Government "Considering Special Gift Tax Exemption for Business Succession Deduction Even if Sales Increase at Inheritance Time"

Bang Gi-seon, 1st Vice Minister of the Ministry of Economy and Finance, Visits Mid-sized Companies for Business Succession

Bang Gi-seon, the 1st Vice Minister of the Ministry of Economy and Finance, is presiding over the Emergency Economic Vice Ministers' Meeting held on the 12th at the Government Seoul Office in Jongno-gu, Seoul. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Sejong=Reporter Kwon Haeyoung] The government is considering measures for companies that received business succession tax deductions through partial pre-inheritance succession during the founder's lifetime but fail to benefit at the time of inheritance due to increased sales.

Bang Giseon, First Vice Minister of the Ministry of Strategy and Finance, announced this on the 31st during a visit to the mid-sized company YG-One. This visit was conducted to verify the achievements of tax support for small and medium-sized enterprises (SMEs) and mid-sized companies, including business succession tax support, and to listen to on-site opinions regarding difficulties in the business succession process.

YG-One is a mid-sized company where intergenerational technology transfer is taking place through business succession. After the founder established the company in 1981, part of the business was gifted in advance in 2016, and since 2021, the successor has been operating the business as a co-CEO. During the business succession process, sales have grown steadily, and through active overseas market development, exports account for 81% of sales.

Park Yanggyun, Head of Policy at the Korea Federation of Mid-sized Enterprises, requested, "Please consider further easing the requirements for business succession tax deductions, such as abolishing the business maintenance requirement, so that companies inheriting businesses can flexibly respond to rapidly changing industrial conditions." He also asked, "There is concern that companies meeting the sales requirements at the time of gift to apply the special gift tax for business succession may grow and fail to meet the sales requirements at the time of inheritance, thus not receiving the business succession tax deduction. Please additionally review organic linkage measures between the systems."

When children receive stocks or other assets from their parents for business succession purposes, a gift tax is imposed at a rate of 10-20% after a deduction of 500 million KRW within a limit of 10 billion KRW (20% on amounts exceeding 3 billion KRW). At the time of inheritance, the gifted assets are included in the inheritance tax base and settled with inheritance tax. The problem arises when the mid-sized company’s sales were 300 billion KRW at the time of gift, but grew to 500 billion KRW at the time of inheritance, failing to meet the business succession gift tax special sales requirement (less than 400 billion KRW). In this case, the business succession tax deduction cannot be applied, and the inheritance tax base includes the assets, resulting in inheritance tax payment at a maximum rate of 50%.

Regarding this, Vice Minister Bang promised to seek solutions to ease difficulties related to applying business succession tax deductions after partial pre-inheritance succession during the founder’s lifetime. Regarding business type changes, he explained that before complete abolition, the current evaluation review committee can be actively utilized to allow business type changes without restrictions.

Vice Minister Bang emphasized, "We will continue to actively consider the opinions of SMEs and mid-sized companies," adding, "We will resolve on-site difficulties and actively support corporate growth so that SMEs and mid-sized companies can be a strong pillar of our economy."

Earlier, the government announced through the new administration’s tax reform plan that it will significantly ease difficulties related to business succession by expanding the scope and deduction limits of business succession tax deductions for SMEs and mid-sized companies, rationalizing post-management, and supporting continuity, investment expansion, and intergenerational technology transfer. Specifically, for SMEs and mid-sized companies, a preferential corporate tax rate of 10% is applied up to a taxable income of 500 million KRW (current 200 million KRW), and the tax credit for facility investment by mid-sized companies has been expanded, greatly reducing the tax burden.

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