, TechTarget and PC Market among others.

She interspersed her career as a technology editor with a brief sojourn into public relations before returning to journalism, joining the editorial team of Mix Magazine, a MICE publication and its sister publication Business Traveller Asia Pacific.

Gigi is based in Hong Kong and is keen to delve deeper into the region’s wide wild world of telecoms.

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