This photo taken Nov. 21, 2023, shows a port in South Korea’s southern city of Busan. (Image courtesy of Yonhap)
SEOUL, Jan. 29 (Korea Bizwire) – Executives of export companies believe that family business succession is crucial for the sustainability and responsible management of their enterprises.
However, a recent study reveals that due to heavy tax burdens and negative social perceptions, many are contemplating selling or shutting down their businesses.
A report from the Korea International Trade Association based on the results of a survey conducted in December last year among 799 representatives of member companies of the association, most of which were SMEs, shed light on this issue.
A significant 77.3% of the surveyed companies acknowledged the importance of family business succession for the continuity and sustainable management of their businesses, with 57.9% considering it very important and 19.4% important. Only a small fraction viewed it as unimportant.
When asked about having a succession plan, 45.1% responded affirmatively, while 23.8% did not have one, and 31.2% were undecided.
The primary reasons cited for considering succession were the ability to maintain responsible management (46.4%), inheritance of tangible and intangible assets (37.9%), consistency in business management (37.8%), the ability to establish long-term investment plans (28.3%), and the continuation of the entrepreneurial spirit (27.8%).
Conversely, the main deterrents to succession planning were high inheritance and gift taxes (40.2%), challenging business environments (31.8%), consideration of professional third-party management (21.8%), refusal of succession by offspring (10.5%), and contemplation of selling or closing the business (9%).
Tax burdens were identified as a significant barrier to family business succession by 74.3% of respondents. Furthermore, 42.2% admitted to having considered selling or closing their business as an alternative to succession due to tax-related issues.
Despite the Family Business Inheritance Tax Exemption system implemented by the government in 2008, many were unaware of it (37.4%) or had only heard of it (26.5%). Familiarity with the system was relatively low, with only 25.4% having some knowledge and 10.6% being well-informed.
Similarly, awareness of the newly introduced system for deferring inheritance and gift tax payments in cases of business succession was low, with 42.2% unaware of it.
A majority of export company executives (89.1%) believe that a comprehensive law encompassing both tax and non-tax policies is needed to facilitate smooth family business succession, rather than mere improvements to the current legal framework.
The report highlights the significant obstacle posed by high tax rates, with the top nominal rate reaching 50%, and suggests several measures to foster a conducive environment for family business succession.
These include lowering inheritance tax rates, reforming the stock valuation system for majority shareholders, easing requirements for heirs, and relaxing conditions for business succession support systems, aiming to pave the way for companies that can thrive for over a century.
M. H. Lee (mhlee@koreabizwire.com)
