[미룰 수 없는 숙제, 상속세 개편]
Korea is lagging behind
‘Gifts by trick’ often due to high tax rates
Family business inheritance deduction, a barrier to innovation
Concerns about business closures… KRW 800 trillion time bomb
The CEO of Watos Korea Song Gong-seok, whom we met on the 27th of last month, explains the business plan in front of the company’s products. Incheon = Reporter Byun Tae-seop
“I hope that the company we worked hard to grow can pave the way for us to contribute to society with honor. “Now, the situation actually encourages ‘trickery’.”
Watos Korea CEO Song Gong-seok (73), who has been thinking about a succession since 2013, which is the 40th anniversary of the company’s founding, has not yet been able to give up his position as CEO. This is because the gift tax burden is large. Korea’s inheritance and gift tax rate is the second highest among Organization for Economic Co-operation and Development (OECD) member countries after Japan (55%). If the amount of the inheritance or donation exceeds 3 billion won, a tax rate of 50% is applied. If paid in stock, an additional premium of 20% is applied to the shares held by the largest shareholder. This means that 60% of the shares to be transferred must be paid down in taxes.
Highest inheritance and gift tax rates in major countries. Graphics = Reporter Kim Moon-joong
CEO Song said when we met at the Gyeyang-gu office in Incheon on the 27th of last month. “My share is 50.7%. If you pay gift tax with stocks, only about 20% of the shares will be transferred. “I find myself in a contradictory situation where I am losing the management rights of a company that I worked hard to build for over 50 years through a gift.”
Watos Korea is a company that began as Namyoung Industrial Company, founded by CEO Song, who was born in 1952, in his early 20s. Living alone in Dapsimni, Dongdaemun-gu, Seoul, he built a company with annual sales of 18 billion won with 50,000 won borrowed from a neighbor. The company has focused on manufacturing and selling accessories for toilets, toilets and wash basins, and currently has a 70% domestic market share. Joined KOSDAQ in 2005.
Estimated amount of gift tax payment by Song Gong-seok, CEO of Watos Korea. Graphics = Reporter Shin Dong-meh
Because the burden of inheritance tax is great, some bypass giftLet’s go to After establishing another company in the name of the child who will inherit or gift the company, they use all their abilities to grow the company, and then reduce the size of the original company. CEO Song pointed out, “Killing an existing stable company and growing a new one is in itself a huge social loss,” and added, “The company, the workers, and the country are all play a losing game.”
Alternatives to choose when an inheritance or gift is not possible Mergers and Acquisitions (M&A)in. Hanssem, No.1 in the domestic furniture industry, as well as Three Seven and Unidus, was sold to private equity funds due to the burden of inheritance tax. In this process, there were many cases where technical and management knowledge accumulated over decades was lost and workers could not even be maintained.
Yeo Sang-hoon (39), head of the management innovation department at Big Dream, an office supplies manufacturer, said, “Eventually, the small business that produced water purifier filters that my acquaintance’s father ran was sold due to the burden of inheritance tax, but the private equity fund that acquired the company eventually closed because of the unreasonable drive to secure high profits in the short term.” . The only way out for M&A-blocked SMEs, the last resort, is shut downJust that.
The government also recognized this problem, Family business inheritance deduction for small and medium-sized businessesis operating. The inheritance tax burden is reduced by applying a low tax rate of 10%. However, there are clear limitations. Director Yeo said, “After receiving the family business inheritance deduction, the criteria such as maintaining employment and share ratio during the subsequent management period (5 years) and restrictions on changes in industry are strict, so it is not realistic. “
Big Dream, founded by his father in 1999, began as a distributor of stationery and office supplies. In 2006, when Wal-Mart, a major customer, withdrew from Korea and suffered fraud losses, Director Yeo quit his job at a public organization and went into management. He founded the company by targeting the online market and a new science education business. Sales rose from 1.3 billion won in 2014 to 6.9 billion won in 2022. The number of employees increased tenfold from two. Director Yeo said, “I’m at a loss as to how to raise the gift tax,” but added, “I’m not thinking of taking the family business inheritance deduction.”
Yeo Sang-hoon, second-generation founder and head of Big Dream’s management innovation department, explains the expansion of the science educational equipment business in an interview with this newspaper at the Seongnam office, Gyeonggi Province, on the 26th . from last month. Seongnam = Reporter Yuji Lee
This is because it can actually hinder you in expanding your business. “If you receive a family business inheritance deduction and you don’t meet the requirements for a change of industry, you will also have to pay a significant amount of interest. “It’s natural to change industries in a rapidly changing business environment, but being buried in the term ‘family business’ actually stifles innovation capabilities.” The current system allows the industry to be changed only within major categories such as manufacturing, construction, distribution, and agriculture in the standard industrial classification table during the subsequent management period. This means that agricultural companies should not switch to a distribution business. The fact that only 110 cases (as of 2021) used the family business inheritance deduction among hundreds of thousands of SMEs is not irrelevant to the strict standards.
Deductible consumption performance of family business inheritance. Graphics = Reporter Kim Moon-joong
High inheritance and gift tax rates and an ineffective succession support system delay generational change. According to the ‘SME Family Business Succession Survey 2022’ conducted by the Korea Federation of Small and Medium Businesses on 600 SMEs, 80.9% of the companies established more than 30 years ago had representatives over 60 years . of age. This means that the majority of the first generation of entrepreneurs have started to retire.
The longer the inheritance and gift tax reform is delayed, the more likely it is that the accumulation problem will act as a ticking time bomb for Korean society. Previously, in 2021, the SME Research Institute predicted that 325,000 SMEs will disappear over the next 10 years if smooth corporate succession is not achieved. He added that there were concerns about an economic shock, including 3.07 million people out of work and 794 trillion won in lost sales.
Employment capacity index by company experience. Graphics = Reporter Kim Moon-joong
CEO Song said, “As far as small and medium-sized companies are concerned, the system needs to be improved so that the successor can make a profit and pay inheritance and gift taxes.” He added, “I’m asking you to do that. continue to invest and provide a foundation for the company to continue to grow.” “It doesn’t mean I won’t pay inheritance or gift tax,” he said.
[미룰 수 없는 숙제, 상속세 개편] Mail order
<상> Developed countries took the lead
<중> Korea is lagging behind
<하> How to reorganize
Sejong = Taeseop Byun Reporter libertas@hankookilbo.com
Sejong = Reason Reporter maintain@hankookilbo.com
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