Korea to relax gift tax rate for SMEs engaged in succession

The South Korean government will allow small- and medium-sized enterprises (SMEs) inheriting family business to pay gift tax over the span of 20 years and expand the scope of special tax rate in a move to entice stable management control.

Under measures announced by the government on Tuesday, it will extend the installment period of gift tax payments to 20 years from the current five years for SMEs inheriting family business. It will also expand the scope of the gift tax rate for family business succession

A basic deduction is applied currently for gifted property values worth 1 billion won ($772,320) or less and a 10 percent tax rate for values between 1 billion and 60 billion won.

If the gift amount is between 60 billion and 600 billion won, however, the tax rate goes up to 20 percent.

The government decided to reduce the burden of gift tax by increasing the range of property values subject to the 10 percent tax rate from 1 billion to 60 billion won to 1 billion to 300 billion won.

Until now, the business community has complained that the procedures for family business succession, such as ones for stock gifting, were excessively complex and that they hinder the transferring of businesses through advance gifting.

The government also plans to allow SMEs that inherit family business to continue to receive benefits from business inheritance deductions even if they change industries so that they can flexibly cope with changes in the industrial structure.

The government also proposed measures to revitalize exports and investments.

To attract companies with national strategic technologies and advanced strategic technologies to Korea, the government will provide tax support of up to 50 percent of the amount of investment by reshoring companies.

The government will provide 26 trillion won in facility investment funds and the Korea Investment Corp. (KIC) will invest 5 billion won in joint investments when local companies acquire overseas high-tech companies through mergers and acquisitions (M&A).

The government will also increase support for the service sector. It will significantly expand the tax credit rate for video content production expenses, which is currently 3 percent for large companies, 7 percent for medium-sized companies, and 10 percent for small companies.

The government is considering raising the tax credit rate to the level of national strategic technology which is 15~25 percent.

The local video industry has raised the need for the government to significantly expand the tax credit rate to protect the local ecosystem from overseas over-the-top (OTT) media service giants such as Netflix Inc.

The tax credit rate for video content production is 25~35 percent in the U.S., 30 percent in France, and 16~40 percent in Australia. In Korea, the rate stands at 3~10 percent.