Strengthened Tax Support for Stock Options Sparks "Expectations for Influx of Top Talent" in Startup and Venture Sectors

[Asia Economy Reporter Kim Cheol-hyun] The startup and venture industry has unanimously welcomed the first tax reform plan of the Yoon Seok-yeol administration. In particular, they expect that the strengthened tax support for stock options (Seutokopsyeon) will help secure outstanding talent.

The officially announced tax reform plan on the 21st includes a significant increase in the non-taxable limit on stock option exercise gains from 50 million KRW to 200 million KRW annually, and the establishment of a cumulative limit (500 million KRW). It also allows employees of venture companies listed on KOSDAQ and KOSPI to pay labor income tax on stock option exercise gains in installments over five years. Previously, this applied only to unlisted and KONEX-listed venture companies. Additionally, to support the activation of startup and venture investments, the application period of related tax special cases will be extended by three years, and the angel investment shares eligible for tax benefits for startup investment companies will be expanded.

The most notable aspect is the strengthened tax support for stock options. Regarding this, Choi Seong-jin, CEO of Korea Startup Forum, explained, "The increase in the non-taxable limit on stock option exercise gains is expected to be effective in terms of attracting outstanding personnel." However, CEO Choi added, "Since this is a tax reform, only this content was included, but there are still areas that need improvement in the stock option system, such as the conditions for granting stock options and the limits."

The expansion of the non-taxable limit on stock option exercise gains has been a consistent demand from the venture business community. At the ‘1st Startup and Venture Policy Sharing Council’ held on the 13th to hear opinions from the venture and startup industry, Lee Young, Minister of SMEs and Startups, received a proposal from Park Jae-wook, Chairman of Korea Startup Forum, to improve the stock option system so that it becomes a practical reward. It has been said that the stock option system has largely failed to serve as a practical reward. In fact, startups that cannot offer high salaries should be able to recruit outstanding talent by granting stock options, but according to the 2020 Venture Business Detailed Survey, only 2.4% of companies were using stock options, indicating low utilization.

Yoo Jeong-hee, Head of Innovation Policy at the Venture Business Association, said, "The reason venture companies did not utilize the stock option system well was because the non-taxable limit was low, limiting its effectiveness," and added, "We expect the stock option system to be more activated through the increase in the limit." Yoo also predicted, "If the utilization of stock options increases, the biggest effect will be in securing personnel."