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Ruling, opposition parties agree to tax reform plan imposing 30% top marginal rate on dividend income

Published: 28 Nov. 2025, 19:29 Updated: 30 Nov. 2025, 17:06

Liberal Democratic Party Rep. Jung Tae-ho, left, and conservative People Power Party Rep. Park Soo-young hold a press conference at the National Assembly in Yeouido, western Seoul, on Nov. 28 after wrapping up a tax subcommittee meeting on the tax reform agreement. [JANG JIN-YOUNG]

The ruling and opposition parties agreed Friday to a tax reform plan that would impose a 30 percent top marginal tax rate on dividend income exceeding 5 billion won ($3.4 million) under a new separate taxation scheme.

They failed, however, to reach an agreement on corporate tax increases, which will be discussed again on Sunday.

Conservative People Power Party (PPP) Rep. Park Soo-young, who chairs the National Assembly’s tax subcommittee under the Strategy and Finance Committee, and liberal Democratic Party (DP) Rep. Jung Tae-ho, the committee’s DP secretary, announced the agreement.

The 30 percent top rate is lower than the government’s proposed 35 percent but higher than the 25 percent rate proposed by DP Rep. Lee So-young and several PPP lawmakers. Lawmakers had initially aimed for a 25 percent cap, but DP members objected that such a move could be viewed as a “tax cut for the wealthy,” prompting the compromise.

Under the agreement, dividend income subject to separate taxation will be taxed at 14 percent for amounts under 20 million won, 20 percent for 20 million to 300 million won, 25 percent for 300 million to 5 billion won and 30 percent for income above 5 billion won.

The government’s July proposal had imposed a 35 percent rate on income exceeding 300 million won.

Park called the revised plan “a step forward from the government proposal,” noting that only about 100 taxpayers fall into the above-5-billion-won bracket, meaning that in practice the maximum rate for most taxpayers would effectively drop to 25 percent.

National Tax Service Commissioner Lim Kwang-hyun and members of the American Chamber of Commerce in Korea (Amcham) hold a discussion at a business roundtable at the International Finance Center (IFC) Seoul building in Yeouido, western Seoul, on Nov. 28. [AMCHAM]

Companies eligible for the separate taxation scheme will be those with a dividend payout ratio of at least 40 percent or firms with a payout ratio of at least 25 percent that also increase dividends by 10 percent or more year-on-year. The government initially proposed allowing companies that raised dividends by more than 5 percent above their three-year average, but lawmakers raised the threshold to encourage more aggressive dividend expansion.

The new system will take effect next year — one year earlier than the government’s plan — and will operate for three years under the Restriction of Special Taxation Act. Government and ruling party officials believe the revised structure will strengthen incentives for major shareholders to support dividend increases.

Currently, dividend income is taxed at 15.4 percent, including local income tax, when combined annual interest and dividends fall below 20 million won, and up to 49.5 percent when they exceed that threshold.

DP Rep. Lee said the new plan “offers considerably greater tax benefits to large shareholders, which should encourage companies to expand dividends.”

If companies do not increase dividends, however, individual investors may see little benefit from the reform. According to the National Tax Service, total dividend income for the 2023 tax year amounted to 30.2 trillion won, averaging 1.73 million won per taxpayer. The bottom 80 percent of investors — about 14 million people — received an average of only 81,947 won, while the top 10 percent — 1.75 million people — collected 27.6 trillion won, or 91 percent of all dividends, underscoring the extreme concentration of payouts.

National Tax Service Commissioner Lim Kwang-hyun speaks at a business roundtable hosted by the American Chamber of Commerce in Korea (Amcham) at the International Finance Center (IFC) Seoul building in Yeouido, western Seoul, on Nov. 28. [AMCHAM]

The fiscal impact remains uncertain. Separate taxation and lower rates reduce revenue, but higher dividend payouts could raise tax collections. Finance Minister Koo Yun-cheol previously estimated that lowering the top rate to 25 percent would generate “an additional tax reduction of about 170 billion to 190 billion won.”

Presidential spokesperson Kang Yu-jung said Friday that the bipartisan agreement was “the result of a comprehensive consideration of both the need to promote dividend payouts and to ensure tax fairness.”

Meanwhile, the ruling and opposition floor leaders met that day to discuss corporate tax increases but failed to reach a deal.

The government has proposed raising all corporate tax brackets by 1 percentage point, but the DP and some PPP lawmakers insist on freezing the lower brackets — 9 percent for taxable income under 200 million won and 19 percent for income between 200 million and 20 billion won — citing the burden on small- and medium-sized enterprises.

The parties also did not reach an agreement on raising the education tax rate on profits over 1 trillion won earned by financial companies, from 0.5 percent to 1 percent. Additional negotiations will continue through Sunday.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY AHN HYO-SEONG [[email protected]]