Gwangju Chamber of Commerce Proposes Improvements to Government's Business Succession Deduction System

[Asia Economy Honam Reporting Headquarters Reporter Park Jin-hyung] The Gwangju Chamber of Commerce and Industry (Chairman Jeong Chang-seon) announced on the 16th that it has proposed improvements to the ‘Business Succession Deduction System’ to the government and others to facilitate smooth business succession for small and medium-sized enterprises (SMEs) and mid-sized companies.

In the proposal, Gwangju Chamber of Commerce pointed out, “The Business Succession Deduction System is operated to support SMEs and mid-sized companies in growing into long-lasting enterprises through the technology and know-how accumulated over a long period. However, it is very difficult to meet the pre- and post-conditions required for the system’s application, resulting in a very low actual utilization rate.”

In other words, they requested the relaxation of some requirements to increase the utilization rate of this system.

The current Business Succession Deduction System allows SMEs and mid-sized companies with annual sales under 300 billion KRW to apply deductions up to 50 billion KRW (for business operation periods of 30 years or more). To qualify, the decedent must have operated the business for at least 10 years and served as CEO for more than half of that period, hold more than 50% of shares (30% for listed companies), and the heir must have worked in the business for at least 2 years before the inheritance commencement date, among other strict preconditions.

Additionally, companies that receive the business succession deduction must maintain the average number of employees and total wages for 7 years after the inheritance, are prohibited from changing their business category outside the medium classification, and from disposing of more than 20% of business assets. Violations require repayment of all deducted taxes, reflecting the strict post-conditions applied.

In response, the Gwangju Chamber of Commerce jointly proposed improvements to relax pre- and post-conditions of the Business Succession Deduction System with the Daegu Chamber of Commerce in 2019, but only some conditions such as the post-management period (from 10 years to 7 years) and the allowable range of business category changes (from detailed classification to medium classification) were eased.

The number of cases applying the Business Succession Deduction System among Korean SMEs and mid-sized companies is around 80 annually, which is extremely low compared to major countries such as Germany (about 13,000 cases).

Therefore, the Gwangju Chamber of Commerce reiterated its proposal to relax pre- and post-conditions and improve the calculation method of the deduction amount to preserve the original purpose of the Business Succession Deduction System?maintaining the continuity of SMEs through active business succession and promoting economic vitality?and to enable more companies to utilize the system.

To activate business succession through active use of the Business Succession Deduction System, they proposed relaxing pre-conditions such as abolishing the decedent’s business operation period and CEO service period requirements, the heir’s business service period before inheritance commencement, and easing the major shareholder’s shareholding ratio to 30% or more regardless of company size.

Regarding post-conditions, since companies must respond swiftly to changes in the industrial environment, including convergence with new industries and new investments, they requested expanding the allowable range of business category changes to the large classification and calculating the additional tax amount proportionally when disposing of more than 20% of business assets.

For the deduction amount, they urged abolishing the deduction limit and improving the calculation method to link it with the number of employees and total wages so that companies creating jobs can receive greater deduction benefits.

A representative of the Gwangju Chamber of Commerce said, “We hope that companies, which are the main agents of production and employment, can reduce excessive tax burdens during the business succession process, grow into long-lasting enterprises, and contribute to the local and national economy.”

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