Let's embrace capital market tax reform with conviction, recognizing its potential to be powerful multiplier for growth
Capital market tax reform such as separate dividend taxation at a lower rate is critical for attracting long-term capital to the equity market. The new tax proposal should give more carrots to the controlling families for generous payout. Concerns over 'tax cuts for the rich' ultimately betray a lack of confidence in KOSPI reaching 5,000
Aggressive dividend taxation and reduced thresholds for major shareholder capital gains taxes fundamentally discourage active shareholder participation at AGM. Such measures risk dismantling a powerful local oversight mechanism essential for genuine governance improvement. We expect the Assembly to review and make amendments to the tax bill between September and December.
The Ministry of Economy and Finance finalized its 2025 tax reform package on August 31st, through the Tax Development Review Committee. This package included both separate taxation of dividend income and adjustments to the criteria for taxing capital gains of major shareholders. However, domestic and global investors are reportedly confused and frustrated by the sudden reemergence of the "tax cuts for the rich" narrative. Aggressive dividend taxation and lowered thresholds for major shareholder capital gains taxes both hinder shareholders from effectively exercising their rights. We must not inadvertently drive away this powerful check for governance reform from annual shareholder meetings.
Let’s revisit the original intent behind separate dividend taxation: fostering a culture of long-term investment, directing high-quality capital into the stock market to ease corporate financing, shifting funds from real estate to capital markets, and aligning the interests of minority and controlling shareholders. Viewed from this broader perspective, shouldn’t tax benefits, including those on dividends, be granted to long-term investors regardless of the size of their investment?
That’s why uniform tax treatment through separate taxation is the principle. It avoids market distortion and delivers consistent effects across all companies.
However, a recent bill limits this benefit to companies with a certain level of dividend payout, seemingly a compromise shaped by fears of the “tax cuts for the wealthy” backlash. The top tax rate rose to as high as 35%, narrowing the gap with the 45% maximum for comprehensive income tax. That’s not sufficient for the families to boost the dividend as most of them are charged at marginal rate.
What’s more, the threshold for major shareholder capital gains taxation was reduced again—from W5bn to W1bn.
This will have limited impact on the market. It won’t even raise more tax revenue. Even today, individual major shareholders sell their shares before December 31st to avoid the tax and use instruments like CFDs (contracts for difference) to maintain exposure without technically holding the shares. Lowering the threshold to W1bn won’t change this behavior.
Such regression in tax reform risks destroying the fragile trust and anticipation that have only just begun to form. We shouldn’t be misled into thinking that trust in the government and its policies can be built in just three months.
Furthermore, if the sole reason for this tax policy rollback is concern about "tax relief for the rich," we must raise a more fundamental issue: punitive dividend surtaxes and stricter capital gains rules are, in reality, driving out the very individuals who could serve as the most powerful check on controlling shareholders at the AGM and other events.
Legally and practically, a 1% stake is the recognized threshold for meaningful shareholder influence—enabling actions such as filing shareholder derivative lawsuits, demanding injunctions against illegal conduct, or submitting shareholder proposals at listed companies. Even without taking activist steps, simply being listed in the shareholder register on the record date (typically December 31st) is crucial for exercising voting rights at the AGM.
Yet, many individual major shareholders currently sell off shares before year-end to avoid the dividend surtax and consequently forfeit their vital voting rights. While the proportion of individual major shareholders—who can realistically keep controlling shareholders in check—is significant, designing a system that strengthens taxation on them and thereby discourages them from exercising their shareholder rights is more detrimental than beneficial to corporate governance.
Given that the duty of loyalty to shareholders has only just been codified, let's maintain the current W5 billion thresholds for major shareholder capital gains tax for a few more years, at least until shareholder-centered governance truly takes root. Better yet, policymakers should consider raising the ownership threshold (currently 1%) for capital gains tax.
In Korea, "wealthy" retail investors who deploy their own capital and act independently exert more powerful and realistic influence on corporate governance improvement than some domestic institutional investors who are often wary of challenging controlling shareholders. Therefore, providing these pivotal individuals with tax relief is entirely justified.
