Tax burdens for shareholders of high-dividend corporations with a payout ratio of 40% or higher will be greatly reduced. All cash dividends will be subject to separate taxation, with a maximum tax rate of 30%, significantly lower than the top 45% rate under global income taxation.
The Ministry of Finance and Economy said on the 16th that it finalized the details of the special separate taxation for dividend income from high-dividend corporations through the "2025 tax reform follow-up enforcement decree amendment."
High-dividend corporations eligible for separate taxation are defined as those with a payout ratio of 40% or higher, or those with a payout ratio of 25% or higher and an increase of 10% or more in profit dividends from the previous year.
The payout ratio is calculated as "total cash dividends divided by net income attributable to owners of the parent" and is based on consolidated financial statements. Corporations that do not prepare consolidated financial statements calculate it based on separate financial statements.
The scope of dividend income is limited to cash dividends, and interim, quarterly, special, and settlement-of-account dividends are all included.
The separate taxation rates are divided into four tiers based on the amount of dividend income: 20 million won or less at 14%, over 20 million won up to 300 million won at 20%, over 300 million won up to 5 billion won at 25%, and amounts over 5 billion won at 30%.
However, securitization specialty companies such as funds and REITs, for which corporate tax is not imposed due to the application of income deductions, are excluded. Loss-making dividend corporations with net income of "0" or less are, in principle, excluded as well, but limited exceptions are allowed for corporations whose dividends increased by 10% or more from the previous year and whose liabilities-to-total-capital ratio is 200% or less.
To increase dividends by large corporations, the government also revised the tax system to promote investment and win-win cooperation. The system is designed to encourage large corporations not to hoard their earnings but to use them for investments or wage increases; if they do not use at least a certain ratio, they must pay an additional 20% tax.
With this amendment, dividends have been added to the tax recirculation items and will be recognized as "not hoarding cash." Recognized dividends are cash dividends, including interim, quarterly, special, and settlement-of-account dividends, while capital reserve and earned reserve reduction dividends are excluded.
The mandatory usage ratios for large corporations have also been raised. When investment is included, the ratio rises from 70% to 80% of corporate income, and when investment is excluded, it rises from 15% to 30%.
The government plans to give advance notice of the legislation for the amended enforcement decree from the 19th to Feb. 5, then finalize it at a Cabinet meeting in February and promulgate it at the end of February.