The government has decided to introduce 'separation taxation for dividends' to increase dividends for listed companies and boost vitality in the stock market, but it is expected that it will be difficult to actually benefit from separation taxation. This is because the conditions to qualify as a high-dividend stock subject to separation taxation are quite strict.
Investors who had expected a low tax rate on dividends are visibly disappointed. Following the announcement of the government's tax reform plan for 2025, on the 1st, stock prices of holding companies, banks, and the securities sector, which had risen on dividend expectations, fell sharply.
According to the tax reform plan announced by the government, dividends obtained from investing in high-dividend corporations will be taxed at a rate of 14% to 35% under separate taxation, as they are excluded from the existing tax subjects which impose a basic income tax rate of 6% to 45%. Investors whose financial income, including dividends and interest, is less than 20 million won per year will continue to be taxed at the low rate of 14%, while those with income exceeding 20 million won but less than 300 million won will be taxed at 20%, and those exceeding 300 million won will be taxed at 35%.
The high-dividend companies referred to by the government are those whose dividend payout ratio is more than 40%, or those with a payout ratio of more than 25% that have increased cash dividends by more than 5% compared to the average of the previous three years.
Firstly, there are not many high-dividend corporations that meet these conditions. The Ministry of Economy and Finance estimated that there are about 350 listed companies that will be eligible for separation taxation on dividends. This represents about 13% of the total listed companies as of the end of last year.
In particular, it is expected that it will not be easy to qualify as a high-dividend company under the second criterion. As of last year, there were a total of 234 listed companies with a payout ratio of 25% to less than 40%. Among these, analyzing 199 companies that can be compared to dividends three years ago, currently only 87 companies meet the condition of having increased dividends by more than 5% compared to 2022.
Taking Samsung Electronics, a representative high-dividend stock, as an example, Samsung Electronics has a payout ratio of 28%, which qualifies as 'more than 25% payout ratio', but it is highly likely that it will not meet the condition of 'a company that has increased dividends by more than 5% compared to the average of the previous three years'. To meet this condition, Samsung Electronics must increase its total dividends from 9.8 trillion won last year to more than 10.3 trillion won this year.
If a corporation has consistently increased its dividends over the past three years, it may actually be difficult to qualify as a high-dividend corporation. This is because the dividend amount must increase by at least 5% compared to the average of the previous three years to qualify for separation taxation. In cases where the dividend amount decreased in between, the average decreases, resulting in a lower required dividend amount to meet this condition.
In the case of Woori Financial Group, which is cited as a typical high-dividend stock, the total dividend amount was 822.7 billion won in 2022, 747.3 billion won in 2023, and 891 billion won in 2024. Since the dividend was reduced in 2023, the average dividend amount over the past three years is lower than the total dividend amount for 2024. To qualify for separation taxation on dividend income this year, the dividend amount for 2024 must exceed the total dividend amount.
The Ministry of Economy and Finance also explains that the absolute dividend amount of companies increasing compared to the previous year is critical. The payout ratio does not necessarily need to increase every year, but the dividend amount itself must increase compared to the previous year to consistently qualify as a high-dividend corporation. For listed companies, even if net profits decline making it difficult to pay dividends, they must still consider paying dividends to be included in the subjects of separation taxation on dividends.
Kim Jong-young, a researcher at NH Investment & Securities, said, "Contrary to expectations, the requirements are stringent, and some tax rate brackets have been set high," and noted that "the policy effect may be limited compared to expectations." He also mentioned that "short-term price adjustments for dividend stocks and value stocks are anticipated."