[2024 Tax Revision] Mid-sized Company Criteria Change... Unified Standard for Over 300 Billion KRW Revenue Abolished

The tax law, which previously defined medium-sized enterprises as those with sales exceeding 300 billion KRW regardless of industry, is becoming more refined. Reflecting the different sales criteria applied to small and medium-sized enterprises (SMEs) by industry, a company will now be considered a medium-sized enterprise if its sales exceed three times the industry-specific SME standard. Benefits for business succession tax deductions will also be significantly expanded. From now on, all SMEs and medium-sized enterprises will be eligible for deduction benefits. In particular, companies that have 'value-up' their corporate value or are outstanding 'scale-up' companies will see their deduction limits doubled compared to the current levels, and companies that relocate or start up in Opportunity Development Zones will receive unlimited deductions.

On the 25th, the Ministry of Economy and Finance held a Tax System Development Committee meeting and announced the '2024 Tax Law Amendment Plan' containing these details. The ministry decided to define the size criteria for medium-sized enterprises as three times the SME standards by industry, considering the characteristics of each industry. Under the current law, medium-sized enterprises are defined without industry distinction as those with an average sales of 300 billion KRW over the past three years or less than 500 billion KRW when applying the R&D tax credit. With the uniform 300 billion KRW rule removed, companies with the same sales may now be classified as SMEs or medium-sized enterprises depending on their industry.

Currently, SMEs are defined by different sales criteria depending on the industry. For example, apparel manufacturing and primary metal manufacturing industries have a threshold of 150 billion KRW, food manufacturing and construction industries 100 billion KRW, transportation and warehousing and information and communication industries 80 billion KRW, health and social welfare industries 60 billion KRW, and accommodation, food service, and education services 40 billion KRW. On the other hand, medium-sized enterprises have been uniformly subject to the 300 billion KRW sales criterion regardless of industry, causing fairness issues between industries.

Jung Jeong-hoon, head of the Tax Policy Bureau at the Ministry of Economy and Finance, said, "In manufacturing, a company becomes a medium-sized enterprise if it grows just twice the sales of an SME, but in accommodation and food service industries, sales must exceed seven times to be classified as a medium-sized enterprise." He added, "Due to fairness issues between industries, we adjusted the tax law to set the standard at three times the SME criteria by industry instead of a uniform standard."

From now on, all SMEs and medium-sized enterprises will be eligible for the business succession tax deduction system. Especially, companies that have value-up or are outstanding scale-up companies will have their deduction limits doubled, and companies that relocate or start up in Opportunity Development Zones will receive unlimited deductions.

The current business succession tax deduction allows owners of SMEs and medium-sized enterprises with annual sales under 500 billion KRW to reduce inheritance tax by up to 60 billion KRW when passing the company to heirs such as children. However, if the heirs fail to work in the business for five years after inheritance, dispose of business assets, or reduce employment size, they are subject to inheritance tax reassessment.

Going forward, all SMEs and medium-sized enterprises, except those belonging to mutual investment restricted business groups, will be eligible for deduction benefits. The scope of business assets eligible for tax special treatment will also be expanded. Tax special treatment will apply to employee rental housing and housing loan funds as well.

In particular, value-up or scale-up outstanding companies will have their deduction limits doubled. General companies can receive deductions of 30 billion KRW for business operation periods of 10 to 20 years, 40 billion KRW for 20 to 30 years, and 60 billion KRW for over 30 years. In contrast, these companies can receive deduction benefits of up to 60 billion KRW, 80 billion KRW, and 120 billion KRW, respectively.

Companies that relocate or start up in Opportunity Development Zones will receive unlimited deductions, provided they meet conditions such as the decedent having operated the business for over 10 years. Jung, head of the Tax Policy Bureau, explained, "This tax benefit was given to the Opportunity Development Zones, which the Yoon Suk-yeol administration is very actively promoting from the perspective of regional balanced development."