Article 15(Succession to Family Business) #
(1) "Small and medium enterprise prescribed by Presidential Decree" in the former part, with the exception of subparagraphs, of Article 18-2 (1) of the Act means an enterprise that fully meets the following requirements (hereafter in this Article referred to as "small and medium enterprise") as of the end of the taxable period of income tax or the business year of corporate tax immediately preceding the taxable period of income tax or the business year of corporate tax in which the date of commencement of inheritance falls: <Amended on Feb. 7, 2017; Feb. 13, 2018; Feb. 28, 2023>
1. It shall mainly conduct business in the category of business prescribed in the Appendix;
2. It shall meet requirements prescribed in Article 2 (1) 1 and 3 of the Enforcement Decree of the Restriction of Special Taxation Act;
3. Its total assets shall be less than 500 billion won.
(2) "Middle-standing enterprise prescribed by Presidential Decree" in the former part, with the exception of subparagraphs, of Article 18-2 (1) of the Act means an enterprise that fully meets the following requirements (hereinafter referred to as "middle-standing enterprise") as of the end of the taxable period of income tax or the business year of corporate tax immediately preceding the taxable period of income tax or the business year of corporate tax in which the date of commencement of inheritance falls: <Amended on Feb. 7, 2017; Feb. 13, 2018; Feb. 11, 2020; Feb. 15, 2022; Feb. 28, 2023>
1. It shall mainly conduct business in the category of business prescribed in the Appendix;
2. It shall meet requirements prescribed in Article 9 (4) 1 and 3 of the Enforcement Decree of the Restriction of Special Taxation Act;
3. The average amount of its sales (which shall be calculated, as prescribed by Ministerial Decree of the Economy and Finance, and sales for the taxable period of income tax or the business year of corporate tax less than one year means its sales converted for one year) for the three taxable periods of income tax or business years of corporate tax immediately preceding the date of commencement of inheritance shall be less than 500 billion won.
(3) Succession to a family business under the former part, with the exception of subparagraphs, of Article 18-2 (1) of the Act (hereinafter referred to as "succession to a family business") shall be applicable only where a decedent and an heir meet the following requirements. The same shall not apply where inheritance commences upon the death of the person (excluding the heir who succeeded to a family business) who was the largest stockholder of the largest investor (referring to the largest stockholder or the largest investor prescribed in Article 19 (2); hereinafter referred to as "largest stockholder or investor") as at the time of succession to the family business after such succession was completed: <Amended on Feb. 4, 2009; Feb. 18, 2010; Feb. 15, 2013; Feb. 21, 2014; Feb. 5, 2016; Feb. 7, 2017; Feb. 13, 2018; Feb. 12, 2019; Feb. 15, 2022; Feb. 28, 2023; Feb. 29, 2024>
1. Where the decedent meets all the following requirements:
(a) The decedent is the largest stockholder, etc. of a small and medium enterprise or middle-standing enterprise, who shall own at least 40/100 [where he/she is a corporation listed on the Exchange (hereinafter referred to as "Exchange") prescribed in Article 8-2 (2) of the Financial Investment Services and Capital Markets Act, referring to 20/100] of the total number of outstanding stocks, etc. of the relevant enterprise totaling stocks, etc. of the decedent and persons who have a special relationship with him/her for at least ten consecutive years;
(b) The decedent has been in service as a representative director (referring to a representative in cases of a sole proprietorship; hereafter in this Article, Article 16, and Article 69-3 referred to as "representative director") for any of the following periods during which the family business defined in the former part, with the exception of subparagraphs, of Article 18-2 (1) of the Act (hereinafter referred to as "family business") has been in operation [to add a period during which the decedent has operated a different type of business that belongs to the same sector under the standard classification prepared and publicly announced by the Commissioner of the Statistics Korea?under Article 22 of the Statistics Act (hereinafter referred to as "Korean Standard Industry Classification"), which is any of the types of business specified in the Appendix, by changing his or her main business]:
