[Policy/Tax] Analysis of Confirmed Separate Taxation on Dividend Income

After long discussions, the bill for separate taxation on dividend income has passed the National Assembly's Strategy and Finance Committee. It was agreed to be more subdivided than the government's original proposal, establishing a 'over 5 billion KRW' bracket and applying a maximum tax rate of 30%. In this post, we will examine the confirmed tax rate structure and analyze the impact this will have on the 'Value-up' program and the stock market.

[Issue Analysis] Dividend Separate Taxation Passed, How Will 'Value-Up' Stock Investment Strategy Change?

1. What Has Changed?: Confirmed Tax Rate Structure

The core of the amendment to the Restriction of Special Taxation Act, passed by the Strategy and Finance Committee on December 1, 2025, is that it is a compromise seeking 'capital market revitalization' while silencing the 'tax cuts for the rich' controversy.

Under the existing global taxation of financial income system, if interest and dividend income exceeded 20 million KRW, it was combined with other income and subject to a high tax rate of up to 49.5% (including local tax). However, this reform allows separate taxation for dividend income that meets certain requirements (such as companies with excellent shareholder returns).

The confirmed tax base brackets and tax rates are as follows.

Dividend Income Size	Applied Tax Rate (Excluding Local Tax)	Remarks
20 million KRW or less	14%	Maintains current withholding tax rate
Over 20 million ~ 300 million KRW or less	20%	Newly established bracket
Over 300 million ~ 5 billion KRW or less	25%	Newly established bracket
Over 5 billion KRW	30%	Maximum tax rate established (nature of tax increase for the rich)

The most notable point is that instead of the originally discussed 'flat tax rate' or '25% cap', a bracket applying a **30% tax rate to ultra-high dividend income earners exceeding 5 billion KRW** has been newly created.

---

2. Why '30% for Over 5 Billion'?: Political Calculus and Value-Up

This decision is the result of a fierce tug-of-war between the ruling and opposition parties. The government and the ruling party have strongly pushed for separate taxation of dividend income to resolve the Korea Discount, but the opposition party has opposed it, calling it a "tax cut for the super-rich."

Ultimately, by setting a very high baseline of 5 billion KRW and applying a tax rate of 30% (higher than the original separate taxation proposal, but lower than global taxation) to the excess amount, it is interpreted as an attempt to catch two birds with one stone: 'tax equity' and 'investment incentives'.

Pros: The tax burden on major shareholders and high-net-worth individuals drops significantly from the existing maximum of 49.5% to the 30% (+local tax) level, creating a strong incentive to increase dividend payout ratios.
Cons: Criticism remains that benefits are concentrated on a very small number of major shareholders receiving dividends exceeding 5 billion KRW, and concerns about reduced tax revenue exist.

---

3. Market Impact: The 'Real' Start of Value-Up?

With the passage of this bill, the 'Corporate Value-up Program' has gained a powerful engine.

(1) Increased Incentive for Major Shareholders to Distribute Dividends

One of the chronic problems of the Korean stock market was that major shareholders were reluctant to pay dividends. This was because even if they received large dividends, they had to pay half of it as tax (maximum 49.5%). However, if the maximum tax rate is lowered to 30% (about 33% including local tax), it becomes advantageous for major shareholders to take company profits as dividends rather than piling them up as retained earnings.

(2) Revaluation of High-Dividend Stocks and Holding Companies

Therefore, the attractiveness of holding companies, financial holding companies, and telecom stocks with high major shareholder ownership and good cash flow will be highlighted once again. In particular, it is highly likely to act as positive momentum for the stock prices of 'Value-up participating companies' that have announced plans to increase shareholder returns.

---

4. Conclusion: The Era of Great Dividend Income?!

This proposal passed by the Strategy and Finance Committee seems likely to pass the plenary session. Investors must now check their portfolios based on confirmed tax benefits, not just vague expectations.

• Key Point: Dividend income separate taxation introduced, agreement reached on creating a bracket for over 5 billion KRW (30%).
• Investment Point: Since major shareholders have gained both the justification and practical benefit to increase dividends, it is necessary to pay attention to undervalued value stocks with high major shareholder ownership.
• Caution: It does not apply to all companies, but only to dividends of companies that meet certain requirements such as shareholder returns, so you must carefully check each company's public disclosures.

The content of this blog is for reference only for investment judgment, and investment decisions must be made under the individual's judgment and responsibility. Under no circumstances can the information in this blog be used as evidence of legal liability for investment results.