Kim Byung-kuk, executive director at the Samjong KPMG Family Business Succession Support Center, said on the 26th that the "requirement of serving as representative director" is becoming an important condition for using the special gift tax regime for family business succession, adding that "it is necessary to meet the requirement in advance."
On the morning of the 26th, Kim gave a presentation on family business succession strategies at the "SME AX Leaders Forum," hosted by the ChosunBiz, an economics-focused media outlet under the Chosun Media Group, at the Shilla Hotel in Jangchung-dong, Seoul. He explained how to use the special gift tax regime for family business succession.
The special gift tax regime for family business succession is a system under which a manager plans a preemptive transfer. The government has overhauled related systems and offers various benefits, including easing the burden of gift and inheritance taxes and deferrals of payment, to support smooth family business succession at small and midsize enterprises. Using the special gift tax regime for family business succession can also prevent the harm of transferring an enterprise to a third party due to tax burdens.
If you use the special gift tax regime for family business succession, a low tax rate of 0% to 10% applies to gifted assets of 13 billion won. The partitioning payment period reaches 15 years. In the case of ordinary gifts, the same scale of assets is taxed at 10% to 50%, and the partitioning payment period is relatively short at five years. When gifting family business shares, gift tax is imposed at a low rate of 10% after a 1 billion won deduction, up to a limit of 60 billion won.
Kim emphasized that the "requirement of serving as representative director" has emerged as the core of the special gift tax regime for family business succession. As related rules changed at the end of last year, the requirement of serving as representative director must be met to use the special gift tax regime for family business succession.
Specifically, the parent must be ▲ age 60 or older, and ▲ have served as representative director for more than 50% of the period of operating the family business, or have maintained the representative position for at least five of the past 10 years retroactive to the gift date. If the representative director requirement is not met, tax benefits disappear and a tax rate of up to 50% may apply.
Kim said, "Among the companies that sought to make gifts to their children this year, there were cases where other matters were fine but they could not use the system because of the requirement of serving as representative director."
He added, "If you are considering a gift, it is better to meet the requirement, and the representative director does not have to be sole," adding, "Even if you maintain the status of co-representative or individually authorized representative, you can meet the requirement."
He also suggested that an inheritance plan should be devised in advance. This is because when gifting family business shares, the special family business gift regime does not apply to the entire gift amount; only the portion accounted for by "business-related assets" is subject to the preferential 10% rate.
Kim also said, "For efficient succession, assets unrelated to the business should be handled through mergers, partitioning, or sales before the gift," adding, "The ratio accounted for by business-related assets should be increased."