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South Korea is taking decisive steps to overhaul its tax framework on dividends as part of President Lee Jae-myung’s ambitious plan to invigorate the domestic stock market. The proposed reforms aim to enhance shareholder returns and tackle the persistent “Korea Discount” — the undervaluation of South Korean firms compared to global peers.
During a visit to the Korea Exchange on June 11, President Lee emphasized the importance of encouraging dividend payouts through potential tax reductions, provided such measures do not severely impact public finances. “If it does not greatly hurt public finances, it will be better to lower (taxes) for more dividend income,” Lee stated.
This move aligns with Lee’s broader agenda to reform capital markets and strengthen corporate governance. His administration is advancing legislation that broadens the fiduciary duties of corporate boards to safeguard shareholder interests — a key step expected to be approved by parliament this month.
Complementing these reforms, regulatory initiatives aim to clamp down on unfair trading practices with a new “one-strike-out” policy to penalize illegal trades swiftly and decisively.
Since Lee’s election, South Korea’s benchmark KOSPI index has shown notable gains, fueled by optimism surrounding his “KOSPI 5,000” vision, which targets pushing the index to historic highs. As of June 11, the KOSPI closed at 2,907.04, its highest since January 2022.
Implications for Investors and Multinational Corporations
The anticipated tax reforms could significantly alter the investment landscape in South Korea. Lower dividend taxes would increase the after-tax return for shareholders, potentially attracting more foreign capital inflows and encouraging long-term investment in Korean equities.
For multinational corporations operating in South Korea, these changes may impact dividend repatriation strategies and require updated tax planning frameworks. Corporate boards should prepare for enhanced governance responsibilities under the new fiduciary duty legislation.
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