Whether an individual pays tax on a capital reserve dividend in Korea turns on one number: the acquisition cost of the shares. If the dividend received stays within that cost, there is no dividend income tax. Only the amount above it is taxed as dividend income. Per a KB Securities notice, the rule applies to dividends paid on or after January 1, 2026.
Not every shareholder is affected. A newsletter from law firm Shin & Kim explains that the corporate-shareholder treatment now extends to individuals who are major shareholders of listed companies and to shareholders of unlisted companies, while minority shareholders in small and mid-sized firms are excluded. For ordinary retail holders of listed stocks, the exemption stands.
But "exempt" does not mean "no tax." Every won of untaxed capital reserve dividend reduces the cost basis of the shares, so the capital gain grows by the same amount when the stock is eventually sold. The tax does not vanish — it moves down the road.
Why these dividends were untaxed in the first place
A capital reserve dividend (gamaek baedang) is paid after a company reduces a statutory capital reserve — such as share premium — moves it into retained earnings, and distributes it. Financial News describes the nature of such a payout as "a refund of what shareholders paid in, not a distribution of profit the company generated." The source of the money differs from an ordinary dividend.
You cannot levy income tax on someone getting their own capital back. That is why these dividends sat outside dividend income. Corporate shareholders were already taxed on the portion exceeding their basis, but individuals kept the exemption even beyond basis for a practical reason: the tax authority had no way to know each person's acquisition cost, as the Mirae Asset Investment and Pension Center notes.
The amendment narrows that exception. The principle stays — returning contributed capital is not income — but anything taken out beyond what was put in no longer counts as a refund.
Are minority shareholders of listed firms unaffected?
Yes. Two groups of individuals fall inside the new perimeter: major shareholders of listed companies, and shareholders of unlisted companies. The Shin & Kim newsletter sets out the major-shareholder threshold used for listed-share capital gains tax — a stake of 1% on KOSPI, 2% on KOSDAQ, 4% on KONEX, or a holding worth 1 billion won or more in a single stock. Below that line, the prior exemption continues.
Reporting, however, tightens. The list of tax data that securities firms must file now includes capital reserve dividend records for major shareholders of listed companies, plus trading and dividend records for major shareholders of small and mid-sized firms on the K-OTC market. Financial News reports those filing requirements apply to transactions and dividends from January 1, 2027. The tax rule switches on first; the paperwork that verifies it follows a year later.
One practical wrinkle matters more than it sounds. The paying institution has no idea what each shareholder paid for the stock. Proving the basis therefore falls on the shareholder. As Financial News points out, holders must submit their own acquisition-cost documentation — and without it, a favorable determination is hard to obtain.
What happens with an 8,000 won basis and a 1,200 won dividend
Pick one number and run it out. Assume an individual who qualifies as a major shareholder of a listed company bought a share at 8,000 won, and the company pays a capital reserve dividend of 1,200 won per share every year. The table below applies the rule directly — within basis is untaxed and reduces basis, above basis is dividend income.
| Year | Dividend per share (KRW) | Basis before dividend (KRW) | Taxable dividend income (KRW) | Basis after dividend (KRW) |
|---|---|---|---|---|
| 1 | 1,200 | 8,000 | 0 | 6,800 |
| 2 | 1,200 | 6,800 | 0 | 5,600 |
| 3 | 1,200 | 5,600 | 0 | 4,400 |
| 4 | 1,200 | 4,400 | 0 | 3,200 |
| 5 | 1,200 | 3,200 | 0 | 2,000 |
| 6 | 1,200 | 2,000 | 0 | 800 |
| 7 | 1,200 | 800 | 400 | 0 |
| 8 | 1,200 | 0 | 1,200 | 0 |
Nothing is taxed through year six. In year seven, the 400 won that exceeds the remaining 800 won of basis becomes dividend income for the first time; from year eight, with basis at zero, the entire 1,200 won is taxable. Two people receiving the identical payout from the identical company can hit that switch in different years, purely because of when and at what price they bought. Someone who paid 3,000 won instead of 8,000 starts paying in year three.
The key idea is that basis is not a shield you use once — it is consumable. The longer a stock has been paying capital reserve dividends, the thinner the remaining shield. That is why it is worth checking whether past dividend disclosures carried the "dividend from capital reserve reduction" label.
The exemption on capital reserve dividends is a deferral, not a discount — nothing is forgiven; it is drawn in advance from the account called cost basis.
Untaxed does not mean the tax disappeared
The year-six shareholder above never paid a won of dividend tax. Yet the basis fell from 8,000 won to 800 won. Sell that share at 10,000 won and the capital gain is not the original 2,000 won but 9,200 won. The 7,200 won received as dividends simply migrated into the capital gain.
This is the point Financial News raises when it warns that "even without immediate taxation at the dividend date, the adjusted cost basis can increase the capital gains tax burden at sale." The exemption at the dividend stage and the tax at the sale stage are one mechanism. Adding capital reserve dividends straight into a dividend yield calculation overstates the after-tax result.
| Case | Basis (KRW) | Sale price (KRW) | Capital gain (KRW) |
|---|---|---|---|
| No capital reserve dividends received | 8,000 | 10,000 | 2,000 |
| After receiving 7,200 over six years | 800 | 10,000 | 9,200 |
| Difference | -7,200 | 0 | +7,200 |
The rate actually applied to that gain depends on major-shareholder status, the tax bracket, and the account the shares sit in. The direction, though, is unambiguous: the more capital reserve dividends collected, the larger the taxable base at exit. The same logic governs after-tax comparisons between buybacks and cash dividends, which is covered separately in a piece calculating after-tax returns from share cancellation versus cash dividends.
2026 changed more than one dividend rule
Several dividend-related provisions moved at once. The Mirae Asset center lists separate taxation of 14–30% on dividends from high-payout companies, a 1 percentage point increase in corporate tax rates across brackets, and a 0.05 percentage point rise in the securities transaction tax. Machinery that encourages larger payouts and machinery that collects on them switched on in the same year.
An announcement of expanded shareholder returns no longer translates cleanly into more cash in shareholders' pockets, because what a shareholder actually keeps depends on which pot the company pays from. Retained-earnings dividends, capital reserve dividends, and share cancellations split three ways, each with its own tax path. Looking only at total return size cannot capture that difference — how to read the payout ratio itself is laid out in an earlier breakdown of shareholder return ratios.
What to watch
- The funding source in the dividend disclosure — identical cash payouts follow different tax paths depending on whether a capital reserve was reduced. Check for the label first.
- Your remaining basis — it has already been cut by the cumulative capital reserve dividends received. Keep brokerage trade records and dividend records together; proof is your responsibility.
- The major-shareholder threshold — 1% on KOSPI, 2% on KOSDAQ, 4% on KONEX, or 1 billion won in a single stock. Year-end holdings can flip your status for the following year.
- Data filing starting in 2027 — once securities firms begin reporting capital reserve dividend records, the odds of an unreported amount going unnoticed change.
- Documentation of acquisition cost — as long as paying institutions cannot see individual basis, having the paperwork ready is what determines the actual bill.