South Korea’s Cabinet has officially passed an extension of the “graduation deferral” grace period for small and medium enterprises (SMEs) from three to five years. This means small companies will receive two extra years before being recognized and taxed as larger, mid-sized firms. Initially passed by the National Assembly in late January, this legislative amendment aims to support SMEs' stable growth and transition into mid-sized enterprises. The amendment will go into effect six months after its proclamation on Feb. 20, next week.

The initiative, the SME ministry stated, addresses what it called the "Peter Pan Syndrome" among smaller businesses, where SMEs fear growth due to the potential loss of government support, such as lower corporate tax rates and special tax reductions, higher deductions for research and development and increased regulatory obligations for mid-sized businesses. By extending the grace period, the government aims to provide a more gradual transition for such companies, the ministry said on Tuesday.