(i) At least 50/100 of the period;
(ii) A period of at least ten years (limited to cases where the heir has been in service continuously until the date of commencement of inheritance after the heir succeeded to the decedent's position of representative director;
(iii) A period of at least five out of ten years, retrospectively from the date of commencement of inheritance;
2. Where the heir meets all of the following requirements. In such cases, if the spouse of the heir meets all of the following requirements, the heir shall be deemed to meet the requirements):
(a) The heir shall be 18 years or older as of the date of commencement of inheritance;
(b) The heir has directly engaged in the family business for at least two years out of the operation period specified in subparagraph 1 (b) before the date of commencement of inheritance (if the heir has engaged in the family business since two years before the date of commencement of inheritance but was unable to engage in the family business for a certain period during the period until the date of commencement of inheritance retroactively from the first day of the two years before the date of commencement of inheritance due to the ground or event referred to in paragraph (8) 2 (c), the heir shall be deemed to have engaged even during such period); provided, this shall not apply where the decedent dies before he/she attains 65 years of age or dies due to any extenuating circumstance, such as a natural disaster or an accident caused by human error;
(c) The heir shall take office as an executive officer by the deadline for reporting the tax base for inheritance tax;
(d) The heir shall take office as the chief executive officer within two years from the deadline for reporting the tax base for inheritance tax.
(4) In applying paragraph (3), where an ancestor has engaged in at least two independent enterprises as family businesses, the limitations of deduction for the family business succession, the order of deduction, etc. shall be prescribed by Ministerial Decree of the Economy and Finance. <Added on Feb. 5, 2016>
(5) "Value of inherited property on succession to the family business" in the former part, with the exception of the subparagraphs, of Article 18-2 (1) of the Act means the value of the property that the heir who meets all the requirements under paragraph (3) 2 (hereafter in this Article referred to as "heir who succeeds to a family business" in this Article) inherit or will inherit, as determined in the following subparagraphs: <Amended on Feb. 2, 2012; Feb. 21, 2014; Feb. 5, 2016; Feb. 7, 2017; Feb. 13, 2018; Feb. 11, 2020; Feb. 28, 2023>
1. A family business to which the Income Tax Act is applicable: The value calculated by subtracting the amount of debt secured by assets for business purposes, such as land, buildings and machinery, used directly for the family business from the value of the relevant assets;
2. A family business to which the Corporate Tax Act is applicable: The value of stocks, etc. of a corporation that falls within the category of family business [referring to an amount calculated by multiplying the value of relevant stocks, etc. by the ratio of the value of assets exclusive of the following assets (referring to the value assessed in accordance with Chapter IV of the Act as of the date of commencement of inheritance; hereafter in this Article and Article 68 referred to as "assets irrelevant to business") as of the date of commencement of inheritance to total assets of the corporation (referring to the value assessed in accordance with Chapter IV of the Act as of the date of commencement of inheritance)]:
(a) Assets defined in Article 55-2 of the Corporate Tax Act;
(b) Assets defined in Article 49 of the Enforcement Decree of the Corporate Tax Act and real estate leased to other persons (including rights in real estate, such as superficies and rights to lease real estate);
(c) Assets defined in Article 61 (1) 2 of the Enforcement Decree of the Corporate Tax Act;
(d) Excessive cash on hand [referring to where the amount of cash on hand exceeds 150/100 of the average amount of cash on hand at the end of five business years immediately preceding the date of commencement of inheritance (including demand deposits and financial products maturing in not more than three months from the date of acquisition)];
(e) Stocks, etc., bonds, and financial products in possession without any direct connection to business activities of the corporation (excluding those referred to in item (d)).
