From the 21st, the graduation deferral period for small and medium-sized enterprises extended from 3 years to 5 years

Grace Period is 5 Years Even if Grace Companies are Absorbed by Merger
No Grace Period When Including Large Conglomerate Affiliates

Starting from the 21st, the grace period for graduating from small and medium-sized enterprises (SMEs) will be extended from 3 years to 5 years. Even when an SME absorbs and merges with a company under the grace period, the grace period will be 5 years.

Minister Oh Young-joo of the Ministry of SMEs and Startups
[Photo by Yonhap News]

Oh Young-joo, Minister of the Ministry of SMEs and Startups, announced that the partial amendment to the Enforcement Decree of the Framework Act on Small and Medium Enterprises containing this content was approved at the Cabinet meeting on the 13th.

The "SME Graduation Grace System" allows a company to be considered an SME for a certain period even if it exceeds the SME size criteria due to sales expansion, etc. This system incentivizes SMEs to leap forward and stabilize as mid-sized enterprises by allowing them to continue participating in SME support benefits such as public procurement, finance, manpower, and tax benefits. Since its introduction in 1982, the grace period has remained 3 years, but there have been ongoing voices from SMEs in the field that an extension is necessary for successful stabilization as mid-sized enterprises.

Accordingly, the Ministry of SMEs and Startups promoted the extension of the SME grace period as a national agenda and amended the Framework Act on Small and Medium Enterprises, which is the legal basis. As a follow-up procedure, the amendment to the Enforcement Decree of the Framework Act on Small and Medium Enterprises was approved at the Cabinet meeting and is scheduled to take effect from the 21st.

After the effective date, the grace period applied when an SME no longer qualifies as an SME due to scale expansion, etc., will be extended from 3 years to 5 years. In addition, even if an SME absorbs and merges with a company under the graduation grace period, the grace period inherited by the merged company will be extended from 3 years to 5 years.

However, when an SME is excluded from the SME category by being included in a large enterprise affiliate, it will be excluded from SMEs without a grace period. Also, if a company that exceeded the SME criteria and was granted a grace period later becomes an SME again due to a reduction in scale, and then exceeds the SME criteria again, it will be excluded from the SME grace target.

Minister Oh said, "To alleviate the 'Peter Pan Syndrome,' where companies wish to return to being SMEs after entering mid-sized enterprises, the existing 3-year grace period has been extended to 5 years," and added, "The Ministry of SMEs and Startups will continue to prepare effective policies for SMEs to grow into mid-sized enterprises and strengthen the corporate growth ladder."