[Dynamic Economic Roadmap] Companies Increasing Dividends to Have Shareholder Income Tax Rate Reduced by up to 20%P

"Focus on Realizing the Era of Common People and Middle Class"
Concrete Plans for Value-Up Tax Reform
Comprehensive Overhaul of Entry Regulations After 25 Years

The government will provide a 5% corporate tax credit benefit to companies that expand shareholder returns and reduce investors' tax burdens by separating dividend income taxation, lowering the tax rate by up to 20 percentage points. The government plans to enhance the effectiveness of corporate value-up measures to promote corporate growth through the capital market and increase the dynamism of the Korean economy by expanding middle-class asset accumulation. However, this initiative is temporary for three years and requires approval from the opposition-majority National Assembly.

On the 3rd, the government jointly announced the 'Dynamic Economy Roadmap' containing these details. The Dynamic Economy Roadmap outlines the economic policy and structural reform directions for the remaining three years of the Yoon Seok-yeol administration, presenting 'Innovation, Fairness, and Social Mobility' as the main directions.

Dividend Income to be Taxed Separately... Tax Rate Reduced by 5~20%P

This roadmap includes value-up tax support measures for 'capital market advancement,' a key policy of the Yoon Seok-yeol administration. First, it promotes a 5% corporate tax credit on the increased amount of shareholder returns such as dividends and treasury stock cancellations, along with separate taxation of dividend income. Companies that resolve undervaluation of their stock prices by expanding dividends or canceling treasury shares will receive a corporate tax reduction equivalent to a certain portion of the increased dividend amount. Specifically, a 5% corporate tax credit benefit is granted on the amount of shareholder return increase exceeding 5% compared to the average of the previous three years.

For shareholders of companies that increase dividends, the dividend income tax burden will be reduced. The dividend income tax rate imposed when shareholders receive dividends will be lowered from the current 14% to 9%, and if dividend income exceeds KRW 20 million annually, it will not be combined into the comprehensive financial income tax (maximum tax rate 45%) but instead be subject to optional separate taxation at 25%. This reduces income tax burdens by 5 to 20 percentage points. For example, if Company A, which paid an average dividend of KRW 100 billion from 2022 to 2024, increases dividends to KRW 120 billion next year, shareholder B with dividend income of KRW 24 million and other income of KRW 1 billion will pay KRW 387.86 million in taxes under separate taxation, which is KRW 800,000 less than the previous amount (KRW 388.66 million). However, reductions in corporate tax and dividend income tax are temporary for three years and require legislative amendments, thus needing to pass through the opposition-majority National Assembly.

The government will abolish the surcharge evaluation on major shareholders related to inheritance tax and ease the burden of business succession for value-up companies. The current maximum inheritance tax rate is 50%, but with the surcharge evaluation on major shareholders (20% tax), it rises to 60%. The business community has criticized the surcharge evaluation on major shareholders as a factor that removes incentives for increasing corporate value and makes business succession difficult. The scope and limit of business succession deduction for value-up companies will also be expanded. The business succession deduction is a system that exempts up to KRW 60 billion from taxable value when a business operator who has operated a business for more than 10 years passes the business to their children or others. The sales criterion for companies eligible for the deduction is currently less than KRW 500 billion annually. The government plans to remove this sales criterion, expand the target to all small and medium-sized enterprises excluding mutual investment restriction companies, and raise the deduction limit to a maximum of KRW 120 billion. Regarding business succession deductions, the government plans to expand them not only for value-up but also for scale-up and opportunity development zones.

Expansion of Household-led Financial Assets... ISA Benefits Expanded and Financial Investment Tax Abolished

To increase middle-class asset accumulation, the government will abolish the financial investment income tax scheduled to be implemented next year and expand benefits for Individual Savings Accounts (ISA). The annual contribution limit for ISA will be doubled from KRW 20 million (total KRW 100 million) to KRW 40 million (total KRW 200 million), and the tax-exempt limit will increase 2.5 times from KRW 2 million to KRW 5 million. The tax-exempt limit for domestic investment-type ISA will be expanded from KRW 2 million to KRW 10 million.

Measures to improve corporate governance and protect minority shareholders have also been prepared. The 'prohibition of opportunity misuse' (Article 392 of the Commercial Act), introduced to regulate directors' pursuit of private interests, will be improved to explicitly prohibit directors from exploiting business opportunities without prior board approval. Additionally, electronic shareholder meetings allowing online voting will be introduced, and the effective period of the shareholder meeting record date will be shortened from three months to two months to enhance shareholder meeting quality. The government is also considering granting dissenting shareholders the right to request stock purchase in case of physical division.

Goal to Enact AI Basic Act within the Year... Formation of Pan-Ministerial TF

The government also announced intensive structural reforms in the economic sector. Entry regulations such as permits and approvals in the economic sector will be comprehensively reorganized. A task force (TF) composed of relevant ministries and experts will be formed within this month to investigate entry regulations and competition-restricting regulations by ministry and sector, and based on this, improvement plans for key regulations will be presented next year. This is the first major investigation into entry regulations in 25 years since 1999, right after the foreign exchange crisis.

Support for corporate scaling will also be expanded. A research project will soon begin to review regulations applied by company size, such as medium-sized and large enterprises, and to prepare rational improvement plans. At the same time, the government will promptly revise the asset threshold for publicly disclosed business groups (large business groups) from a fixed KRW 5 trillion to be linked to the domestic gross domestic product (GDP), and consider easing voting rights restrictions on financial and insurance companies within large business groups. Investment in three core technologies?artificial intelligence (AI), semiconductors, and quantum bio?will also be expanded. A pan-ministerial TF for AI industry promotion and regulation will be formed this month, aiming to enact the AI Basic Act and related laws within the year at an accelerated pace.

Choi Sang-mok, Deputy Prime Minister for Economic Affairs and Minister of Economy and Finance, is attending and speaking at the Economic Ministers' Meeting held at the Government Seoul Office in Jongno-gu, Seoul on the 26th. Photo by Jo Yong-jun jun21@

Revision of Public Holiday System... Supply of Over 100,000 Private Rental Houses

To balance work and life, the current date-based public holiday system will be changed to a 'weekday public holiday' system. Previously, holidays such as New Year's Day or Memorial Day did not apply substitute holidays, causing variations in the number of holidays each year and inefficiencies in rest. The government will conduct research on holiday system improvements including weekday public holidays, enhancement of rest time selection rights, and advanced country-type payroll systems such as paying salaries twice a month instead of once.

Housing support tailored to young middle-class will also be strengthened. By September, the government will prepare plans to supply urban rental housing through redevelopment of old public office buildings, aiming to supply up to 50,000 public rental houses by 2035. Long-term private rental housing policies will also be pursued. A new type of private long-term rental service plan will be prepared this month, with pilot complex projects starting in the first half of next year, targeting the supply of more than 100,000 private rental houses by 2035.