SMEs' 'Graduation Deferral' Extended to 5 Years... Support for Market Settlement

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The ‘graduation deferral period’ for small and medium-sized enterprises (SMEs) will be extended from the existing 3 years to 5 years. This is expected to help SMEs on the verge of entering the mid-sized enterprise stage to stabilize their position in the market.

Oh Young-joo, Minister of SMEs and Startups, is delivering a greeting at the '2024 SME Policy Meeting' held on the 24th at the Korea Federation of SMEs in Yeongdeungpo-gu, Seoul.
[Photo by Yonhap News]

The Ministry of SMEs and Startups announced on the 13th that it approved an amendment to the Framework Act on Small and Medium Enterprises to extend the graduation deferral period for SMEs to 5 years at the Cabinet meeting. The amendment will be promulgated on the 20th and come into effect six months later.

The SME graduation deferral system was introduced in 1982 to support companies in maintaining and growing their size continuously. Even if a company’s sales exceed the SME criteria, it is considered an SME for a certain period to receive government support and benefits. The deferral period applies only once initially. The SME criteria are an average sales over 3 years within the industry-specific standard (40 billion to 150 billion KRW) and total assets under 500 billion KRW.

The number of companies graduating from SMEs to mid-sized enterprises has been increasing annually: 123 companies in 2018, 242 in 2019, 394 in 2020, and 467 in 2021.

However, some mid-sized enterprises face difficulties such as reduced tax benefits and are either returning to SME status or considering doing so. The number of companies reverting from mid-sized enterprises to SMEs due to sales decline reaches 60 to 90 annually. According to the 2021 Mid-sized Enterprise Survey, 341 companies, accounting for 6.2% of all mid-sized enterprises, responded that they are ‘considering returning to SME status.’ This trend is especially concentrated in the first and second years as a mid-sized enterprise. Among 243 companies that reverted to SMEs due to sales decline from 2019 to 2021, 135 companies (56%) were in their first or second year as mid-sized enterprises. Accordingly, the Ministry of SMEs and Startups has promoted the extension of the graduation deferral period as a national agenda to help newly graduated SMEs settle as mid-sized enterprises.

With this amendment to the Framework Act on Small and Medium Enterprises, companies in their first and second years as mid-sized enterprises will also be granted the graduation deferral period. During the additional 2-year deferral period, they can participate in public procurement of SME products, financial and human resource support policies, and more.

Following this year’s economic policy direction, the Ministry of SMEs and Startups plans to collaborate with related ministries to revise the Enforcement Decree of the Restriction of Special Taxation Act to ensure that tax support continues during the graduation deferral period. To alleviate concerns about a sharp decline in support policies and strengthened regulations after mid-sized enterprise growth, the ministry will also review institutional improvement measures.

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