July 30th, 2025
Korea Corporate Governance Forum
Chairman, Namuh Rhee
Vice Chairman, Joonbum Cheon
Let's embrace capital market tax reform with conviction, recognizing its potential to be powerful multiplier for growth
Capital market tax reform such as separate dividend taxation at a lower rate is critical for attracting long-term capital to the equity market. The new tax proposal should give more carrots to the controlling families for generous payout. Concerns over 'tax cuts for the rich' ultimately betray a lack of confidence in KOSPI reaching 5,000
Aggressive dividend taxation and reduced thresholds for major shareholder capital gains taxes fundamentally discourage active shareholder participation at AGM. Such measures risk dismantling a powerful local oversight mechanism essential for genuine governance improvement. We expect the Assembly to review and make amendments to the tax bill between September and December.
The Ministry of Economy and Finance finalized its 2025 tax reform package on August 31st, through the Tax Development Review Committee. This package included both separate taxation of dividend income and adjustments to the criteria for taxing capital gains of major shareholders. However, domestic and global investors are reportedly confused and frustrated by the sudden reemergence of the "tax cuts for the rich" narrative. Aggressive dividend taxation and lowered thresholds for major shareholder capital gains taxes both hinder shareholders from effectively exercising their rights. We must not inadvertently drive away this powerful check for governance reform from annual shareholder meetings.
Let’s revisit the original intent behind separate dividend taxation: fostering a culture of long-term investment, directing high-quality capital into the stock market to ease corporate financing, shifting funds from real estate to capital markets, and aligning the interests of minority and controlling shareholders. Viewed from this broader perspective, shouldn’t tax benefits, including those on dividends, be granted to long-term investors regardless of the size of their investment?
That’s why uniform tax treatment through separate taxation is the principle. It avoids market distortion and delivers consistent effects across all companies.
However, a recent bill limits this benefit to companies with a certain level of dividend payout, seemingly a compromise shaped by fears of the “tax cuts for the wealthy” backlash. The top tax rate rose to as high as 35%, narrowing the gap with the 45% maximum for comprehensive income tax. That’s not sufficient for the families to boost the dividend as most of them are charged at marginal rate.
What’s more, the threshold for major shareholder capital gains taxation was reduced again—from W5bn to W1bn.
This will have limited impact on the market. It won’t even raise more tax revenue. Even today, individual major shareholders sell their shares before December 31st to avoid the tax and use instruments like CFDs (contracts for difference) to maintain exposure without technically holding the shares. Lowering the threshold to W1bn won’t change this behavior.
Such regression in tax reform risks destroying the fragile trust and anticipation that have only just begun to form. We shouldn’t be misled into thinking that trust in the government and its policies can be built in just three months.
Furthermore, if the sole reason for this tax policy rollback is concern about "tax relief for the rich," we must raise a more fundamental issue: punitive dividend surtaxes and stricter capital gains rules are, in reality, driving out the very individuals who could serve as the most powerful check on controlling shareholders at the AGM and other events.
Legally and practically, a 1% stake is the recognized threshold for meaningful shareholder influence—enabling actions such as filing shareholder derivative lawsuits, demanding injunctions against illegal conduct, or submitting shareholder proposals at listed companies. Even without taking activist steps, simply being listed in the shareholder register on the record date (typically December 31st) is crucial for exercising voting rights at the AGM.
Yet, many individual major shareholders currently sell off shares before year-end to avoid the dividend surtax and consequently forfeit their vital voting rights. While the proportion of individual major shareholders—who can realistically keep controlling shareholders in check—is significant, designing a system that strengthens taxation on them and thereby discourages them from exercising their shareholder rights is more detrimental than beneficial to corporate governance.
Given that the duty of loyalty to shareholders has only just been codified, let's maintain the current W5 billion thresholds for major shareholder capital gains tax for a few more years, at least until shareholder-centered governance truly takes root. Better yet, policymakers should consider raising the ownership threshold (currently 1%) for capital gains tax.
In Korea, "wealthy" retail investors who deploy their own capital and act independently exert more powerful and realistic influence on corporate governance improvement than some domestic institutional investors who are often wary of challenging controlling shareholders. Therefore, providing these pivotal individuals with tax relief is entirely justified.
July 30th, 2025
Korea Corporate Governance Forum
Chairman, Namuh Rhee
Vice Chairman, Joonbum Cheon