Third-party business succession rules introduced; 20% capital gains tax cut, 10% corporate tax relief for 5 years
Venture investment eligibility extended to firms up to 10 years old; sunset clauses removed for permanent status
SMEs to retain tax support for 3 years after graduation; regional hiring and safety investment also favored
The government will exempt small and medium-sized enterprises in new industries outside the Greater Seoul area from up to 100% of income and corporate taxes, depending on location. It will also introduce tax support for SMEs that transfer ownership to a third party when no family successor is available, and ease the so-called "tax cliff" — the sudden loss of tax benefits when a company grows beyond the SME threshold.
The Ministry of SMEs and Startups on Friday released the key SME- and venture-related provisions of the government's 2026 tax reform package. The reform focuses on supporting startup and venture investment, favoring companies outside the capital region, and easing the tax burden on SMEs after they outgrow their current status.
The first area of change is the SME startup tax credit regime. The government plans to subdivide non-Greater Seoul regions into finer categories, raise exemption rates and expand support for high-growth companies.
SMEs outside the Greater Seoul area designated as "jump-up" companies will be eligible for up to 80% relief on income and corporate taxes, depending on location. For SMEs in new industries outside the metropolitan area, the exemption rate rises to 100%. The measure is intended to partially offset the startup conditions gap between the capital region and the rest of the country through tax incentives.
Tax support for venture investment will also be expanded. The eligibility threshold for tax benefits on capital gains from share transfers by venture capital firms will be extended from companies up to seven years old to those up to 10 years old. A sunset clause that would have ended the related special tax treatment at the end of 2028 will be removed, making the regime permanent.
Incentives for regional venture investment will be strengthened as well. The tax credit rate applied when a domestic corporation makes a direct equity investment in a venture company located in a population-declining or population-decline-watch area will rise from 5% to 7%. Population-declining zones within the Greater Seoul area will also qualify. Eligibility requirements based on a target company's age will be relaxed.
For individuals who invest in venture companies and later sell their shares, the age requirements for eligible target companies will similarly be eased, and the capital gains tax exemption will be made permanent.
New tax support for third-party business succession will be introduced to reduce closures among SMEs that cannot find a family heir. The measure extends tax benefits to cases where a business is transferred to an outside party rather than a family member or relative.
When the transferring company sells shares, equity stakes or business assets, it will receive a 20% reduction in capital gains tax. The acquiring company will receive a 10% cut in income and corporate taxes for five years after the succession. The aim is to broaden succession pathways beyond family-centered transfers to outside firms with the intent and capacity to take over.
The reform also addresses the sharp drop in tax benefits that occurs when a company grows beyond the SME threshold. Under the special SME tax credit, companies that have exited the SME grace period will continue to receive 50% of the mid-sized enterprise exemption rate for three more years.
Video content and webtoon production companies will also be eligible for a 12.5% income and corporate tax deduction rate for three years after their SME grace period ends. The intent is to reduce the abrupt loss of tax support as companies grow, encouraging them to expand into mid-sized enterprises.
Tax support targeting labor shortages at regional SMEs will also be strengthened. For the existing income tax reduction program covering SME employees — which applies to youth, older workers, people with disabilities and career-interrupted workers — companies based outside the Greater Seoul area will receive additional preferential treatment in both the duration and rate of the exemption.
New tax support will also be created for SME investment in industrial accident and fire prevention. Safety facilities — including those for industrial accident and fire prevention — will be added to the list of assets eligible for the special depreciation regime for SME equipment investment. Companies will be allowed to apply a reported useful life within 50% of the standard useful life, enabling faster write-offs of safety equipment costs. The structure lowers the initial tax burden to encourage investment in workplace safety.
The tax reform package will go through a legislative notice period until mid-August before being submitted to the regular session of the National Assembly in early September. Details may change depending on the Assembly's review process.
Noh Yong-seok, first vice minister of SMEs and Startups, said the reform "focused on easing the management burden on small and medium-sized enterprises, fostering the innovative growth of startups and venture companies, and building a growth ladder that allows SMEs to continue advancing even after they have scaled up."
hong@heraldcorp.com