(6) The value of property other than the inherited property on succession to the family business an heir inherits or is to inherit under Article 18-2 (2) of the Act shall be the amount calculated by subtracting the following amounts from the value of the property which the heir who succeeds to the family business inherits or is to inherit (including donated property which the heir who succeeds to the family business receives from among the donated property to be included in the inherited property pursuant to Article 13 of the Act): <Added on Feb. 13, 2018; Feb. 28, 2023>
1. Amount of a debt proved pursuant to Article 10 (1), which the relevant heir who succeeds to the family business owes;
2. Value of property the heir who succeeds to the family business inherits or is to inherit on succession to a family business according to the classification under the subparagraphs of paragraph (5).
(7) "Amount to be paid by the heir as inheritance tax by the percentage prescribed by Presidential Decree " in 18-2 (2) of the Act means an amount of money calculated by multiplying the amount of inheritance tax the heir who succeeds to the family business is liable to pay, calculated pursuant to Article 3-2 (1) and (2) of the Act, by 200 percent where the heir who succeeds to the family business does not receive a deduction for succession to a family business under paragraph (1) of that Article. <Added on Feb. 13, 2018; Feb. 28, 2023>
(8) "Good cause prescribed by Presidential Decree" in the former part, with the exception of the subparagraphs, of Article 18-2 (5) of the Act means the following: <Amended on Feb. 29, 2008; Feb. 18, 2010; Feb. 2, 2012; Feb. 15, 2013; Feb. 21, 2014; Feb. 5, 2016; Feb. 7, 2017; Feb. 13, 2018; Feb. 12, 2019; Feb. 11, 2020; Feb. 28, 2023>
1. In any of the following cases for purposes of Article 18-2 (5) 1 of the Act:
(a) Where assets for family business defined in paragraph (9) (hereafter in this Article referred to as "assets for family business") are expropriated or sold pursuant to a contract, transferred to the State or a local government, or disposed by way of alteration or replacement of facilities, the relocation of the place of business, etc. prescribed in the Act on Acquisition of and Compensation for Land for Public Works Projects or any other Act; provided, this shall only apply where assets of the same kind as the assets disposed of are acquired as replacement and used continuously for family business;
(b) Where assets for family business are donated to the State or a local government;
(c) Where the heir who succeeds to the family business dies;
(d) Where the ownership of assets is transferred due to reorganization, such as merger, division, consolidation, conversion of a sole proprietorship into a corporation; provided, this shall only apply where the type of business remains unchanged from that before reorganization and the transferred assets for family business are used continuously for the business;
(e) Where assets for family business are disposed of at the end of their useful life;
(f) Where an asset is disposed of in relation to changing the main type of a family business under paragraph (11) 2 and an asset is acquired as replacement to engage in the changed type of business as a family business;
(g) Where gains from disposal of an asset for family business are used as an research and human resources development expense under Article 10 of the Act on Restriction on Special Cases concerning Taxation;
2. In any of the following cases for purposes of Article 18-2 (5) 2 of the Act:
(a) Where the heir who succeeds to the family business is dead;
(b) Where the inherited property on succession to a family business is donated to the State or a local government;
(c) Where a ground or event specified by Ministerial Decree of the Economy and Finance affects the heir, such as the commence of military services under statutes and medical treatment of a disease;
3. In any of the following cases for purposes of Article 18-2 (5) 3 of the Act:
(a) Where stocks, etc. are disposed of in the course of reorganization, such as merger or division; provided, this shall only apply where the heir remains as the largest stockholder or investor of the corporation subsequent to reorganization, such as the merged corporation or the corporation established by division, even after disposal;
(b) Where the heir's share decreases as a result of the allocation of stocks, etc. to persons other than those specially related to the heir when the corporation's capital is increased as a consequence of the expansion of business of the corporation; provided, this shall only apply where the heir is the largest stockholder or investor;
(c) Where the heir dies; provided, this shall only apply where the heir to the deceased person succeeds to the status of the preceding heir and engages in the family business;
(d) Where stocks, etc. are donated to the State or a local government;
(e) Where equity shares are reduced in order to meet the listing requirements prescribed by listing regulations formulated under Article 390 (1) of the Financial Investment Services and Capital Markets Act; provided, this shall only apply where the heir is the largest stockholder or investor;
(f) Where stocks, etc. are reduced equally without any refund at the stock holding ratio or equity share ratio of each stockholder or investor;
(g) Where stocks, etc. are reduced without any refund or debts are swapped for equity pursuant to the court’s ruling under the Debtor Rehabilitation and Bankruptcy Act.
