The U.S. Department of Commerce has unveiled that under the CHIPS and Science Act, developers of new domestic fab projects could get 25% in investment tax credit (ITC).
Under the document released by the Commerce Department, the CHIPS Act creates a new manufacturing ITC that would be administered by the Internal Revenue Service that is “equal to 25% of the value of qualified investments in building and other eligible depreciable tangible property” for new semiconductor manufacturing fabs.
The ITC is available for projects that start construction between Jan. 1, 2023, and Dec. 31, 2026.
The Department of Commerce said the ITC is designed to be an important tool to help close the cost gap between investment in the U.S. and other countries.
The CHIPS and Science Act will give $50 billion for tax breaks, incentives and funding for R&D for the long-term growth of domestic U.S. semiconductor manufacturing. Specifically, the law will focus on four goals including:
- Investment in U.S. production of semiconductors.
- Secure a supply of older and current generation chips.
- Strengthen R&D and catalyze and capture the next set of critical technologies, applications and industries.
- Grow the semiconductor workforce and build strong communities in the chip industry.
Why it is needed
After the COVID-19 pandemic revealed flaws in the current aggregation of chip manufacturing in the supply chain, the U.S. labeled semiconductor manufacturing as critical to U.S. national security and economic stability.
According to the Semiconductor Industry Association (SIA), the U.S. manufactures about 12% of all chips made globally, this is down from about 37% in the 1990s. If the supply chain remains the same or the situation worsens, this will more than likely decline to 10% or less in the coming years as more manufacturing capacity is built in other countries to meet demand.
The reason for the decline is due to substantial incentives offered by foreign governments, placing the U.S. in a competitive disadvantage for attracting new construction of chip manufacturing fabs, the SIA said.
“The United States no longer produces the world's most advanced semiconductors and has lost the ability to produce key supply chain inputs such as lithography, tools, substrates, and some specialty chemicals,” the Department of Commerce statement said.
The CHIPS and Science Act looks to turn this around and increase this percentage of manufacturing capacity.
