From bakery cafes to sham relocations, Lee moves to close policy loopholes

President Lee Jae Myung presides over a weekly Cabinet meeting at Cheong Wa Dae, Tuesday. Yonhap

President Lee Jae Myung is turning his attention to a string of policy loopholes being exploited against their original intent — from corporate loans used to bypass housing borrowing caps and family-run bakery cafes claiming inheritance tax breaks meant for long-established businesses to companies making token relocations to rural areas to claim regional tax exemptions.

Analysts say the pattern reflects Lee's governing style, forged over a career that began in local municipal administration and later expanded through progressively larger regional roles before his election as president in June 2025.

“Lee, compared with several previous presidents, is recognized for being well-informed about both the broad and narrow aspects of affairs,” a political analyst said, Tuesday, on condition of anonymity.

The analyst said that this trait was built over Lee's political career, from serving as mayor of Seongnam and then governor of Gyeonggi Province, before being elected president.

“This quality enables him not only to present general directions but also to provide detailed guidance, as seen in his recent handling of policy loopholes,” the analyst added.

In a social media post on March 21, Lee warned those who took out corporate loans for housing purchases to voluntarily repay the loans before facing criminal penalties or other sanctions.

The warning came after a finding that the use of business loans to finance home purchases in the second half of last year increased by 35 percent compared with the same period the previous year, prompting the National Tax Service (NTS) to conduct a full-scale audit.

The ceiling on housing loans was capped at 6 trillion won ($3.9 billion) just before the start of the second half of 2025, discouraging many prospective homebuyers who had planned to take out mortgages.

“It is clear which choice is more reasonable: facing criminal fraud charges along with an NTS audit that could result in forced loan recovery, or voluntarily repaying the loan in advance,” the president wrote.

During a Cabinet meeting on March 24, the president ordered the NTS to review and report on whether a full overhaul of rules governing business inheritance is needed.

The order followed news reports that family-run bakery cafes have proliferated rapidly as a workaround for inheritance and gift taxes.

Under the current tax rules, a family business is eligible for inheritance tax deductions if the deceased managed it for at least 10 years, allowing heirs to deduct up to 60 billion won from the inherited assets.

The targeted large-scale bakery cafes, with their short history, have faced criticism for attempting to exploit the “over 10 years of operation” rule to claim inheritance tax benefits intended for long-established family businesses.

In a town hall meeting Monday on Jeju Island, Lee highlighted cases where companies received tax breaks by moving their headquarters to regional areas in name only, without meaningful local contribution.

“Some firms have only shifted their registered addresses while still enjoying the benefits,” adding that one such company came to mind.

Critics have pointed to Nexon’s NXC and Kakao, whose headquarters are officially in Jeju, although most employees remain in the greater Seoul area.