(9) "Property for the family business" in Article 18-2 (5) 1 of the Act means the following: <Amended on Feb. 2, 2012; Feb. 21, 2014; Feb. 5, 2016; Feb. 13, 2018; Feb. 28, 2023>
1. A family business governed by the Income Tax Act: Assets for business purposes, including the land, buildings, and machinery used directly for a family business;
2. A family business governed by the Corporate Tax Act: Fixed assets for business purposes (excluding assets irrelevant to business) used directly for the business of a corporation that amounts to family business.
(10) The ratio of the value prescribed in subparagraph 2 to the value prescribed in subparagraph 1 (hereafter in this Article referred to as "disposal ratio of assets") shall be deemed the disposal ratio of assets for family business. In such cases, where inheritance tax was imposed as Article 18-2 (5) 1 was applicable and inheritance tax is imposed as Article 18-2 (5) 1 is applicable again, the value of the asset previously disposed of is excluded from calculation: <Amended on Feb. 13, 2018; Feb. 12, 2019; Feb. 28, 2023>
1. The value of assets for family business as of the date of commencement of inheritance;
2. The value of assets disposed of (including cases where such assets are not used for business but leased to a third person), out of assets for family business.
(11) Where any of the following is applicable for purposes of Article 18-2 (5) 2 of the Act, the heir is deemed to cease to engage in the family business: <Amended on Feb. 21, 2014; Feb. 3, 2015; Feb. 5, 2016; Feb. 13, 2018; Feb. 11, 2020; Feb. 15, 2022; Feb. 28, 2023; Feb. 29, 2024>
1. Where the heir (or the heir's spouse in cases of the latter part of paragraph (3) 2) does not serve as a representative director;
2. Where the main type of the family business is changed; provided, the following cases are excluded:
(a) Where a type of business is changed within the major category under the Korean Standard Industrial Classification (limited to changing to any of the types of business specified in the Appendix);
(b) Where the change of a type of business is approved after deliberation by the assessment deliberative committee under Article 49-2, other than cases provided in item (a);
3. Where the relevant family business is temporarily closed for at least one year (including cases where the family business has no business performance) or permanently closed.
(12) "Where the equity of the heir ... has decreased" in the main clause of Article 18-2 (5) 3 of the Act shall include any of the following cases: <Amended on Feb. 18, 2010; Feb. 2, 2012; Feb. 13, 2018; Feb. 28, 2023>
1. Where the heir has disposed of stocks, etc. that he/she has inherited;
2. Where the heir’s equity share rate has decreased as his/her right was forfeited, etc. when the relevant corporation increased its capital by issuing new stocks;
3. Where the heir has failed to correspond to the largest shareholder etc. because his/her right has been forfeited, etc. when a person specially related to the heir disposed of stocks, etc. or the relevant corporation increased its capital by issuing new stocks.
(13) "Regular employees prescribed by Presidential Decree" in Article 18-2 (5) 4 (a) of the Act means employees who have signed a contract under the Labor Standards Act; provided, the following persons are excluded: <Added on Feb. 11, 2020; Feb. 28, 2023>
1. Employees if the term of their employment contracts is less than one year (excluding employees if the total term of their employment contracts exceeds one year due to consecutive renewal of their employment contracts:
2. Part-time employees as defined in Article 2 (1) 9 of the Labor Standards Act whose contractual work hours for one month is less than 60 hours;
3. Persons in relation to whom the fact that they have withheld wage and salary tax based on the book for tax withholding for wage and salary income under Article 196 of the Income Tax Act is not verified and the fact that they have paid any of the following is not verified:
(a) Employer contributions and employee contributions as defined in Article 3 (1) 11 and 12 of the National Pension Act;
(b) Insurance contributions for the employee insured under Article 69 of the National Health Insurance Act.
