[Tax Column] Discussions Begin on Separate Taxation of Dividend Income... Agreement Reached on Timing of Year-End Dividends (Comprehensive)

Differences Remain on Tax Rate and Eligibility Criteria
Consensus Reached on Year-End Dividend Application Timing
April 2027 Moved Up to April Next Year

This year, legislative discussions on the "separate taxation of dividend income," which has attracted the most attention from investors, have begun. Lawmakers remain divided over details such as the highest tax rate and the eligibility for year-end dividends, suggesting that it will take some time before a final agreement is reached. However, there was a display of willingness to compromise, as consensus emerged to move up the application of year-end dividends from April 2027 to April next year.

The Tax Subcommittee of the National Assembly's Planning and Finance Committee began its meeting at 9 a.m. on the 24th to discuss the issue of separate taxation for dividend income.

As of 11:55 a.m., the subcommittee had yet to reach an agreement on the highest tax rate and other specific requirements. Park Sooyoung, a lawmaker from the People Power Party and chair of the subcommittee, told reporters during a recess, "All 12 bills on the separate taxation of dividend income that have been proposed are different. The gap between them is quite significant, but the government and lawmakers have had more than two hours of thorough discussion today and have all presented their views," adding, "We need to discuss once more how to bring these together and create a consensus bill."

On the 24th, the Tax Subcommittee of the Planning and Finance Committee is being held at the National Assembly in Yeouido, Seoul. The amendment to the Restriction of Special Taxation Act and other matters are being discussed at this meeting. November 24, 2025. Photo by Kim Hyunmin

According to the government proposal, the highest tax rate for separate taxation of dividend income is set at 35%, but some opposition lawmakers and a portion of the ruling party insist it should be lowered to 25%. Under the current Income Tax Act, financial income such as dividends and interest exceeding 20 million won per year is subject to comprehensive financial income taxation, with a progressive rate of up to 49.5%, including local income tax. Lawmakers calling for a lower maximum rate argue that the purpose of separate taxation is to increase investment in high-dividend stocks and strengthen the competitiveness of the capital market, so the highest tax rate should be reduced to a level that investors can actually feel. On the other hand, some lawmakers oppose this, citing concerns about tax revenue shortfalls and tax fairness.

Regarding this, Park stated, "There is a greater willingness among lawmakers and the government who support lowering the tax rate to accept such a move. However, there are also lawmakers who are completely opposed to it. Therefore, a perfect agreement has not been reached," adding, "It is customary for our subcommittee to make decisions by consensus rather than by majority vote, so we will try to discuss it once more to reach an agreement."

Another issue that needs to be resolved is the eligibility criteria, which currently include companies with a dividend payout ratio of 40% or more, or those with a dividend payout ratio of at least 25% and an increase of 5% or more compared to the average of the past three years. Park commented, "The gap is still quite large, though it has narrowed somewhat, but we have not yet reached an agreement," adding, "It seems we will need to discuss it one or two more times." He further explained, "Currently, there are two systems: the 'Excellence Award' (dividend payout ratio of 25% or more) and the 'Encouragement Award' (increase of 5% or more compared to the three-year average). There were many opinions about whether it is necessary to separate them, and some lawmakers argued that the requirements should be abolished altogether."

Progress was made on one of the contentious issues: the timing of the application of year-end dividends. The government had proposed a bill using April 2027 as the reference point for year-end dividends, but during the meeting, some lawmakers, including Lee Soyoung of the Democratic Party, suggested using year-end dividends paid in April next year as the standard, and an agreement was reached on this alternative. It was pointed out that if the government's proposal were adopted, the amount of year-end dividends paid in March next year could decrease in order to meet the 2027 standard, and the majority of the government and lawmakers agreed with this view.