[비즈한국] As the stock market continues to fluctuate by several percentage points daily, more investors are turning to dividend stocks, which provide cash flow regardless of share price swings. Coincidentally, a special provision to lower taxes on dividends went into effect this year: the separate taxation of dividend income. However, it would be a mistake to assume from the name alone that “all dividend taxes have been lowered.” The benefits do not apply to all dividends, but only to those received from certain high-dividend companies, and the practical tax-saving effect primarily benefits investors whose total financial income (interest and dividends combined) exceeds 20 million won per year.
Why are dividend stocks attracting attention right now? Even if the stock price is volatile, if the dividend remains consistent, the cash flow acts as a psychological buffer. While the base interest rate has risen to 2.75% per annum, increasing deposit interest rates, blue-chip stocks with higher dividend yields offer the potential for both dividend income and capital gains. However, dividends are not guaranteed income like bank interest. They can be reduced or eliminated depending on corporate performance and decisions made by the board of directors and general shareholders' meetings, and there is also the factor of ex-dividend dates. One must keep these points in mind when considering the tax implications.
Previously, dividends were disadvantaged in terms of taxation. If financial income (the sum of interest and dividends) exceeded 20 million won annually, it became subject to global income taxation, where it was aggregated with other income and subject to progressive tax rates. For investors already in the top tax bracket due to other high income, the marginal tax rate on dividends could reach as high as 49.5%, including local taxes. It has long been pointed out that this heavy burden of global taxation discourages major shareholders from increasing dividends and contributes to the so-called "Korea Discount."
The essence of the new system is that dividend income is separated from other income and taxed at a lower rate. The tax rates follow a progressive structure by bracket. Based on national tax, 14% is applied to the first 20 million won, 20% to the amount exceeding 20 million won up to 300 million won, 25% to the amount exceeding 300 million won up to 5 billion won, and 30% to amounts exceeding 5 billion won. Including local income taxes, the marginal tax rates for each bracket are 15.4%, 22%, 27.5%, and 33%. This means that once you exceed 20 million won, a 20% tax is not applied to the entire amount, but only to the portion that exceeds that threshold.
For instance, if you receive 80 million won in eligible dividends, the national tax would be 14.8 million won (14% of the first 20 million won, which is 2.8 million won, plus 20% of the remaining 60 million won, which is 12 million won). Including local taxes, the total is about 16.28 million won, resulting in an effective tax rate of approximately 20%. This special provision applies to dividends received from 2026 through the 2028 business year; for companies with a December fiscal year-end, this may include final dividends received in 2029. The first filing will be in May 2027.
The tax-saving effect varies by person. It is more significant for investors whose previous marginal tax rate far exceeded 20% due to other high global income. Conversely, if an investor has little other income or their financial income only slightly exceeds the 20 million won threshold, global taxation may actually be more favorable than separate taxation. Ultimately, the actual beneficiaries are likely investors who receive significant dividends and also have substantial other income, such as from employment or business. For the majority of individuals who receive a few hundred thousand won in dividends outside of their salary, the tangible change will not be significant. Rather than thinking, "If others say it's advantageous, I should do it too," it is better to calculate by comparing both methods against your own specific income structure.
Above all, not just any dividend qualifies for the benefit. In principle, the criteria are companies listed on the KOSPI or KOSDAQ market that have a dividend payout ratio of at least 40%, or a payout ratio of at least 25% with an increase in cash dividends of at least 10% compared to the previous year. However, dividend amounts must not have decreased compared to the 2024 business year, and the company must have disclosed its fulfillment of these requirements as part of its corporate value enhancement plan. Investment companies and similar entities are excluded.
Additionally, this special provision applies only to cash dividends received directly from the stocks of those listed companies. Distributions from ETFs or funds holding the same stocks, REIT dividends, and dividends from foreign stocks like U.S. equities are not eligible. Considering that many individuals invest in dividends through ETFs, you must first confirm exactly which category your dividends fall into.
Confirming this is not as difficult as it might seem. You can check eligibility via the "High Dividend Company Status" section on the Korea Exchange's KIND disclosure channel. Companies are required to disclose whether they qualify as a high-dividend company by the day after they resolve to pay dividends at the annual general shareholders' meeting. There is no longer a need for individuals to estimate based solely on dividend payout ratio figures in brokerage apps.
It is also easy to overlook the fact that this is a "benefit you must apply for." Separate taxation is not applied automatically. When you file your comprehensive income tax return the following year, you must choose and apply for separate taxation. Furthermore, for special dividends where you elect separate taxation, you cannot concurrently receive the existing dividend tax credit.
For reference, if your financial income (interest and dividends combined) is 20 million won or less, 14% national tax is withheld by default and the taxation process concludes, so there is practically no real benefit from the new system. However, it is worth noting that special dividends for which separate taxation is requested are excluded when calculating the 20 million won threshold for global taxation, and only ordinary corporate dividends and interest are added together to determine if the threshold is exceeded.
Under tax law, separate taxation and health insurance premium calculations are separate issues. Under current health insurance regulations, dividends subject to separate taxation can still be reflected when determining insurance premiums and eligibility for dependent status. Therefore, one should not assume that premiums will automatically decrease or that dependent status will be maintained simply because the income is excluded from the comprehensive income tax base.
When choosing stocks, taxes should not be your primary concern. This system provides tax benefits to companies that pay high dividends or have increased them compared to the previous year. Rather than jumping into a stock with a high dividend yield just for the tax benefit, you should first look at whether the company’s profits and cash flow are solid enough to sustain those dividends in the future. A company that increased dividends one-time to meet the requirements is different from a company that has steadily grown its dividends over a long period. While the tax system is only temporarily in effect through the 2028 business year, the eye for picking good dividend stocks is needed for much longer.
Of course, there is criticism that this system is "a tax cut that ultimately favors the wealthy and high-income earners." Controversy over equity remains, given that major shareholders receiving hundreds of millions of won in dividends receive the largest tax breaks. On the other hand, the goal of the "Value-up" program is to encourage companies to return more of their earnings to shareholders, thereby resolving the undervaluation of the stock market. The assessment of this system will depend on how much corporate dividends actually increase in the future and who ultimately receives the benefits.
In conclusion, dividend taxes have not been lowered across the board; they have been selectively lowered only for dividends received from specific high-dividend companies. Before picking dividend stocks, check the eligibility on KIND and compare the taxes for global versus separate taxation next May. Whether or not you benefit from this system will be determined not by the name "dividend stock," but by the source of the dividend and your personal income structure.