By Jeong Min Nam and Ik-Hwan Kim
South Korea is considering tightening its inheritance tax relief system for family-owned businesses following concerns that some companies may be taking advantage of the policy, particularly within the rapidly growing bakery café sector.
The current system allows significant tax deductions up to 60 billion won for heirs who inherit qualifying family businesses, provided they meet strict requirements aimed at supporting long-term business continuity. The policy was originally introduced to help genuine family enterprises pass ownership across generations without being heavily burdened by inheritance taxes.
However, tax authorities have raised concerns that some bakery cafés may be structuring their operations to benefit from the scheme without fully meeting its intended purpose. Investigations suggest that certain businesses classified as bakery cafés may not actually bake products on-site, instead relying heavily on pre-made goods or operating more like beverage-focused cafés.
Officials also noted that some businesses benefiting from the tax break have expanded rapidly, raising questions about whether they should qualify as traditional family-run enterprises. In response, policymakers are now reviewing potential reforms to close loopholes and ensure the tax relief is reserved for genuine long-standing family businesses.
Proposed changes reportedly include excluding bakery cafés that do not engage in on-site baking, as well as tightening eligibility rules for other sectors such as parking lot operations that may be used for tax advantages. Authorities say the aim is to strengthen fairness in the tax system and prevent misuse of inheritance tax incentives.
The proposed reforms are expected to be considered in South Korea’s upcoming 2026 tax revision process as part of broader efforts to improve tax compliance and transparency.
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