Korea's Dividend Separate Taxation: 40% Payout Rule, 4 Brackets

Dividends paid on or after January 1, 2026 by Korean listed companies with a dividend payout ratio of 40% or higher can be taxed on their own schedule — 14% to 30% — instead of being stacked onto comprehensive income. The enabling amendment to the Special Tax Treatment Control Act cleared the National Assembly last December and runs for three years, through 2028.

The name suggests an automatic tax cut. It is closer to swapping one rate table for another. Depending on how much other income you have, the bill can go up. And nothing happens at all unless you act on your return.

Which companies qualify — 40%, or 25% plus 10% growth

Not every dividend counts. There are two doors. Either the payout ratio is 40% or higher, or it is at least 25% and total dividends grew by 10% or more versus the previous fiscal year. The second door exists so the rule rewards companies that increase distributions, not only those that already pay a lot.

Payout ratio is dividends divided by net income. It is easy to confuse with dividend yield (dividend per share divided by share price), but eligibility turns on payout ratio, which is independent of the stock price. A company whose yield has fallen to 1% because the shares ran up still qualifies if it returned 40% of net income. A 5% yielder that pays out only 20% of earnings and is not growing the dividend does not.

The exclusions are equally clear: unlisted companies, foreign-listed shares, and distributions from ETFs, funds and REITs are all out. Only cash dividends from directly held Korean listed shares count. Mirae Asset Securities lists investment companies, funds, SPCs and real estate REITs among the excluded vehicles. If your dividend income comes from US names, this rule does not reach it — that flows through a separate withholding chain by country.

Four brackets, and what the tax actually comes to

Choose separate taxation and the whole dividend amount runs through this progression: 14% up to 20 million won, 20% from 20 million to 300 million, 25% from 300 million to 5 billion, and 30% above that. All figures exclude local income tax, which adds another 10% on top of the tax itself.

The 20 million won line matters most. Below it, the separate rate is 14% — identical to the withholding rate you already pay. There is nothing to gain by filing. The regime only starts to mean something once financial income crosses 20 million won and comprehensive taxation kicks in. Note that the comprehensive taxation threshold and the health insurance premium threshold sit at different levels.

Separate taxation is not a tax cut. It is a different rate table — and with little other income, there is no reason to switch.

Where does separate taxation start to win?

Whether it pays is decided not by the size of the dividend but by the taxable base of your other income. Under comprehensive taxation, the portion of financial income above 20 million won stacks on top of wages or business income and meets your marginal rate. If that marginal rate exceeds the 20% separate-taxation bracket, separate taxation wins. If it is lower, it loses.

Holding the dividend fixed at 30 million won and varying only the other taxable base gives the following. The comprehensive column applies the comparative calculation: 14% on the first 20 million, marginal rate on the remaining 10 million (local tax excluded).

The pivot is a taxable base of roughly 50 million won, where the income tax schedule steps from 15% to 24% and the 20% separate bracket sits in between. At a 45 million base, half of the 10 million excess is taxed at 15% and half at 24%, giving 4.75 million — still 50,000 won cheaper than separate taxation. A small increase in other income flips the order.

Read the other way, the design shows through. A retired household with large dividends but little other income pays less by staying with comprehensive taxation. The savings scale with employment or business income. In the bottom row, 1.8 million won is 6% of the 30 million dividend.

It is not automatic — you have to claim exclusion

The procedural step is the one most easily missed. Mirae Asset states plainly that separate taxation applies only if you request exclusion from aggregation when filing your comprehensive income tax return. Brokers do not withhold at a reduced rate on your behalf. Withholding happens as usual at payment, and the following May you carve the qualifying dividends out of comprehensive income yourself.

That requires knowing which of your dividends came from qualifying companies. Because the 40% payout test depends on finalized annual results, eligibility may still be undetermined at the moment the dividend lands — the same calendar problem that shapes the gap between ex-dividend and record dates.

The fiscal numbers give some context. Korea Daily reports the measure is projected to reduce tax revenue by an average of 480.2 billion won per year, or 1.92 trillion won cumulatively from 2026 to 2030. Whether the three-year sunset gets extended will depend on how that estimate lines up against actual movement in payout ratios. The 2026 tax code changes touched financial income taxation more broadly as well.

What to watch

• Payout ratio of your holdings — not yield, but dividends as a share of net income above 40%; if it sits in the 25% range, whether total dividends grew 10% or more year on year
• Your other taxable base — crossing 50 million won is the practical pivot. Below it, filing for exclusion gains little
• What is actually in the account — ETF and REIT distributions and foreign dividends are excluded, so the qualifying total has to be tallied separately
• Health insurance premiums — whether electing separate taxation also removes the income from the premium calculation is governed by separate rules. The sources behind this piece do not confirm it; check the NHIS standard directly
• The 2028 sunset — this is a three-year measure. Any long-horizon plan built on these rates carries extension risk

Sources

• Dividend separate taxation: eligible companies, timing, rates — KB
• 2026 separate taxation for high-payout companies — Mirae Asset Securities
• Dividend separate taxation to cut revenue 1.9 trillion won over five years — Korea Daily
• A look at Korea's 2026 tax code changes — KB