AJ Networks, a company that rents logistics equipment, has begun procedures for a "capital reduction dividends." A capital reduction dividends is when part of the capital surplus is converted into retained earnings and paid out to shareholders, and because no dividend income tax is withheld, investors call it a "real dividend stock."
According to the Financial Supervisory Service on the 24th, AJ Networks will hold an extraordinary shareholders meeting on Dec. 3 to vote on the "agenda to reduce capital surplus." The company disclosed, "We will transfer capital surplus to retained earnings to expand dividend resources and thereby implement a shareholder return policy." However, since no agenda item on cash dividends has been submitted, even if capital surplus is transferred to retained earnings, it does not immediately lead to dividends.
AJ Networks is corporations engaged in the rental and warehouse and distribution segments. In the rental segment, it rents and distributes logistics equipment such as pallets and industrial safety equipment such as forklifts, and in the warehouse and distribution segments, it distributes energy such as refrigerated and frozen warehouses and solar power generation.
In general, when a company pays dividends, it uses retained earnings earned from operating activities as the source. However, this year, more corporations are paying dividends by using so-called "capital reduction dividends," which convert capital surplus, a special resource accumulated outside of operating profit, into retained earnings and distribute it.
According to corporate analysis lab Leaders Index, the number of companies that carried out capital reduction dividends rose from six in 2022 to eight in 2023, 15 in 2024, and 40 as of the end of April 2025. The amount of capital reduction dividends also jumped from 159.7 billion won in 2022 to 876.8 billion won in 2025.
The reason "capital reduction dividends" are drawing attention is the tax-exempt benefit. Unlike ordinary dividends, capital reduction dividends sourced from capital surplus are treated as a return of investment to shareholders by corporations and are therefore tax-exempt under tax law. From an investor's standpoint, because the 15.4% dividend income tax is not withheld, they are regarded as a "real dividend stock."
In fact, Meritz Financial Group in 2023 converted 2.15 trillion won of capital surplus into retained earnings and paid capital reduction dividends. At the time, Chair Cho Jeong-ho, who held a 48% equity stake, received 230.7 billion won in dividends but did not pay taxes.
Some have raised concerns that capital reduction dividends could be abused as a "gift strategy" by controlling shareholders.
Lee U-jong, a professor in the business administration department at Seoul National University, said, "There is no legal issue with converting capital surplus into retained earnings and paying dividends, but it goes against the original intent of the capital surplus system, which is to accumulate rather than distribute," and noted, "Owner families with high equity stakes may also use capital reduction dividends to raise funds for inheritance or gifts."
As of the first half of this year, AJ Networks had Vice Chair Moon Deok-young holding 6.63%, CEO Moon Ji-hoe 24.26%, and Moon Seon-u 24.26%, bringing related parties' equity to 55.76%.
AJ Networks said, "This is not a dividend payment related to inheritance or gifts," adding it is "part of a shareholder return measure."
Meanwhile, the government on July 31 announced the "2025 tax revision bill," which includes taxing capital reduction dividends. Under the revision, if the dividend exceeds the price at which the stock was acquired, capital reduction dividends will also be taxed. Starting in Dec. this year or early next year, dividend income tax is expected to be imposed on "controlling shareholders of listed companies" and "shareholders of unlisted companies."