(14) "Amount of total salaries prescribed by Presidential Decree" in Article 18-2 (5) 4 (b) of the Act means an aggregate amount of incomes referred to in Article 20 (1) 1 and 2 of the Income Tax Act that are paid to employees provided in paragraph (13) (excluding any employees falling under Article 26-4 (2) 3 of the Enforcement Decree of the Act on Restriction on Special Cases concerning Taxation, but including employees who fall under that subparagraph during a period for calculating the number of the hired employees). <Added on Feb. 11, 2020; Feb. 28, 2023>
(15) "Percentage prescribed by Presidential Decree" in the former part, with the exception of the subparagraphs, of Article 18-2 (5) of the Act means 100/100. <Amended on Feb. 28, 2023>
(16) "Amount corresponding to interest calculated as prescribed by Presidential Decree" in the latter part, with the exception of the subparagraphs, of Article 18-2 (5) of the Act means an amount calculated by multiplying the amount prescribed in subparagraph 1 by the period prescribed in subparagraph 2 and the rate prescribed in subparagraph 3: <Added on Feb. 7, 2017; Feb. 13, 2018; Feb. 11, 2020; Feb. 28, 2023>
1. The amount of inheritance tax determined under the former part, with the exception of the subparagraphs, of Article 18-2 (5) of the Act:
2. The period from the day after the filing deadline of an inheritance tax return on originally inherited property on succession to a family business to the day on which grounds prescribed in the subparagraphs of Article 18-2 (5) of the Act arise;
3. The rate calculated by dividing the rate of interest prescribed in the main clause of Article 43-3 (2) of the Enforcement Decree of the Framework Act on National Taxes as at the time inheritance tax is imposed under the former part, with the exception of the subparagraphs, of Article 18-2 (5) of the Act, by 365.
(17) The average of numbers of regular employees referred to in Article 18-2 (5) 4 (a) the Act is calculated by dividing the sum of regular employees as of the last day of each month in the relevant periods, by the number of months in the relevant periods. <Amended on Feb. 28, 2023>
(18) If a corporation that is recognized as a family business is divided or merges with another corporation for purposes of Article 18-2 (5) 4 of the Act, the number of regular employees and the amount of total salaries shall be calculated as follows: <Added on Feb. 12, 2019; Feb. 11, 2020; Feb. 28, 2023>
1. If some of regular employees of the corporation that is recognized as a family business are succeeded to by, and work for, another corporation following the division, such regular employees shall be deemed the regular employees of the corporation that is recognized as a family business even after the division;
2. If regular employees of another corporation are succeeded to by, and work for, the corporation that is recognized as a family business following the merger, such regular employees shall be deemed the regular employees of the corporation that is recognized as a family business even before inheritance commences.
(19) "Fine prescribed by Presidential Decree" in the provisions, with the exception of the subparagraphs, of Article 18-2 (8) of the Act means any of the following fines: <Amended on Feb. 28, 2023>
1. In cases of tax evasion: a fine sentenced for falling under any subparagraph of Article 3 (1) of the Punishment of Tax Offenses Act;
2. In cases of accounting fraud: A fine sentenced for committing any offense provided in Article 39 (1) of the Act on External Audit of Stock Companies (limited to cases where an amount changed in financial statements is 5/100 or more of the gross amount of assets).
(20) "Amount corresponding to interest calculated as prescribed by Presidential Decree" in the latter part of Article 18-2 (8) 2 of the Act means an amount calculated by multiplying the amount prescribed in subparagraph 1 by the period prescribed in subparagraph 2 and the rate prescribed in subparagraph 3: <Added on Feb. 28, 2023>
1. The amount of inheritance tax determined under the former part of Article 18-2 (8) 2 of the Act:
2. The period from the day after the filing deadline of an inheritance tax base return on originally inherited property on succession to a family business to the day on which grounds prescribed in the former part of Article 18-2 (8) 2 of the Act arise;
3. The rate calculated by dividing the rate of interest prescribed in the main clause of Article 43-3 (2) of the Enforcement Decree of the Framework Act on National Taxes as at the time inheritance tax is imposed under the former part of Article 18-2 (8) 2 of the Act, by 365.
