SMEs Are Aging... Reducing Succession Tax Burden to Boost Investment and Employment

A survey on anticipated challenges in the corporate succession process. (Source: Korea Federation of SMEs)

[Asia Economy Reporter Donghyun Choi] As the business longevity of companies increases, their management performance improves, but the aging of representatives also becomes more serious.

The Korea Federation of Small and Medium Business (Kbiz) announced on the 5th the results of the ‘2022 SME Business Succession Survey’ conducted on 600 SMEs with over 10 years of business longevity, and the ‘Business Succession DB Analysis Service’ which refined and analyzed data from 2,795,436 companies.

According to the survey, among companies with over 30 years of business longevity, 80.9% of representatives are aged 60 or older, and 30.5% are 70 or older. Excluding founders, 78.4% of SMEs with over 10 years of business longevity are managed by family members as representatives, indicating that the majority continue business management through family.

More than half (52.6%) responded that if business succession does not occur, they have closed or sold the business or are considering such options. This suggests that succession is a very important issue for business continuity.

Also, companies that have completed succession to the second generation showed improved management performance in more areas compared to those whose performance worsened. Regarding anticipated difficulties in the succession process, companies pointed out ‘concerns about huge tax burdens’ (76.3%), ‘lack of government policies related to business succession’ (28.5%), and ‘absence of proper management education for successors’ (26.4%).

Business owners stated that since tax burden is the biggest expected difficulty in business succession, if the system is improved to alleviate tax burdens, they would expand investment with the reduced tax burden. They expected that tax burden relief would not only activate business succession but also create a virtuous cycle by expanding investment and employment. The areas where reinvestment intentions were highest included ‘facility investment’ at 49.5%, ‘research and development (R&D)’ at 21.6%, and ‘new workforce recruitment’ at 17.0%.

Yang Chan-hoe, Head of Innovation Growth Division at Kbiz, said, “Companies that have operated for a long time are resilient businesses that have overcome numerous crises and are valuable assets to our society. Recently, a government tax reform bill including improvements to the business succession system was proposed in the National Assembly. We hope for active responses from the National Assembly and government so that companies can innovate and continue active investment through timely generational change.”

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