The South Korean government has propose to loosen the requirements for SME owners and their children to receive tax benefits when said children inherits the business.

They will be able to receive inheritance tax deductions of up to 50 billion won (US$42.3 million) as long as the new generation runs the company for seven straight years after taking over. This has been reduced from a previous requirement of more than 10 years for SMEs with annual sales of less than 300 billion won.

In addition, during the seven years of require operations, the next generation inheriting the SMEs from their parents will not face restrictions with regards to how the business is run or in terms of workforce. The core business can be changed and a flexible workforce can be maintained.

For example, a company that manufactures gears can now branch out into making and selling mechanical watches or start any sort of related business. This was previously prohibited and the company was also required to maintain the same exact number of employees after inheriting the SMEs.

In a meeting with the ruling Democratic Party of Korea at the National Assembly, Finance Minister Hong Nam-ki said the change is aimed at helping SMEs become sustainable in the long term. He added the proposed change reflects global market trends and demand ahead of the Fourth Industrial Revolution.

“This will enable the new generation to manage their SMEs more stably and competitively”, Hong said.

The finance ministry will not change the deductible or inheritance tax rates because it wants to block misuse of the system.

The maximum inheritance tax rate is 65 percent on people who inherited assets worth more than 3 billion won after adding a premium management rate of 10 percent to 30 percent. The finance ministry said it will continue to discuss the proposal at the National Assembly this month.