Government to Introduce Tax Breaks for Third-Party Business Succession in 2026 Tax Reform

The government will introduce a 'Tax Special Measure for Supporting Third-Party Business Succession' in its 2026 tax reform plan, shifting the criteria for tax support from family-centric to factors like management history and employment maintenance. This system provides tax benefits when a company is passed on to external parties such as employees or companies in the same industry, and is designed to help SMEs and mid-sized companies, which particularly struggle to find successors, continue their operations.

Sellers must be majority shareholders or capital contributors aged 60 or over who have continuously managed the company to be succeeded for over 20 years. Buyers are limited to employees who have managed a company in the same broad industry for over 10 years or have worked at the company for over 5 years. The same criteria apply to individual businesses transferring business assets, not just corporations holding stocks or capital shares.

If the support requirements are met, sellers will receive a 20% reduction in capital gains tax. The reduction limit is calculated by multiplying the seller's years of management by 50 million won. Companies that inherit the business will receive a 10% reduction in income tax or corporate tax for income generated from the succeeded business for five years from the succession date, with an annual limit of 500 million won.

The government will implement post-management procedures requiring the maintenance of stocks, business assets, employment, and salary levels for five years after succession. Benefits will be clawed back if the number of regular employees and the total salary at the succeeded business site fall below 90% of the pre-inheritance levels, or if the business is suspended or closed for more than one year. The reduced tax and interest will also be recovered if the seller buys back the transferred assets within five years.

The application period for this tax special measure is from January 1, 2028, to December 31, 2030.