SME Sales Threshold Revised After 10 Years... Amendment to Framework Act Enforcement Decree

Sales Threshold Raised to Up to 180 Billion Won
Expanded Criteria for 12 Small Business Sectors by 500 Million to 2 Billion Won
Special Exception Reinstated for Companies Whose Graduation Grace Period Ends

The Ministry of SMEs and Startups announced on August 26 that the Cabinet has approved a partial amendment to the Enforcement Decree of the Framework Act on Small and Medium Enterprises, which raises the sales threshold for SMEs.

The criteria for determining whether a company qualifies as an SME are based on two factors: scale, such as assets and sales, and independence from affiliates. The sales-based threshold, which is calculated as a three-year average by industry, has remained unchanged for ten years since it was set in 2015. However, voices from the field have called for an increase in the sales threshold, as some companies have lost their SME status due to simple sales growth driven by inflation-such as rapid price increases and soaring production costs since the COVID-19 pandemic-without any real growth in their business.

To adjust the SME sales threshold in a reasonable manner, the Ministry of SMEs and Startups gathered input from industry stakeholders, related ministries, academia, and experts. As a result, the sales criteria for SMEs and certain small business sectors will be raised. Following this decision, the Cabinet approved the amendment to the Enforcement Decree of the Framework Act on Small and Medium Enterprises, which will take effect from September 1. Starting from the fiscal year ending after the effective date, companies with September fiscal year-ends will be assessed for SME status based on the revised sales threshold.

The main points of the amendment are as follows. First, for 16 out of 44 SME sectors, the sales threshold will be raised by 20 billion to 30 billion won compared to the current level. The overall sales range for SMEs will be adjusted from 40 billion to 150 billion won to 40 billion to 180 billion won. For small enterprises, including micro-businesses, the sales threshold for 12 out of 43 sectors will be increased by 500 million to 2 billion won, and the sales range will be adjusted from 1 billion to 12 billion won to 1.5 billion to 14 billion won or less.

Due to the amendment, companies whose SME graduation grace period is interrupted will be granted a special exception for the SME graduation grace system. The SME graduation grace system allows companies that exceed the SME threshold due to sales growth to be considered SMEs for up to five years, supporting their stable transition to medium-sized enterprises. This exception is granted only once when a company loses its SME status. However, if a company currently under the SME graduation grace system regains SME status due to the raised sales threshold and the grace period ends early, the company will be eligible for the grace period again, only once, if it exceeds the SME threshold in the future.

Han Sung-sook, Minister of SMEs and Startups, stated, "We have raised the threshold to a reasonable level to prevent SME support from being discontinued simply due to sales growth caused by inflation, rather than real business growth," adding, "We will continue to lay the foundation so that SMEs can grow stably and reach greater heights in the future."