SMBA says "Yoon Administration's Tax Reform Plan Positive for SME Business Succession"

Tax Benefits for 'Jeung-yeo' Raised to Same Level as 'Sangsok'... Resolving Policy Mismatch in Demand

[Image source=Yonhap News]

[Asia Economy Reporter Kwak Minjae] The Korea Institute of Startup and Entrepreneurship Development (KISED) evaluated the government's 2022 tax reform plan as positive for the succession of family businesses in small and medium-sized enterprises (SMEs). KISED announced on the 20th through the report titled "Key Issues in SME Family Business Succession and Implications of the 2022 Tax Reform Plan" that "the 2022 tax reform plan has significantly relaxed various requirements related to family business succession, which had previously lacked effectiveness."

According to the report, the 2022 tax reform plan raised the deduction limit for both the family business inheritance deduction and the special taxation for gift tax on business succession up to a maximum of 100 billion KRW. The major shareholder equity requirement was eased from 50% to 40%, the post-management period was reduced from 7 years to 5 years, and a new system was introduced allowing SMEs to defer payment of inheritance and gift taxes until the family business succession continues.

Choi Se-kyung, a research fellow at KISED, evaluated, "The government's tax reform plan this time raised the tax benefits of 'gifts,' a family business succession method preferred by SMEs, to the same level as 'inheritance,' resolving the mismatch between demand and policy."

She added, "The deferral system for inheritance and gift tax payments on family business succession is a tax special case applied only to SMEs, which not only allows them to secure ownership and management rights separately but also significantly relaxes employment maintenance requirements, providing great help for family business succession in SMEs."

KISED argued that even if the 2022 tax reform plan is legislated, the need for additional institutional improvements still remains. They mentioned that requirements such as ▲ maintenance of management rights by heirs and donees ▲ restrictions on business type changes ▲ prohibition of asset disposal ▲ exclusion of sole proprietors need to be eased or abolished in the future, and that support policies such as tax and management consulting and policy funds for SME family business succession should also be considered.