Ministry of SMEs and Startups Announces New Tax Benefits for Acquisition of Multiple Voting Rights Shares in Venture Companies

Timing of Capital Gains Tax Payment
Deferred Until After 'Conversion of Multiple Voting Rights Shares to Common Shares'

The Ministry of SMEs and Startups announced on the 27th that the partial amendment to the 'Restriction of Special Taxation Act' was approved at the Cabinet meeting, establishing tax benefits related to the acquisition of multiple voting right shares by venture companies.

The multiple voting right shares system, introduced in November 2023, grants up to 10 voting rights per share. It was implemented to support venture companies in attracting large-scale investments and growing without concerns about equity dilution.

Under the existing tax law, when a founder contributes common shares they hold to a venture company in exchange for multiple voting right shares issued by the venture company, it was considered a transfer of assets, and capital gains tax was imposed on the gain from the transfer of common shares.

Although the founder only acquires multiple voting right shares instead of cash assets in exchange for transferring common shares, and there is essentially no economic difference, they were required to pay capital gains tax, making it difficult to actively utilize the multiple voting right shares system.

To resolve these difficulties, a tax benefit deferring the payment of capital gains tax until after the 'conversion of multiple voting right shares to common shares,' when the founder's economic situation undergoes a substantial change, was newly established in the 'Restriction of Special Taxation Act.'

According to the 'Special Act on the Promotion of Venture Businesses,' founders will be able to pay capital gains tax after substantial economic changes occur, such as the listing of the venture company on the securities market, inheritance or transfer of multiple voting right shares, which are cases where multiple voting right shares are converted to common shares.

The deferral of capital gains tax on the acquisition of multiple voting right shares will apply to contributions in kind made on or after January 1, 2025, and specific details regarding the application for tax deferral will be included in the amendment to the Enforcement Decree of the 'Restriction of Special Taxation Act.'

The Ministry of SMEs and Startups and the Korea Venture Business Association will hold a ‘Practical Briefing on Multiple Voting Right Shares of Venture Companies’ at Maru180 in Gangnam-gu, Seoul, on January 13, 2025. The briefing will introduce the newly revised tax benefits and cases of issuing multiple voting right shares, and any venture company interested in issuing multiple voting right shares can participate.

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