Rival parties reach agreement on tax reform plan for dividend income

Rep. Park Soo-young, left, of the main opposition People Power Party and Rep. Jung Tae-ho of the ruling Democratic Party of Korea, both members of the parliamentary strategy and finance committee, speak to reporters at the National Assembly in Seoul, Friday, after the two sides reached an agreement on tax reform for dividend income. Yonhap

The ruling and opposition parties agreed Friday on a tax reform plan to create a new bracket for dividend income subject to separate taxation, adding a top-tier category for amounts exceeding 5 billion won ($3.4 million) that will be taxed at a maximum tax rate of 30 percent.

Financial income is currently taxed at 15.4 percent for amounts up to 20 million won per year, while income above that threshold is subject to comprehensive taxation, with rates reaching up to 49.5 percent.

Under the agreement, a separate tax rate of 14 percent would apply to dividend income of up to 20 million won, 20 percent for amounts over 20 million won and up to 300 million won, and 25 percent for amounts over 300 million won and up to 5 billion won. Amounts exceeding 5 billion won would be taxed at 30 percent.

Rep. Park Soo-young of the main opposition People Power Party said the government's original proposal of a maximum 35 percent tax rate was essentially lowered to 25 percent, noting the highest bracket would apply to only around 100 people.

The plan will apply to companies with a dividend payout ratio of 40 percent or higher or a dividend payout ratio of 25 percent and an on-year increase of 10 percent or higher. It will apply to next year's dividends.