1. 2025, a different capital markets tax landscape
the year 2025 is expected to mark a major turning point in the history of Korea's capital markets in terms of tax policy. in conjunction with the postponement of the 'financial investment income tax' (Gilt Tax) that has been discussed for the past few years, the government has decided to modify some of the existing tax cuts and reduce the benefits concentrated in the hands of the wealthy in order to raise revenue and improve tax equity. This report provides an in-depth analysis of the key elements of the 2025 Tax Act amendments: the increase in securities transaction tax and the taxation of capital reserve reduction dividends, from the perspective of one of the world's leading blog content strategists and financial writers.
the purpose of this report is not to simply list facts, but to provide a three-dimensional view of the ripple effect of each tax change on market participants (individual investors, large shareholders, day traders, etc.) from both micro and macro perspectives to complete the "informative storytelling" that readers of major platforms such as NAVER and T-story crave. in particular, we focus on two key themes: the return of the securities transaction tax to 0.20% and the taxation of reduced dividends triggered by the Merits Financial Holdings crisis, and provide strategic insights that readers must know to survive in the stock market in 2026.
1.1. Background and key words in the tax overhaul
the core logic behind the tax reform is 'Normalization' and 'Equity'.
normalization of securities transaction tax: Initially, the rate of securities transaction tax was scheduled to be lowered in stages based on the introduction of the gold investment tax, but due to concerns about the lack of tax revenue due to the abolition/suspension of the gold investment tax, the rate was raised again.
closing tax loopholes: The practice of large shareholders using an accounting trick called capital reserve reduction dividends to take huge amounts of cash without paying a penny in taxes was put to rest.
this change sends a strong signal to the market that the "free lunch is over". investors now have to solve higher-order equations to predict not just "which stocks will go up," but "how much of my return will go to taxes" and "how will the behavior of large shareholders change because of taxes.
2. securities Transaction Tax Increase: Reverting from 0.15% to 0.20
the most direct and far-reaching change, effective January 1, 2026, is the increase in the securities transaction tax rate. This is a universal increase that applies to all sellers of shares and is expected to have an immediate impact on market liquidity and investors' trading patterns.
2.1. The details of the tax rate change by market
while many investors simply recognize that "taxes are going up," there are important differences in the structure of the application by market (KOSPI and KOSDAQ).
2.1.1. KOSPI: 0.the magic of 05% + 0.15
the securities transaction tax rate on the KOSPI market is nominally increased from 0% to 0.05%. but it doesn't end there: KOSPI transactions are subject to an additional 0.15% agricultural special tax.
current (as of the end of 2025): 0% transaction tax + 0.15% agricultural special tax = 0.15% total burden
reformed (after January 1, 2026): 0.05% transaction tax + 0.15% agricultural special tax = 0.20% total burden.
in other words, the final tax rate experienced by investors will be 0.20%. this is something that investors may misunderstand when the government announces that "the KOSDAQ transaction tax rate will be adjusted to 0.05%", but in reality, the fixed cost of the agricultural special tax is added to increase the burden by 33%. 7
2.1.2. KOSDAQ and K-OTC: Pure tax increase without agricultural special taxes
kOSDAQ and K-OTC (Over-the-Counter Stock Market) are markets that are exempt from the agricultural special tax. Therefore, the securities transaction tax itself is directly increased here.
as a result, the total transaction costs to be borne by investors on both the KOSPI and KOSDAQ will be aligned at 0.20% of the sale price. while this is positive in terms of ensuring tax neutrality between markets, it is a clear cost increase for participants in the KOSDAQ market, which is heavily traded in technology stocks.
2.1.3. KONEX and unlisted stocks: status quo
kONEX, a market dedicated to early-stage SMEs, will retain its low tax rate of 0.10%. this means that the policy consideration to stimulate the venture ecosystem continues. for general unlisted stocks, the higher tax rate of 0.35% will be maintained, so trading through the K-OTC market (0.20%) is still a valid investment point as it is much more favorable tax-wise.
2.2. Impact on traders: Increased break-even point for scalping
the increase in securities transaction tax is more devastating for day traders and scalpers, who make dozens or hundreds of trades per day, rather than long-term investors.
