"Appropriate Limit Setting Needed for Tax Exemption Special Cases to Activate Stock Option Plans"

Trends and Issues of Stock Options in Unlisted Venture Companies

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[Asia Economy Reporter Kim Cheol-hyun] To promote the activation of stock options in the future, it has been suggested that an appropriate limit should be set within the range that does not significantly undermine tax equity, so that the tax exemption special case can effectively function as an incentive.

Kang Jae-won, a research fellow at the Korea Institute of Startup & Entrepreneurship Development (President Oh Dong-yoon), stated this on the 26th through a report titled "Trends and Issues of Stock Options in Unlisted Venture Companies" (Small and Medium Business Focus No. 21-24).

According to the report, the government is promoting the activation of stock options as part of the strategy to spread the second venture boom. Stock options granted to unlisted venture companies under the "Special Measures for the Promotion of Venture Businesses Act" (hereinafter referred to as the Venture Special Act) are more favorable in terms of grant targets, grant limits, and exercise prices compared to stock options under the Commercial Act.

Additionally, stock options granted only to executives and employees are tax-exempt up to 30 million KRW per year (tax exemption special case). Income tax on exercise gains exceeding the 30 million KRW annual limit can be paid in installments over five years (payment special case). For qualified stock options meeting certain requirements, income tax on gains at exercise can be replaced by capital gains tax upon transfer of exercised shares (taxation special case).

Thanks to these benefits, since the reintroduction of tax special cases on stock options in 2015, the number of reports and grantees has continuously increased. However, over the past three years, the proportion of venture companies granting stock options compared to all venture companies is only about 1%. The Venture Business Detailed Survey revealed that lack of awareness about the stock option system is the biggest factor, indicating the need for active and continuous promotion of its effectiveness.

Furthermore, a detailed examination of the status of stock option grants in unlisted venture companies showed that 70% of the granting venture companies are startups with less than seven years of operation, among which early-stage startups with less than three years of operation accounted for 42.48%. Also, while the proportion of venture companies located in Seoul is only 24.9%, the proportion based on granting companies reached 50.98%, showing a strong concentration in Seoul.

Research fellow Kang stated that, in addition to the ongoing revision of the Enforcement Decree of the Venture Special Act to reflect the market price evaluation standards of unlisted venture company stocks and improve related reporting matters, it is necessary to expand the grant targets to enhance the utilization of excellent external personnel. As part of this, he added that it is necessary to consider explicit type separation between stock options granted to executives and employees and those granted to external personnel, as well as tax benefit measures.

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