[Hard for Small Businesses] ① "Giving Up Business Succession Due to Fear of Inheritance Tax"

Surtax Rate Hits 60%, 'World's Highest'
"Should View as Business Succession, Not Wealth Inheritance"

Due to the burden of the world's highest inheritance tax rates, domestic manufacturing small and medium-sized enterprise owners are increasingly giving up on business succession. Photo by Getty Images

[Asia Economy Reporter Kim Heeyoon] "Succession in small and medium-sized enterprises is not about the inheritance of wealth but rather about passing the baton of the business. I dreamed of a 100-year company, but these days, I feel sorry for my son and wonder if it might be better to sell the company and live comfortably in the countryside."

Kim Jonghyun, CEO of Seck, a company specializing in industrial X-ray, is a first-generation entrepreneur who has been contemplating business succession from various angles for several years. Seck, which has 170 employees, is growing alongside the increasing demand for advanced inspection equipment driven by the semiconductor industry and recently the electric vehicle battery industry. However, CEO Kim said, "I worry whether I can smoothly pass on a company that is growing bigger and bigger."

Currently, the highest inheritance tax rate in Korea is 50%, the second highest among OECD countries after Japan (55%). When the largest shareholder of a company inherits shares, a 20% surcharge is applied, making the effective top rate 60%, which is practically the highest in the world. In contrast, foreign countries recognize that the burden of inheritance tax hinders corporate investment activities and job creation, and are introducing special measures or abolishing/reducing inheritance and gift taxes. For example, Sweden once had a top inheritance tax rate of 70%, but as large companies including IKEA could not bear it and moved overseas, the inheritance tax was abolished.

After graduating from high school, CEO Kim started his career at Samsung Electronics. As a second-year employee, he competed in the International Skills Olympics held in Austria and won a gold medal in mechanical drafting, proving his skills as an engineer. He founded the company in 1991 with four juniors based on automation machine design technology, and his son has also joined the company following in his father's footsteps as an engineer.

CEO Kim said he became disheartened by the high tax rates while preparing for retirement and looking into inheritance requirements a few years ago. He appealed, "Recently, the requirements related to business succession tax benefits have been strengthened, increasing the burden on small and medium-sized enterprises. Assets necessary for employment, such as factories, land, and machinery facilities, should be exempt from inheritance or gift tax. At such high rates as now, rather than passing the company on, I have no choice but to work until I die because I founded it or to sell the company."