Conversion of Capital Reserve to Retained Earnings
Use as Tax-Exempt Dividend Source
Maximizing Shareholders' Real Returns through Tax-Exempt Dividends
Digital Daesung, an educational content platform company, is strengthening its shareholder return policy by promoting tax-exempt dividends.
Digital Daesung announced on the 15th that it will hold an extraordinary general meeting of shareholders on the 26th of next month to propose a resolution to convert the capital reserve from share premium into retained earnings. The converted funds will be used as a source for tax-exempt dividends.
With the government’s recent full-scale launch of the ‘Value-Up Program,’ expectations for dividends in the stock market have increased, drawing attention among dividend investors to tax-exempt dividend stocks that can maximize dividend yields. Generally, the tax rate on dividend income is 15.4%, but if combined with other annual interest income exceeding 20 million KRW, progressive comprehensive income tax applies, with rates up to 49.5%. Therefore, tax-exempt dividends are an attractive option for investors with a high proportion of dividend stocks as they can significantly reduce tax burdens.
Tax-exempt dividends are a method of converting capital reserves into retained earnings to be used as dividend funds. The distributed amount is considered a return of paid-in capital under tax law and is not included in dividend income. Since tax-exempt dividends for individual shareholders are not subject to withholding tax (15.4%), shareholders receive 100% of the dividend amount. Additionally, they are excluded from the comprehensive financial income taxation, so no additional taxes are incurred.
In May, Digital Daesung disclosed through a public announcement that it plans a year-end dividend of 500 KRW per share, the largest dividend in its history, as part of shareholder profit return and shareholder-oriented management. Based on the closing price on the 14th (7,380 KRW), the expected dividend yield is approximately 6.8%, and considering the tax-exempt benefits, the actual dividend yield perceived by shareholders is expected to be even higher.
Kim Hee-seon, CEO of Digital Daesung, said, "As part of participating in the government’s Value-Up Program and strengthening shareholder return policies, we aim to maximize shareholders’ actual dividend yields through tax-exempt dividends. Along with the growth of existing businesses, the acquisition of Uidae-gwan is clearly boosting performance growth, so we will also focus on increasing corporate value."
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