Venture Stock Option Tax Exemption Threshold Raised from 30 Million to 50 Million Won

Strengthened Tax Benefits... Additional Tax Savings During Events
Reflecting Industry Demands... Amendment of Stock Option Related Laws

[Asia Economy Reporter Kim Bo-kyung] The government will raise the tax exemption benefit for stock options of venture companies from 30 million KRW to 50 million KRW based on exercise gains starting next year.

The Ministry of SMEs and Startups announced on the 29th that it will improve the legal system related to stock options by reflecting industry demands, including expanding tax benefits for venture company stock options.

First, starting next year, the tax exemption benefit for venture company stock options will be increased from an annual limit of 30 million KRW based on exercise gains to 50 million KRW.

With this increase in the tax-exempt amount, employees of venture companies are expected to save additional taxes when exercising stock options compared to before.

Additionally, for stock options granted below market price, a special tax treatment will be applied where employees do not pay earned income tax at exercise but only capital gains tax upon disposal. However, earned income tax will be imposed on the gain portion resulting from issuance below market price.

Currently, special tax treatment (tax deferral) is only allowed for stock options that meet certain conditions such as ▲being exercised after 2 years of continuous employment post-grant ▲the total exercise price over 3 years being 500 million KRW or less ▲and issuance at or above market price.

If tax deferral becomes possible for stock options granted below market price as well, the tax payment burden on unrealized gains is expected to be alleviated.

Along with this, to enable venture companies to attract talented personnel even after acquiring technology companies, subsidiary employees will also be included as beneficiaries of the tax benefits.

Furthermore, the Ministry of SMEs and Startups has prepared a standard contract to allow flexible operation of performance-linked stock options and long-term employment incentives according to company circumstances.

A case-centered manual will be produced and distributed to systematically manage and help venture companies properly utilize stock options. The standard contract and manual will be available from the 30th on the Ministry of SMEs and Startups website and the Small and Medium Business Venture 24 platform.

In addition, revisions to the Enforcement Decree of the Venture Business Act are underway to allow the selection and use of appropriate valuation methods according to circumstances when evaluating unlisted shares of venture companies.

Currently, the Enforcement Decree of the Venture Business Act only stipulates the 'supplementary valuation method' under Article 54 of the Enforcement Decree of the Inheritance and Gift Tax Act, which considers assets, liabilities, and net profit or loss as criteria for evaluating unlisted shares.

Because of this, there have been ongoing opinions that it is difficult to reasonably estimate market value for unlisted venture companies that continue to grow through ongoing investment.

Therefore, the Enforcement Decree of the Venture Business Act will be amended to apply the valuation principles of Article 60 of the Inheritance and Gift Tax Act as criteria for evaluating unlisted shares of venture companies.

Through this, it is expected that market value can be estimated based on transaction prices over the past six months or by comparison with similar listed companies.

Park Yong-soon, Director of Venture Innovation Policy at the Ministry of SMEs and Startups, stated, "We will steadily implement the supplementary measures prepared to solidify the second venture boom."

This content was produced with the assistance of AI translation services.