Tax treatment of colocation AI data centers
Deputy Prime Minister and Minister of Science and ICT Bae Kyung-hoon acknowledged during a parliamentary audit that although the government has designated AI data centers as facilities eligible for tax credits for commercializing national strategic technologies, the tax benefits do not apply to colocation AI data centers.
At the National Assembly's Science, ICT, Broadcasting and Communications Committee comprehensive audit on October 23, lawmaker Kim Nam-kuk of the Democratic Party of Korea, representing Ansan A in Gyeonggi Province, highlighted uncertainty over tax credits depending on how AI data center investments are structured. Kim called for improvements to the support framework so that large-scale private investment leads to actual construction starts and growth in domestic industry.
In June, the government selected AI data centers, semiconductors and physical AI as its three megaprojects and announced plans to pursue the development of 8.4 GW of AI data center capacity and about 550 trillion won in private investment by 2029.
However, Kim said that realizing these large-scale investment plans requires addressing the regulatory uncertainty companies encounter during the actual investment process.
In particular, AI data centers operate not only as facilities used directly by a developer, but also through a colocation model in which power, cooling and security infrastructure is built and provided to other companies. However, current tax law generally excludes assets intended for rental from investment tax credits, meaning actual eligibility may differ depending on the investment structure.
“Global AI data center investment takes various forms, and uncertainty over whether a company investing trillions of won can receive tax credits could weigh on its investment decision,” Kim said, raising the need to revise the framework in consultation with fiscal authorities.
In response, Bae said, “AI data centers are designated as facilities for commercializing national strategic technologies under the Restriction of Special Taxation Act and receive tax benefits,” but added, “Colocation AI data centers currently receive no tax benefits.”
Bae then said he intended to consult fiscal authorities promptly on tax support for colocation AI data centers to facilitate the attraction of foreign capital.
Investment competition and electricity requirements
Kim also highlighted the gap in attracting investment compared with competing countries.
According to a survey for the first half of 2026 by global real estate consultancy Cushman & Wakefield, Malaysia had 1,318 MW of operational data center capacity, about 1.6 times South Korea's 848 MW. Its capacity under construction was 1,039 MW, about 3.3 times South Korea's 314 MW. These figures are based on market research covering general data centers as well as AI-dedicated facilities.
According to the Malaysian Investment Development Authority, approved investment in data centers and cloud computing totaled about 31 trillion won in the first half of 2026, accounting for about 44% of all approved investment.
Kim emphasized that keeping pace in the competition to attract AI data center investment requires addressing electricity and permitting issues alongside tax support.
During the questioning, Kim said relevant ministries disagreed over whether to set the upper limit for exemptions from power grid impact assessments for AI data centers outside the Seoul metropolitan area at 50 MW or 100 MW. Kim called for the criteria to be finalized promptly, taking companies' actual electricity needs and grid stability into account.
In response, Bae explained that the Ministry of Science and ICT was proposing a threshold of around 100 MW, while companies were seeking a higher threshold, and said discussions with relevant ministries would continue.
Domestic industry and regional benefits
Kim also emphasized that large-scale AI data center investment should contribute to growth throughout domestic industry rather than stop at importing foreign equipment or constructing buildings.
In particular, Kim called for support to develop domestic materials, components and equipment industries, including cooling systems, transformers and extra-high-voltage power equipment, and to foster jobs for young people in the regions alongside related industries.
Bae acknowledged that dependence on foreign GPUs was indeed high, explaining that the government was pursuing measures to develop domestic cooling equipment and localize software and hardware technologies, foster the domestic AI industry ecosystem and promote mutually beneficial growth with local communities.
“For the AI data center megaproject to be justified, it must go beyond building data centers and enable related industries across South Korea to grow together,” Kim said. “The government must actively revise tax and electricity-related frameworks so that large-scale private investment leads to actual construction starts, and ensure that domestic industry and regional economies benefit.”
Original Korean article: nwtnews.co.kr
English brief by Korea Wind Intelligence, koreawindintel.com
