Companies Are Disappearing—Reforming One of the World’s Highest Inheritance Tax Rates Is Urgent

In Korea, passing a business on to one’s children is by no means easy. Owners of small and medium-sized enterprises and mid-sized companies are effectively forced to choose between selling their companies or giving up management control because of the enormous inheritance tax burden. A company is not merely an asset; it is a workplace where tens or hundreds of people work together, and it is also the history of a family and a local community. Yet the reality that businesses shut down or are transferred to outsiders because of taxes means that the system itself is preventing companies from continuing.

Korea’s inheritance tax rate is among the highest in the world. The statutory top rate reaches 50%, and when the management control premium is added, the effective tax rate exceeds 60%. Even heirs who want to carry on the business inevitably find their will to manage it crushed under excessive taxation. This is not simply a matter of taxes being too high, but a structural factor threatening the sustainability of the entire business ecosystem.

High inheritance taxes destabilize corporate governance. In the process of hastily bringing in outside capital or transferring part of the equity to financial investors, the founder’s philosophy and long-term strategy fade away. Companies are reduced to structures focused only on short-term profits, and in the end their capacity for innovation and job creation is weakened as well. There are even quite a few cases in which firms are acquired by foreign capital or end up shutting down. This is not just a problem for individual companies; it directly leads to a decline in the competitiveness of the industry and local community as a whole.

Inheritance tax also acts as a factor that intensifies family conflict. In trying to bear the enormous tax burden, disputes arise over equity stakes and responsibilities, making business succession even more difficult. In the process of paying taxes, trust within the family business as a community breaks down, and a vicious cycle follows in which intergenerational conflict becomes institutionally entrenched.

Sweden’s case offers many lessons. Sweden, where the top inheritance tax rate once reached 70%, abruptly abolished the inheritance tax in 2005 after business sales, stock price collapses, and relocations of headquarters overseas occurred in rapid succession. Cases such as AstraZeneca and IKEA moving their headquarters abroad show just how devastating excessive inheritance taxes can be to corporate continuity and national competitiveness. Major European countries are also institutionally supporting family business succession through inheritance tax reductions or deferral systems.

Korea, too, urgently needs inheritance tax reform. Deduction limits should be raised substantially, and tax base brackets and rates should be brought into line with reality. Expanding the family business inheritance deduction, extending the installment payment period, and introducing a capital gains tax could also be alternatives. Japan effectively exempts inheritance tax on business succession when certain requirements are met, and Korea likewise must establish a flexible system that guarantees corporate sustainability.

Companies are not merely economic actors but social communities. Taxes must not stand in the way of their survival. Only when companies survive can jobs, industries, and the economic ecosystem for future generations survive as well. Inheritance tax should serve not merely as a means of adjusting the transfer of wealth, but as a gateway for preserving and developing the value accumulated in a capitalist society.

A structure in which passing on a business leads directly to its breakup and sale, as it does now, is little different from a country cutting off its own growth engine. The inheritance tax must be reformed so that businesses can remain sustainable.

Ho-gyeong Lee

Researcher, Center for Free Enterprise (CFE)

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Original title: 기업이 사라진다--세계 최고 수준 상속세율 개편 시급

Author: Ho-gyeong Lee

Date: 2025-08-06

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=27951