2.2.1. Simulating a change in the breakeven point (BEP)
let's calculate how much the stock price would have to increase to break even, assuming you sell as soon as you buy it (assuming a commission of around 0.0036% for the relevant agency)
that may seem like a mere 0.05 percentage point difference, but in ultra-short-term trading, the battle is fought on a tick-by-tick basis. for a $10,000 stock, what used to be a profitable range where you only needed tick 1 (assuming 50 won increments) to make a profit, may now require tick 2 to make a profit. this acts as a 'friction cost' that drastically reduces the turnover rate of trades and reduces the liquidity of the entire market.
2.2.2. Potential to reduce market liquidity
economically, higher transaction taxes cause a decrease in trading volume. 0.the 20% tax rate is still significantly higher than global standards (0% in the US and 0% in Japan). the Korean market may be perceived as "expensive," especially for institutional/foreign investors using AI algorithmic trading or high-frequency trading (HFT) strategies, which is likely a contributing factor to the Korea Discount.
2.3. Unexpected beneficiaries: Money moves into the ETF market
one of the most important investment strategies behind the news of the securities transaction tax hike is exchange traded funds (ETFs).
under Korean tax law, selling domestic equity ETFs is exempt from securities transaction tax.
when selling individual stocks (Samsung Electronics): 0.20% tax.
When selling an ETF (KODEX Samsung Group): 0% tax. (However, dividend income tax on trading gains is not applicable)
with the increase in securities transaction tax from 0.15% to 0.20%, the cost gap between buying and selling individual stocks and ETFs has widened even further. smart investors, especially those looking for short-term market arbitrage, have a strong incentive to move their trades into ETFs or sector ETFs that contain individual stocks to avoid the tax cost.
by 2026, we expect to see an explosion in trading volume for "semiconductor ETFs" over "semiconductor individual stocks". as a content strategist, this is a "tax-saving investment tip" that you should emphasize to your readers.
3. taxation of Capital Reserve Reduction Dividends: The Merits Rule Is Born
as hot a topic as the securities transaction tax hike in the 2026 Tax Reform Bill is the taxation of capital reserve reduction dividends, a concept that may be somewhat unfamiliar to the average retail investor, but for Korean chaebols and major shareholders, it is a huge change that has set off alarm bells.
3.1. What is a reduced dividend? (Easy explanation)
a company's capital is divided into two pockets.
retained earnings: money earned by doing well.
capital reserves (capital surplus): money that shareholders paid more than the face value of their shares when they started the company (such as over-issuance fees).
when you give money to shareholders, if you take it out of pocket 1 (retained earnings), it's called a "dividend" and is taxed (15.4%).
however, if you take money out of pocket 2 (capital reserves), it is considered to be a return of the money that the shareholder paid in the first place (a return of capital). Therefore, commercial and tax laws have recognized it as a "tax-free dividend" that does not pay dividend income tax.
3.2. Center of controversy: merits Financial Holdings and the 360 billion won tax exemption
this system was put on the chopping block because of the case of Merits Financial Holding, which made a large capital reserve reduction dividend as part of its shareholder return policy.
the case: implemented trillions of won in reduced dividends over several years, including 2023.
the outcome: merits Financial Chairman Choi Joong-ho received hundreds of billions of won (e.g., estimated at KRW 237 billion, KRW 360 billion) in dividends, but did not pay any taxes because the source of the money was "capital reserves".
the fact that a regular employee pays taxes on his or her paycheck, and a small shareholder pays 15.4% tax on a dividend of a few tens of thousands of won, while a major shareholder earning hundreds of billions of won pays "zero" tax was enough to spark a tax fairness controversy.
3.3. 2025 Amendment: "Up to the principal amount"
the government pulled out the knife to solve this problem. starting in 2025 (technically, it will apply to 2026 payouts, but it was announced as a key part of the 2025 Tax Reform Bill), the tax-free benefit of reduced dividends will be drastically reduced for large shareholders only.
3.3.1. Key to the rule change: the acquisition value threshold
reduced dividends received by major shareholders are now tax-free up to the amount they paid for their shares (the purchase price). any dividends above the purchase price are treated as "earnings" and subject to dividend income tax.
[Simulated example]
situation: Mr. A, a major shareholder, owns shares of a company that was founded with a par value of 500 won (purchase price of 500 won).
dividend: The company pays a reduced dividend of KRW 2,000 per share.
past: the entire 2,000 won was tax-free. (0 tax)
after the 2025 amendment:
tax-free up to the acquisition value (KRW 500). (However, the book value is adjusted to zero)
the remaining KRW 1,500is taxed as dividend income.
