Ministry of SMEs and Startups Establishes Foundation to Revitalize Family Business Succession in SMEs This Year

Expansion of Special Taxation Measures for Business Succession Deduction and Gift Tax

The Ministry of SMEs and Startups announced on the 27th that it has significantly expanded special tax treatments for business succession inheritance deductions and gift tax exemptions this year to establish a foundation for revitalizing business succession.

From the beginning of this year, the target for business succession was expanded from companies with sales under 400 billion KRW to those under 500 billion KRW, and the inheritance deduction limit was raised from 50 billion KRW to 60 billion KRW. The gift tax exemption limit was also increased to 60 billion KRW. The low-rate gift tax bracket was expanded from 10% for amounts up to 3 billion KRW to 10% for amounts up to 6 billion KRW. These significant improvements in inheritance and gift tax special treatments are evaluated to have reduced the tax burden during business succession.

Additionally, a tax law amendment bill is currently under review in the National Assembly, which includes further raising the low-rate gift tax bracket from 6 billion KRW to 12 billion KRW and extending the installment payment period for gift tax (annual installment payment) from 5 years to 15 years.

The Ministry of SMEs and Startups provides education and consulting to business owners wishing to succeed their businesses so that small and medium enterprises can utilize these systems and smoothly prepare for business succession. They have also distributed tax explanations and casebooks.

According to research by the Korea Institute for Startup & Entrepreneurship Development, the aging of the first generation of small and medium enterprise founders, who have driven South Korea's economic growth, is progressing rapidly. Among SME CEOs, 23.8% are aged 60 or older, and there are as many as 25,000 SME CEOs aged 70 or older. The institute predicts that if smooth succession is not achieved, approximately 325,000 businesses are expected to close over the next 10 years, resulting in 3.07 million job losses and an estimated sales loss of about 794 trillion KRW, causing significant economic and social damage to the nation.

There is a growing opinion that it is preferable in the long term to alleviate tax burdens to activate investment and expand employment rather than having business succession companies slow down growth or close due to excessive inheritance tax burdens.

A survey by the Korea Federation of SMEs also showed that as the business age increases, corporate tax-paying capacity can increase up to 32 times, employment creation ability grows 11 times, and sales and assets surge, thereby enhancing the economic and social value of companies.

Minister Lee Young of the Ministry of SMEs and Startups stated, "With the foundation for revitalizing business succession established, it is expected that the utilization of business succession will significantly increase in the future. Maintaining business continuity leads to long-lived companies, which in turn promotes new investments and job creation, greatly contributing to the national economy."

Minister Lee added, "Going forward, we will make greater efforts to revitalize business succession by improving succession systems, providing education and consulting, and raising awareness so that business succession can take root in the field."

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