This content reflects the latest laws and regulations as of the date of writing. Tax benefits vary depending on the facts of each company, so expert review is required before actually applying.
To be honest, at first I didn’t even know what family business succession was.
My husband is the owner of a small business, and he said he was getting old enough to think about handing over the company to his children. “Then shouldn’t I just go to a lawyer or a tax accountant?” I did it. But when I started researching, I came across a place called , the Korea Family Business Succession Association, and my thoughts changed a lot.
What we were mistaken about at first
We only thought that family business succession = tax issue.
“How much family business inheritance deduction can I receive?” I just asked this. But Dr. Bongsu Kim of the Korea Family Business Succession Association said this.
“Rather than whether you can receive the family business inheritance deduction, the priority is whether you can comply with the requirements for industry, shares, employment, assets, and representative for five years after receiving the deduction.”
That was the first time I realized that if you miss follow-up management requirements while trying to reduce taxes, the expected tax benefits can actually turn into a burden.
Did you understand the family business inheritance deduction correctly?
If the requirements are met, the family business inheritance deduction can be applied up to a maximum of 60 billion won in and .
But this isn't the end. Even after receiving the deduction, you must follow the follow-up management requirements. Maintaining the industry, maintaining shares, maintaining employment, maintaining assets, and even representative requirements.
As the doctor puts it, “Survival is more important than survival.” This means that you need to first check whether you actually have the financial resources to pay and whether operating funds are secured for at least six months.
Special gift tax exemption, which you must know if you are thinking about passing on the property during your lifetime
We also considered passing it on during our lifetime rather than inheriting it.
Current Based on Article 30-6 of the Restriction of Special Taxation Act , the special taxation of gift tax for family business succession is as follows:
- Tax base after deduction of KRW 1 billion Up to KRW 12 billion, 10%
- Above KRW 12 billion, 20% special tax rate applies
- Donor requirements: 60 years or older, family business operated for 10 years or more
- Done requirements: 18 years or older Children
- The limit depends on the length of time the family business has been in operation. 30 billion, 40 billion, 60 billion won
This is not just about the tax rate. During the post-management period 5 years , the donee must engage in the family business until the gift tax reporting deadline, take office as CEO within 3 years from the date of gift, and remain CEO for 5 years .He said that it is not possible to suspend or close a family business, and that the main industry and shareholding requirements must also be checked.
Handing over the shares did not mean that management rights were transferred.
I really didn't know this part.
The doctor said this.
“Equity ratio is a number, and management rights are a structure.”
Even if the shares are handed over, there are cases where the successor is unable to make substantive decisions due to the composition of the board of directors, the method of operating the general shareholders' meeting, financial institution collateral conditions, and agreements between shareholders. He said we need to look at the articles of incorporation, contracts between shareholders, status of friendly shareholders, potential opposing shareholders, and shares of affiliated companies.
It wasn't a matter that could just end with "the stocks were handed over."
They say you need to plan your child's education for 3 to 5 years.
My child is my successor, but I thought I could just come to the company and learn.
But what the doctor said was different.
"Successors must receive a role before receiving a stake, and must be verified before receiving a role."
The organization does not accept successors just because they are family. You said that “transfer of legitimacy” can only occur when there is documentation of performance in any of the following areas: sales, production, finance, human resources, or strategy. The doctor said that this should be designed as an action plan for 3 to 5 years.
In conclusion
Until I received this consultation, I only thought of family business succession as a process to reduce taxes.
But when I actually prepared it, I found out that everything from liquidity check, follow-up management simulation, governance structure maintenance, successor training design, and family agreement were all connected. It's a much bigger picture than taxes.
I still remember what the doctor emphasized.
"Family business succession is not a process of receiving tax benefits, but a management system design that ensures that the business will continue to function for the next generation."
For those who are preparing, please start before it is too late.
Source: Korea Family Business Succession Association , Korea Family Business Succession Association Blog , Korea Family Business Succession Association Blog2
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