KCCI: "No Amendment to Commercial Act... 5% Tax Credit on Increased Dividends Should Be Reintroduced"

Proposal Submitted to Government and National Assembly on "Tax System Improvement Tasks"
Call for New 5% Dividend Tax Credit to Boost Shareholder Returns
Urging Advanced Tax Support Measures for High-Tech Industries
Request to Extend Temporary Investment Tax Credits for Crisis Industries

As the amended Commercial Act, which expands the duty of loyalty for directors, is set to be presented at the National Assembly plenary session, the business community argues that tax reform to activate shareholder dividends should take precedence over expanding directors' responsibilities. In particular, there are demands for the government to reintroduce measures such as providing a 5% tax credit on increased corporate dividends or applying a low-rate separate taxation on dividend income.

The Korea Chamber of Commerce and Industry (KCCI) announced on the 12th that it submitted the "2025 Tax System Improvement Proposal" to the government and the National Assembly on the 4th. Regarding the purpose of the proposal, KCCI explained, "The amendment to the Commercial Act raises concerns that it will only increase legal uncertainty about directors' responsibilities, leading to excessive litigation, investment contraction, and hindrance to innovation, thereby damaging corporate competitiveness," and added, "Instead of vague legislation expanding directors' duty of loyalty, we should seek value-up through tax systems that directly benefit shareholders by expanding shareholder dividends."

In this proposal, KCCI requested 130 tax system improvement tasks, including ▲introduction of shareholder return promotion tax system ▲advancement of tax support for investment in advanced industries ▲application of temporary investment tax credits for crisis industries ▲reform of inheritance tax.

KCCI first argued that the tax system should be restructured to activate shareholder dividends. According to a survey conducted last year by Gallup Korea, a public opinion research firm, about 35% of South Koreans aged 18 and over invest in stocks. Additionally, in a recent survey by KCCI on the impact of expanding shareholder activism, small shareholders most desired increased dividends (61.7%) and share buybacks and cancellations (47.5%), which are monetary benefits.

KCCI explained that companies are already making efforts to improve the low level of shareholder returns by actively promoting share buybacks and cancellations and expanding cash dividends to enhance shareholder value, which is of great public interest. According to the Financial Services Commission, the total amount of corporate share repurchases last year was 18.7 trillion won, an increase of 2.28 times compared to the previous year. Cash dividends also increased by 7.2% to 45.7 trillion won.

Specifically, KCCI urged the government to reintroduce the "5% tax credit on increased dividends," which was included in the 2023 tax law amendment but failed to pass the National Assembly. This measure provides a 5% corporate tax credit on the increased amount of dividends paid by companies. Large corporations currently pay an additional 20% tax under the "Investment and Win-Win Cooperation Promotion Tax System" besides corporate tax, and KCCI proposed that dividends should also be included as a deductible item, similar to investments and wage increases.

They also stated that a low-rate separate taxation should be applied to dividend income. Currently, a 14% tax rate applies to dividend income up to 20 million won, but income exceeding this is taxed at a maximum rate of 45%. KCCI proposed abolishing the comprehensive taxation of financial income and applying a single tax rate of 9%, or raising the taxable income bracket from 20 million won to 50 million won.

Furthermore, KCCI argued that tax support methods for advanced industries such as semiconductors and batteries should be substantially strengthened. Although tax credit benefits for national strategic industries have been expanded, it pointed out the problem that companies find it difficult to utilize tax credits when operating at a loss. KCCI proposed a method similar to the U.S. CHIPS Act, which provides direct cash refunds of a certain percentage of investment amounts. Currently, the corporate tax credit system requires operating profits to receive benefits. Considering that tax credits cannot be used when in deficit, KCCI also advocated improving the system to allow unused tax credits to be transferred to third parties, as in France. The proposal also included applying production-based tax credits like the U.S. Inflation Reduction Act (IRA) to incentivize companies to expand facilities.

KCCI emphasized the need for tax support as national key industries such as steel and petrochemicals face crises due to oversupply from China. Currently, a 3% credit rate applies to large corporations, but they will be excluded in 2024-2025. Therefore, KCCI called for designating structurally crisis-hit industries as "crisis industries" and extending temporary investment tax credits for industrial crisis response special zones. They also requested raising the credit limit from the current 80% of taxable income to 100% and extending the period from 15 years to 20 years.

Kang Seok-gu, head of the KCCI Research Department, said, "Amid various contentious issues such as recent amendments to the Commercial Act, inheritance tax reform, and competition in investment in advanced industries, policy supplementation is necessary for our tax system to be competitive," adding, "For the continuous growth of companies at the center of economic development and the resulting increase in citizens' assets, it is necessary to prioritize introducing tax support systems that can enhance corporate innovation and shareholder returns rather than the Commercial Act amendment, which causes serious side effects."

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