[Corporate Growth Ladder] Extending SME Tax Benefits for Mid-sized Companies from 3 to 5 Years

Government Announces Plan to Establish 'Corporate Growth Ladder'

The government will extend the grace period for companies that have grown from small and medium-sized enterprises (SMEs) to mid-sized companies to continue receiving SME tax benefits from 3 years to 5 years. Additionally, an extra 3 years of tax credits will be granted for research and development (R&D) and investments made by early-stage mid-sized companies. This plan aims to restore the "dynamism of the economy," a key direction of this year’s economic policy, by establishing a growth ladder from SMEs to mid-sized companies to large corporations, thereby nurturing more than twice the current number of SMEs into mid-sized companies.

On the 3rd, the Ministry of Economy and Finance announced the first phase of the corporate growth ladder plan at an economic ministers’ meeting chaired by Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok. First, the grace period during which companies exceeding the SME criteria can still receive SME tax benefits will be extended from 3 years to 5 years. Currently, mid-sized companies can enjoy the tax benefits they received as SMEs for up to 3 years after becoming mid-sized companies, but this period will be extended by 2 more years to 5 years. For SMEs listed on stock exchanges such as KOSPI and KOSDAQ, an additional 2-year grace period will be provided to support fundraising and value-up, totaling 7 years of support.

This measure is intended to prevent the so-called "Peter Pan syndrome," where SMEs hesitate to become mid-sized companies due to concerns about increased tax burdens. Through this, the government plans to nurture more than twice the current number of SMEs into mid-sized companies. A Ministry of Economy and Finance official explained, "The sharp reduction in benefits such as tax credits and financial support when SMEs grow into mid-sized companies acts as a growth deterrent. The return on assets (ROA) of upper-tier SMEs is significantly higher than that of mid-sized and large companies, so rapid growth is possible if sufficient investment is supported."

The government plans to grant high R&D and investment tax credit benefits for the first 3 years even after graduating from SME status and entering mid-sized company status through an amendment to the Enforcement Decree of the Restriction of Special Taxation Act in the first half of this year. This is to narrow the steep difference in tax credit rates between SMEs and mid-sized companies in key tax credit categories such as R&D and facility investment. For example, if Company A, which exceeds the SME criteria this year, continuously invests 20 billion KRW annually in R&D in new growth and core technology fields and 10 billion KRW in facility investment for 10 years, it can enjoy a total tax burden reduction effect of 9.1 billion KRW over 5 years.

Support for market expansion for early-stage mid-sized companies will also be expanded. Participation of mid-sized companies will be allowed for two years (2025?2026) in the pilot purchase project for innovative products in new growth industry sectors, with improvements to be made based on participation results. New growth industry sectors include next-generation mobility, aerospace, quantum technology, advanced medical care, artificial intelligence (AI), and next-generation logistics. Not only goods but also services will be allowed for mid-sized companies to participate in the public procurement market in a win-win cooperation form with SMEs.

Furthermore, employment promotion subsidies for all mid-sized companies will be expanded to the SME level. Employment promotion subsidies provide 7.2 million KRW annually per eligible employee to employers who hire the designated workers for more than 6 months. Currently, 7.2 million KRW is supported only for SMEs and some companies such as manufacturing with fewer than 500 regular employees, while large companies receive 3.6 million KRW. Now, mid-sized companies will also receive 7.2 million KRW in employment promotion subsidies. In addition, the corporate vocational training card program will be restructured to provide differentiated support of 1 to 3 million KRW depending on company size for all training courses, and the cash burden ratio for early-stage mid-sized companies with sales under 300 billion KRW participating in government R&D will be eased to the SME level.

Besides this measure, industry-specific scale-up plans for semiconductors, used batteries, and others will be announced within this month, and plans to revitalize venture investment will be announced in the third quarter.

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