3.3.2. Who is a 'major shareholder'?
the Act applies to major shareholders of listed corporations and shareholders of unlisted corporations (excluding minority shareholders of small and medium-sized enterprises).
ordinary individual investors (minority shareholders) can still enjoy tax exemption on reduced dividends. this is a very important point. it is designed to be a "tax on the rich" and not to hurt the little guy.
3.4. Butterfly effect on the market
the tax reform is not just about taxing large shareholders more, it could change the way companies return money to shareholders.
reduced dividends will no longer be a "tax-free cash machine" for large shareholders, so companies will likely turn to share buybacks and extinguishments orregular dividends instead of complicated dividends.
conflicts of interest with minority shareholders: From a minority shareholder's perspective, a tax-free reduction is still favorable. however, if the majority shareholder, who controls the decision-making power, wants to reduce the reduction in favor of himself, the "tax-free honey pot" for minority shareholders can quickly disappear.
4. majority shareholder capital gains tax threshold: KRW 1 billion wall
along with securities transaction tax and dividend tax, another variable that will shake the market in 2025 is the finalization of the capital gains tax thresholdfor large shareholders.
4.1. 5 billion won vs. 1 billion won tug of war
in the early days of the previous and current governments, there was a lot of discussion about raising the threshold from KRW 1 billion to KRW 5 billion or even KRW 10 billion per stock to reduce the tax burden. However, due to the "tax cuts for the rich" controversy and the lack of tax revenue, the 2025 tax reform plan eventually settled on keeping (or reducing) thethreshold to KRW 1 billion per stock.
threshold: A person is classified as a "major shareholder" if they hold more than KRW 1 billion in a single stock at the end of the year.
taxes: Pay 20-25% of the profit on stock sales as capital gains tax.
4.2. Continuation of the year-end 'selling bomb'
the 'year-end avoidance volume' that might have disappeared if the threshold was raised to 5 billion won will be repeated at the end of 2025. Super ants holding more than 1 billion won will sell their shares before the December settlement date to avoid being designated as a major shareholder, causing the KOSDAQ market to be volatile at the end of each year.
from a strategist's perspective, it's worth reminding readers that a temporary drop in stock prices in December can be a bargain buying opportunity.
5. corporate tax hike and corporate fundamentals
while not a direct stock tax, the corporate tax rate increaseis another important change in 2025 that will impact corporate profits.
5.1. Top tax rate rises to 25
under the tax reform plan, the corporate tax rate will increase by 1 percentage point across all brackets, with the top rate rising to 25% from 24%. including local income taxes, the effective top tax rate for corporations will reach 27.5%.
5.2. Analyzing the stock market impact
Lower EPS: Paying more taxes reduces a company's net income. this is a negative for the stock price on a price-to-earnings ratio (PER) valuation.
reduced dividendcapacity: Lower net income can lead to a reduction in dividend funding.
fearof investment contraction: This raises concerns that companies may be less able to invest in capital equipment or create jobs.
however, the government is trying tooffset this with a policy mix ofcarrots and sticks, such as the 'decoupled taxation of dividend income of high-dividend paying companies', which provides tax incentives for companies to increase their shareholder returns.
6. conclusion
the Tax Act of 2025 reflects the zeitgeist of 'progressive taxation' and 'equity'. the 0.20% increase in the securities transaction tax rate may increase transaction costs in the market, which may constrain liquidity somewhat, but it will increase the relative attractiveness of the ETF market. The overhaul of the reduced dividend taxation system can be seen as a step towards fairness in the capital markets, but it will need to be carefully followed up to ensure that it does not disincentivize large shareholders to return to shareholders.
for investors, 2026 will be a year where "tax sensitivity" will determine returns, and only those who understand the changing rules and optimize their strategies within them will have the opportunity to grow their wealth.
[Table 1] Summary of major capital markets tax changes in 2025
categorycurrent / pre-changeproposed 2025 Reform (Finalized/Proposed)investor Impact kOSPI Stock Exchange Tax 0% (0.15% agricultural special tax) 0.05% (excluding 0.15% agricultural special tax) = 0.20% in total increased transaction costs kOSDAQ Securities Transaction Tax 0.kOSDAQ 0.20 increased transaction costs capital reserve reduction dividend fully tax exempt
majority shareholder: excess of purchase price taxable
(Minority shareholders: remain tax-free)
majority shareholder tax bomb
no impact on minority shareholders
majority shareholder transfer tax threshold discussion to raise KRW 5 billion maintain KRW 1 billion (per stock) year-end sale continues corporate tax top rate 24 25 reduced corporate profits