The Lee Jae-myung administration will raise the corporate tax rate set by the Yoon Suk-yeol administration. This is the first increase in three years since the tax reform in 2022. The corporate tax rate will be adjusted upward by 1 percentage point (p) for each taxable income bracket. The rate for the highest taxable income bracket will rise from 24% to 25%.
The domestic securities transaction tax rate will also be increased to the 2023 applicable rate. For KOSPI transactions, a tax of 0.2% will be levied, which is the sum of a security transaction tax of 0.05% and The Special Tax for Rural Development of 0.15%. For KOSDAQ transactions, a security transaction tax of 0.2%, which is 0.05% higher than the current rate, will be imposed.
The threshold for imposing capital gains tax on listed shares will be lowered from a holding amount of 5 billion won to over 1 billion won per stock. This aims to revert the relaxation of the capital gains tax threshold that had been enacted by the previous administration to stimulate the domestic securities market.
In exchange for strengthening the capital gains tax threshold, the government decided to impose separate taxation on dividends from high-dividend corporations. Dividends received by residents from high-dividend listed companies will be excluded from comprehensive income taxation (with a tax rate of 14% to 45%) and will be subject to separate taxation. The maximum tax rate on separately taxed dividend income will be 35%, which is 10 percentage points lower than the comprehensive income tax rate.
Under the Restriction of Special Tax Treatment Act, the artificial intelligence (AI) sector will be newly established as a national strategic technology. Additional data centers for AI services will be incorporated into facilities for the commercialization of national strategic technologies. The government aims to ensure tax support for corporate AI investments.
The government confirmed the '2025 tax reform plan' at the Tax Development Deliberation Committee held on the 31st. The government noted that it will pursue a restructuring of 'tax increases' to secure financial resources for national management in light of increasing welfare demands and an expanded role for finances. The goal of this tax reform is to expand revenue sources through 'economic growth and the rationalization of the tax system,' and to provide effective tax support for genuine growth.
◇ Corporate tax rate increased by 1%... 'Tax revenue to rise by 4.6 trillion won over 2 years'
Currently, a corporate tax rate of 9% applies up to a taxable income of 200 million won, 19% from 200 million to 20 billion won, 21% from 20 billion to 300 billion won, and 24% for over 300 billion won. Until 2022, the rates were 10%, 20%, 22%, and 25% for each taxable income bracket. The corporate tax rate was lowered when the Yoon Suk-yeol administration promoted tax cuts. At that time, the government sought to lower the maximum corporate tax rate from 25% to 22% by 3 percentage points, but faced extreme opposition from the then-opposition Democratic Party of Korea, resulting in only a reduction of 1 percentage point per bracket.
The Lee Jae-myung administration plans to reverse the 1% point cut made by the previous administration to secure corporate tax revenue. The Ministry of Economy and Finance estimates that the revenue increase effect from the corporate tax rate increase will reach 4.5815 trillion won over the next two years (net increase based on the previous year). Specifically, it predicts an increase of 222.7 billion won in 2026 compared to this year, and an increase of 4.3588 trillion won in 2027 compared to 2026. Since corporate taxes are imposed based on the previous year's performance, the revenue effect will only be fully evident two years later. The slight increase in the 2026 revenue is attributed to the increased advance tax payments from some corporations.
Some argue that now, when the economy is not performing well, is not the right time to increase the tax burden on corporations. The previous government also attempted to lower corporate taxes to boost economic vitality.
In response, Lee Hyung-il, the first vice minister of the Ministry of Economy and Finance, said, "While the previous administration intended to use tax cuts to enhance economic vitality, resulting in increased revenue, the recent economic situation and decrease in revenue make it difficult to confirm that the actual policy had an effect." He added, "The resources secured through (the corporate tax increase, etc.) will be used to support the development of ultra-innovative products like AI and to assist our industries in global competition."
The criteria for imposing capital gains tax on large shareholders will also revert from the current 5 billion won to 1 billion won. Currently, only large shareholders holding over 5 billion won in listed stocks pay capital gains tax, but the government plans to strengthen this so that those holding over 1 billion won will also be taxed.
The Ministry of Economy and Finance explained, "The effect of stimulating the stock market due to the relaxation of the large shareholder criteria was limited," and added, "In fact, there were concerns that excessive tax cuts for large shareholders undermined tax equity, which is why we decided to revert the criteria to the past."
The security transaction tax will also be reverted to the level of two years ago, in 2023. Under the current rules, no security transaction tax is applied to KOSPI transactions, and only a The Special Tax for Rural Development of 0.15% is levied. KOSDAQ transactions incur a security transaction tax of 0.15%. Starting next year, trading in KOSPI will incur a tax of 0.2%, consisting of a security transaction tax of 0.05% and a The Special Tax for Rural Development of 0.15%. KOSDAQ's security transaction tax will increase from 0.15% to 0.2%, marking a 0.05 percentage point increase.
◇ Separate taxation on dividend income to be introduced... Criticism of 'tax cut for the rich' continues
If the increase in corporate tax rates and the expansion of capital gains tax thresholds are representative tax increase policies of this tax reform, then 'separate taxation on dividend income' is a representative tax cut policy.
The core of the reform is to exclude dividends received by residents from high-dividend listed companies from comprehensive income taxation and subject them to separate taxation.
The government proposed that the criteria for high-dividend corporations to apply separate taxation on dividend income will include ▲ cash dividends not decreasing compared to the previous year ▲ a dividend payout ratio of 40% or more, or a dividend payout ratio of 25% or more with an increase of over 5% compared to the average of the previous three years. However, public and private funds, REITs, and Special Purpose Companies (SPC) will be excluded.
For dividends paid by such high-dividend companies, a tax rate of 14% will apply for amounts under 20 million won, 20% for amounts from 20 million to 300 million won, and 35% for amounts exceeding 300 million won. This represents a significantly lower tax burden compared to the comprehensive income tax rates, which range from a minimum of 14% to a maximum of 45%.
Some criticize the reality that dividend income is concentrated among corporate owners, suggesting this constitutes a 'tax cut for the rich.' Reports indicate that fierce debates on this matter took place even among the ruling party.
In this context, Park Geum-cheol, head of the tax division at the Ministry of Economy and Finance, emphasized, "The purpose of (separate taxation on dividend income) is to increase dividends, given that a low dividend payout ratio is one of the causes of Korea's discount. It's not intended to benefit large or controlling shareholders. We want more dividends to happen in lieu of reducing taxes."