Expectations are rising that Korea dividend tax reform could boost the country’s capital markets. President Lee Jae Myung strongly supports changes that may unlock value through increased dividend payouts. Currently, high taxes on dividends discourage many investors and large shareholders, especially insiders and executives, from accepting dividend payments.
Under the current tax system, dividend income above 20 million won ($14,640) combines with other financial income. This includes interest and pensions. The combined tax rate can reach 49.5 percent. This heavy tax burden leads shareholders to avoid dividend payouts. Instead, many retain earnings or expand subsidiaries. Consequently, Korea’s dividend payout ratio stays around 26-27 percent. This figure is far lower than in other markets such as the US (42 percent), Japan (36 percent), and China (31.3 percent).
President Lee highlighted this issue during his June 11 visit to the Korea Exchange. He endorsed a bill proposed by ruling party lawmaker Lee So-young. The bill targets Korea dividend tax reform by promoting higher dividends with a new tax approach. The reform introduces a separate, lower tax rate for dividends from listed companies with payout ratios of 35 percent or higher. This tax applies separately from the current comprehensive income tax system.
The plan sets tax rates at 15.4 percent for dividends up to 20 million won. Dividends between 20 million and 300 million won would be taxed at 22 percent. Any amount above 300 million won faces a 27.5 percent rate. This structure could cut the maximum tax rate for major shareholders roughly in half — from nearly 50 percent to about 25 percent. This reduction would likely encourage companies and investors to increase dividends.
Additionally, the government says smaller shareholders would benefit. Higher payouts generally improve dividend yields and boost investment appeal. Analyst Kim Soo-hyun from DS Investment & Securities said the reform could reduce tax burdens, encourage long-term investments, and stabilize the capital market.
However, analysts stress success depends on companies maintaining high payout ratios and showing steady dividend growth. Lee Kyung-yeon, an analyst at Daishin Securities, suggested investors focus on “true value stocks.” These stocks have strong dividend capacity and a clear plan to increase payouts.
Some companies meeting these criteria include Jinyang Holdings, SeAH Be Steel Holdings, Amore Pacific Holdings, CJ, Huons Global, SK Discovery, and Orion Holdings. These firms have averaged payout ratios above 35 percent over five years. They also show significant ownership by major shareholders.
Others with payout ratios between 25 and 34 percent — like Kolon, Hankook & Co., and Daesang Holdings — may push past 35 percent to unlock benefits. If separate taxation on dividend income is implemented, financial holding companies may shift from stock buybacks to boosting dividends.
Currently, total shareholder returns for major financial groups like Woori, Hana, KB, and Shinhan hover around 40 percent, including buybacks and dividends. Their dividend payout ratios remain below 30 percent. This shows room to increase dividends if encouraged by Korea dividend tax reform.