(21) "Amount corresponding to the capital gains tax calculated as prescribed by Presidential Decree" in the main clause of Article 18-2 (10) of the Act means the amount of capital gains tax calculated under Article 97-2 (4) of the Income Tax Act on the inherited property on succession to a family business, which is transferred after granted a deduction for succession to a family business under paragraph (1) of that Article, less the amount of capital gains tax calculated under Article 97 of that Act. <Added on Feb. 21, 2014; Feb. 7, 2017; Feb. 13, 2018; Feb. 12, 2019; Feb. 11, 2020; Feb. 28, 2023>
(22) A person who intends to receive a deduction for succession to a family business under Article 18-2 (1) of the Act shall submit a statement of property inherited through succession to a family business and documents supporting the fact of succession to a family business prescribed by Ministerial Decree of the Economy and Finance, along with an inheritance tax base return defined in Article 64 (hereinafter referred to as "inheritance tax base return") to the head of a tax office having jurisdiction over the place of tax payment. <Amended on Feb. 29, 2008; Feb. 15, 2013; Feb. 21, 2014; Feb. 7, 2017; Feb. 13, 2018; Feb. 12, 2019; Feb. 11, 2020; Feb. 28, 2023>
(23) A person liable to pay inheritance tax who intends to pay the inheritance tax and an amount corresponding to interest under the main clause of Article 18-2 (9) of the Act shall submit a report on the reason for additional collection of a deduction for succession to a family business and calculation of voluntary payment prescribed by Ministerial Decree of Finance and Strategy to the head of the tax office having jurisdiction over the place of tax payment when filing a return under the main clause of that paragraph. <Added on Feb. 13, 2018; Feb. 12, 2019; Feb. 11, 2020; Feb. 28, 2023>
(24) The head of a tax office having jurisdiction over the place of tax payment shall annually verify and manage whether heirs fall under the subparagraphs of Article 18-2 (5) of the Act and paragraph (8) 2 of that Article. <Added on Feb. 28, 2023>
(25) If the inherited corporation meets all of the requirements specified in the following subparagraphs, paragraph (3) 2 (d) and paragraph (11) 1 shall not apply, and notwithstanding paragraph (11) 2, it may be changed to an industry according to the Appendix regardless of its category under the Korean Standard Industrial Classification. In such cases, if the corporation has inherited two or more independent enterprises as the family business, the application shall be judged for each individual enterprise. <Added on Feb. 29, 2024>
1. If it falls under any of the following items:
(a) Where the head office or principal office (hereafter referred to as the "the headquarters" in this paragraph) is relocated to a Special Opportunity Development Zone under the part, with the exception of paragraph (1) 1 (a) i) through v), of Article 99-4 of the Act on Restriction on Special Cases concerning Taxation (hereafter referred to as "Special Opportunity Development Zone" in this paragraph);
(b) Where the head office is located in a Special Opportunity Development Zone;
2. Where the annual average number (calculated by adding up the number of employees as of the last day of each month and then dividing it by the number of months in the period; hereafter the same shall apply in this paragraph) of full-time employees engaged in the business of the relevant enterprise (referring to the number of full-time employees pursuant to Article 60-2 (7) of the Enforcement Decree of the Act on Restriction on Special Cases concerning Taxation; hereafter the same shall apply in this paragraph) at the headquarters and other business places located in the Special Opportunity Development Zone is not less than 50/100 of the annual average number of full-time employees engaged in the business of the relevant enterprise.
[This Article Wholly Amended on Feb. 22, 2008]