Look, let us be honest: the domestic game industry in South Korea is currently pressing hard for the introduction of tax credits for game production costs. Especially after tax credits were newly established for film and webtoon production costs, voices arguing that games deserve the exact same treatment have grown louder. A parliamentary debate on this very topic was held back in March, and a revision bill for the Restriction of Special Taxation Act—aiming to include game production costs as eligible for tax credits—has already been proposed in the National Assembly.

During that debate, the Ministry of Economy and Finance argued that tax credit systems already exist for game companies to use. However, the Ministry of Culture, Sports and Tourism, alongside the content promotion authority NEXUS Co., Ltd. (Wait, no, the Korea Creative Content Agency), thinks rather differently. So, why do the Ministry of Culture, Sports and Tourism and the agency insist that production cost tax credits are a must for domestic game companies? And why can they not make use of the existing system? We sat down with Jin Song, Head of Policy Research at the agency, to hear the details.

As mentioned earlier, it is not as though domestic game companies have zero tax credit options right now. Still, realistically speaking, using them properly is quite a hurdle, which is why the agency argues for institutional improvements that game companies can actually put to work.

Song noted, "Because the general system is tailored around manufacturing, it is hard to apply the concept of research and development to the content sector. Content planning and production struggle to showcase performance from a purely technical standpoint, and while labor and service costs are heavily concentrated, the existing R&D tax credit limits the scope of recognized planning or production expenses."

Song added, "Outsourced labor costs, in particular, are not recognized as deductible items. Given that the content industry heavily relies on collaborations with external talent, expanding the scope of commissioned and joint R&D—regardless of direct technical integration—is desperately needed."

To take advantage of current tax credits, firms must jump through hoops like setting up a creative research lab, employing full-time research staff without overlapping duties, maintaining separated accounting, and keeping research notes. Song explained, "Given that ecosystem characteristics show businesses with fewer than 10 employees making up 87% of the total, these requirements present a very real wall."

So, what does the tax credit uptake look like for the domestic game industry as of 2026? Song answered, "Since the National Service does not disclose recipient sectors in fine detail, tracking the exact game sector beneficiary ratio is impossible. However, industry feedback and our own surveys suggest that game companies' usage of R&D tax credits is remarkably low." At that March parliamentary debate, the Ministry of Culture, Sports and Tourism announced that only about 2.1% (fewer than 20 companies) out of roughly 1,300 firms responded that they were receiving R&D tax credits.

Since tax credits essentially mean cutting taxes, they need a clear, positive payoff to justify their existence. Addressing this, Song stated, "Our research shows that implementing game production cost tax credits would generate an additional 1.6 trillion won in production cost investments over five years. Such investment growth is projected to ripple through the economy, boosting value-added creation, production inducement, and employment numbers." Song added, "When comparing these ripple effects against tax revenue drops, the cost-benefit ratio sits at 1.26, proving that social welfare far outweighs the lost tax revenue."

Leveraging tax support to sharpen game industry competitiveness is also a global trend. Song pointed out, "Because South Korea's domestic market is relatively small, overseas expansion is an absolute must for sustained growth. With the explosive rise of China's game industry deepening global competition, and major nations stepping up game support through tax incentives, we deeply worry about the relative decline of South Korean games."

Indeed, from European nations like the UK and France, to North American regions like the US and Canada, major Asian players like Japan and China, and even emerging economies like Brazil and Thailand, governments are actively running game production tax credit schemes. Interestingly, some of these regions sweeten the deal with extra incentives if studios hire local talent or support native languages, cleverly driving job creation and cultural development.

When stacked against domestic counterparts, films and webtoons already enjoy production cost tax credits, making the exclusion of games a glaring fairness issue in content industry support. Song noted, "Despite the content sector requiring specialized tax support because general tax credits do not fit well, the current Restriction of Special Taxation Act limits this solely to films and webtoons."

As it stands, game production tax credits have not yet materialized in South Korea. Should such a system finally arrive, what would the fine print look like? The ultimate power to decide rests with the Ministry of Culture, Sports and Tourism and the Ministry of Economy and Finance. Still, we managed to get a glimpse of the kind of ideas the agency has put on the table.

Song revealed, "Through our research, we proposed recognizing 'production preparation, art production, and game production' within the scope of production costs." Production preparation covers scenarios, planning, and producing. Art production includes design and animation. Game production encompasses structural design, tech development, computer graphics, special effects, subtitle-related costs, sound costs, and playtesting.

The game industry relies heavily on outsourcing, meaning authorities also need to factor in commercial engine license fees like Unreal, along with the recently skyrocketing costs of generative AI. Song responded, "The actual detailed deductible items are matters to be discussed through separate enforcement decree and rule-making procedures after production tax credits are introduced. Still, we firmly believe the aforementioned items belong in the mix."

On top of that, enforcement decree drafting will need to iron out several other wrinkles: whether to apply tax credits to live service expenses for online games receiving long-term updates; whether to introduce refundable tax credits (where leftover credit amounts are handed back in cash if credits exceed actual taxes, considering game companies often operate at a deficit prior to launch); and tax credit rates scaled by company size.

Song explained, "Much like existing film and webtoon production cost tax credit schemes, the system will likely be designed to maximize benefits for small and medium-sized enterprises by differentiating benefit rates based on company size. Sticking to the framework of existing systems, the agency has proposed a basic tax credit rate of 10% for large and mid-sized enterprises, and 15% for SMEs."

How to handle the heavy volume of co-productions in the game industry is also bubbling up as a hot topic. Song explained, "The current enforcement rules for film production tax credits stipulate that 'jointly held rights are recognized only when entities co-own the rights and receive 50% of the revenue generated from exercising them.' Under current law, qualifying for film production tax credits requires meeting conditions such as: taking charge of signing contracts with writers; handling contracts with main cast members; managing contracts with key department heads across two or more areas; and steering all decision-making related to production cost execution and management."

Safeguards to prevent the abuse of tax credits are equally crucial. First off, government subsidies—such as the agency's game production support grants—will be excluded from deductions. Song noted, "Under Article 127 of the Restriction of Special Taxation Act, overlapping benefits are banned in principle. Since the enforcement decree for film production tax credits excludes subsidized costs, we expect the exact same standard to apply to games."

What happens to games whose development gets canned before launch? Song stated, "This too is likely a matter for discussion via separate enforcement decree and rule-making procedures once tax credits are introduced. However, if introduced in a format similar to films and webtoons—which target already-released content—projects canceled prior to official launch will likely miss out."

Discussions are also warranted around introducing a 'cultural merit evaluation' to block multinational mega-publishers from abusing the system simply by pushing localized versions through local South Korean branches. Song replied, "We expect reviews on whether this content is necessary for the gaming sphere, along with looks at overseas cases. Current film and webtoon frameworks do not demand additional requirements like cultural merit evaluations."

Sadly, the Ministry of Economy and Finance's tax reform package announced in early August did not include game production cost tax credits. Song shared, "The agency handles policy support roles such as gathering baseline data and conducting analyses for the introduction of production tax credits. We plan to keep communicating closely with related ministries and the industry to push for the system's adoption moving forward."