Two out of three SMEs "Postponing Use of Business Succession Tax Deduction System"

SME Central Association's 'Survey on SME Business Succession'... Due to Strict Pre- and Post-Conditions

[Asia Economy Reporter Kim Cheol-hyun] Two out of three small and medium-sized enterprises (SMEs) are hesitant to utilize the business succession tax deduction system. Companies unwilling to use the system cited complicated pre- and post-conditions as the biggest obstacles.

On the 12th, the Korea Federation of SMEs (Chairman Kim Ki-moon) announced the results of the 'SME Business Succession Survey,' conducted from December 7 to 18 last year, targeting 500 SMEs with more than 10 years of operation.

According to the survey, 76.2% of SMEs recognized that 'business succession is important' for the continuity and sustainable management of their companies. Among the respondents, 69.8% (349 companies) stated that they have 'already succeeded the business or plan to do so,' and more than half of these (53.3%) answered that they decided to succeed in order to 'pursue sustainable development of the company by inheriting the founder's entrepreneurial spirit.'

Among companies that have succeeded or plan to succeed the business, most (94.5%) pointed out 'concerns about enormous tax burdens' as the difficulty in the succession process. Regarding the intention to use the 'business succession tax deduction system,' a tax policy related to business succession, 66.2% of all respondents (500 companies) answered 'hesitant' (no plans 17.0% + not sure yet 49.2%). The main reason for not planning to use the business succession tax deduction system was 'difficulty in meeting pre-conditions' (40.0%), followed by 'complicated post-conditions' (25.9%), indicating that companies are reluctant to use the system due to the difficulty in fulfilling pre- and post-conditions. In this regard, SMEs identified the top need for easing 'pre-conditions' as 'reducing the required continuous management period of the decedent' (57.0%), and for 'post-conditions,' 'easing the requirement to maintain business-use assets' was the highest at 63.0%.

Among companies that have succeeded or plan to succeed the business, 74.6% chose 'succession through gifting' (48.2% partial gifting followed by inheritance + 26.4% prior gifting) as the main succession method. For the necessary period for successful business succession, half of the respondents (52.5%) answered '10 years or more,' showing a strong preference for stable succession. Regarding the current special tax treatment on gift tax for business succession with a limit of 10 billion KRW, more than half of all respondents (65.8%) said it should be expanded to the business succession tax deduction limit (50 billion KRW). For the payment method of gift tax when using the special tax treatment, one out of two companies (49.6%) chose 'deferment of gift tax payment until the time of inheritance.'

Jung Wook-jo, Head of the Innovation Growth Division at the Korea Federation of SMEs, said, "One out of four SMEs already has a representative aged 60 or older, so the generational change must start now to ensure a stable future," adding, "To maintain employment creation and economic vitality through stable business succession, the business succession tax deduction system and the special gift tax treatment system should be eased according to field needs and tailored support should be provided."

This content was produced with the assistance of AI translation services.