Mid-sized Companies Call for Review to Lower Top Inheritance Tax Rate to 30%

KFME Submits "2025 Tax Policy Proposals from the Mid-sized Business Sector" to Ministry of Economy and Finance

To overcome the economic crisis, the mid-sized business sector has expressed the opinion that the sustainability and stability of corporate management must be strengthened through progressive institutional improvements, such as lowering the top inheritance tax rate to 30%.

On the 7th, the Korea Federation of Mid-sized Enterprises (KFME) announced this through the "2025 Tax Policy Proposals from the Mid-sized Business Sector" submitted to the Ministry of Economy and Finance. The proposal includes the content that “the inheritance tax top rate reduction, which was pursued for the first time in 25 years but failed to pass the National Assembly at the end of last year, should be actively reconsidered, along with lowering the gift tax to 30% and abolishing the premium valuation on shares held by major shareholders, thereby improving the inheritance and gift tax system to the level of OECD advanced countries.”

According to KFME, Korea’s inheritance and gift tax ranks second among OECD countries, but when applying the premium valuation on shares held by major shareholders, the effective top tax rate is 60%, the highest. The business succession deduction system has limited applicable industries and low deduction limits, resulting in minimal utilization. Choi Jin-sik, who was confirmed for a second term as chairman of KFME in February, emphasized improving the inheritance and gift tax system as the top priority for his second term, as the best solution to enhance economic vitality, which is the foundation for sustainable corporate growth. Chairman Choi stated, “Setting aside all political calculations, we must pool everyone’s wisdom to enhance the competitiveness of companies, which are the core of national wealth creation.”

The mid-sized business sector also emphasized the need to raise the income tax bracket thresholds and introduce an inflation indexation system to increase disposable income for workers, thereby promoting livelihood recovery, consumption activation, and work efficiency. KFME said, “Although the income tax bracket for incomes under 50 million won was partially adjusted in 2022 for the first time in 17 years, the upper brackets remained unchanged, failing to adequately reflect changes such as economic expansion and inflation,” adding, “Many workers are experiencing a practical ‘tax increase’ where nominal income rises but real income actually decreases, and this absurdity must be urgently addressed.”

In addition, this tax policy proposal from the mid-sized business sector includes new tasks such as expanding integrated employment tax credit support for mid-sized companies outside the metropolitan area and establishing tax incentives to promote shareholder returns. It consists of 29 improvement tasks across six laws, including the “Inheritance and Gift Tax Act,” “Income Tax Act,” and “Restriction of Special Taxation Act.” In particular, KFME emphasized that since the technological capabilities of mid-sized companies across all industrial sectors are a key condition for long-term national competitiveness, the R&D tax credit rate for mid-sized companies with more than six years of operation, which account for 51.8% of all mid-sized companies, should be raised from 8% to 10%, and the general facility investment tax credit rate for integrated investment tax credits for companies with more than four years of operation should be increased from 5% to 7.5%, thereby driving more continuous and active investment.

Lee Ho-jun, Executive Vice Chairman of KFME, said, “Unlike major OECD countries such as Sweden and Canada that abolished inheritance tax, Korea introduced premium valuation on shares held by major shareholders in 1992 and raised the top tax rate to 50% in 2000, so it is time to carefully examine the validity of these policies,” adding, “To effectively respond to the severely deteriorated domestic and international environment, including the tough policy stance of the second Trump administration, it is necessary to thoroughly review and boldly improve the inheritance and gift tax system as well as investment tax support systems such as R&D, thereby rapidly enhancing corporate management stability and innovation capabilities.”