Seoul, South Korea - The Ministry of SMEs and Startups (MSS) announced that the Cabinet has approved amendments to the Enforcement Decree of the Venture Investment Promotion Act.
The legislation is scheduled to be implemented on October 19 and represents the country's first institutionalization of private venture capital funds.
Key statistics:
- Mandatory 60% of total assets to be invested in venture capital funds.
- Minimum capital requirement of KRW 100 billion for the establishment of these funds.
- The limit for publicly traded stocks within a venture capital portfolio will be raised from 20% to 40%.
Regulatory shift:
In contrast to prevailing practices in countries like the United States, South Korea has seen limited activity in privately managed venture capital.
The amendment aims to rectify this by establishing guidelines allowing startup investment firms, new technology financiers, and asset managers to independently manage private venture capital funds.
Joint management with securities firms is also permitted.
Investment autonomy:
- The new regulation allows up to 40% of a fund's assets to be held in publicly traded equities, provided that at least 60% is allocated to venture capital.
- Investments in private equity funds and new technology business investment associations are now permitted.
Tax incentives:
According to the Ministry of Strategy and Finance's 2023 Tax Law Amendment Bill:
- Corporate investors will be entitled to a 5% tax credit on their investment in venture companies and an additional 3% credit on the increase in the average investment over the past three years.
- Individual investors can deduct 10% of the amount invested in private venture capital funds from their taxable income.
Tax and Management Exemption:
Asset management services provided by fund managers are exempt from VAT.
Capital gains tax on the transfer of shares in startup and venture capital companies is waived for individuals and fund managers.
Implications:
Minister Lee Young-woo remarked, "The enactment of the private venture capital system will strengthen the role of the private sector in the venture investment market."
The change is expected to stimulate private capital activities and align them more closely with government-led venture capital initiatives.
