High-Dividend Firms Must Disclose Value-Up Plans to Qualify for Special Taxation

Cabinet Approves Amendment to Enforcement Decree of the Restriction of Special Taxation Act

From now on, for high-dividend companies to receive tax benefits, they must disclose not only their performance in meeting the requirements for special taxation immediately after the general shareholders' meeting through the Korea Exchange Listing Disclosure Submission System, but also their plans to enhance corporate value.

The Financial Services Commission announced on the 24th that the Cabinet had approved an amendment to the Enforcement Decree of the Restriction of Special Taxation Act containing these measures. This is a follow-up measure to the amendment to the Restriction of Special Taxation Act, which took effect on January 1 and introduced separate taxation for stock dividend income.

The amended Enforcement Decree stipulates that high-dividend companies eligible for special taxation on dividend income must disclose their corporate value enhancement plans. The special taxation is available to companies whose dividend payout ratio is at least 40%, or whose dividend payout ratio is at least 25% and whose cash dividend amount has increased by at least 10%. Disclosure of corporate value enhancement plans is a core procedure of the Corporate Value-Up Program, under which listed companies autonomously establish goals for improving corporate value, implementation plans, and shareholder return policies, and then disclose them to the Korea Exchange in order to resolve the so-called Korea Discount.

The disclosure must include performance data demonstrating compliance with the special taxation requirements, such as dividend income generated in the previous fiscal year and the dividend payout ratio for the previous fiscal year. The disclosure deadline is the day after the regular general shareholders' meeting at which a resolution on profit dividends is adopted, following the completion of the fiscal year-end closing. However, since the disclosure is prepared autonomously to reflect the individual characteristics of each listed company, it is up to each listed company to decide which items, other than dividend-related performance, to include.

In particular, for this year, a simplified disclosure format will be allowed in place of the existing, more detailed corporate value enhancement plans. As this is the first year of corporate value enhancement plan disclosures, companies will effectively be allowed to prepare only the key items, such as confirmation that the dividend income special taxation requirements have been met, and targets for return on equity (ROE) and dividend payout ratio.

To support disclosures, the Korea Exchange plans to revise the disclosure forms and cautionary notes for corporate value enhancement plans, and to include examples of simplified disclosures in its guideline commentary. In addition, at the end of next month, when most general shareholders' meetings are concentrated, it plans to provide one month of disclosure consulting services for high-dividend companies.

An official from the Financial Services Commission said, "With this amendment to the Enforcement Decree, the participation rate of listed companies in disclosing corporate value enhancement plans will increase significantly, and as a result, a corporate culture that respects shareholder value will take deeper root in the market."