Why Korea’s 2025 Tax Plan Rattled Markets — A U.S. Investor’s Guide

Right after Korea unveiled its 2025 tax proposals, KOSPI and KOSDAQ dropped sharply.
Foreign and institutional flows turned risk-off, while retail investors stepped in as dip-buyers.
Below is a four-part breakdown of what matters for U.S. investors—whether you hold EWY, ADRs, or global funds with Korea exposure.

🎯 Key Takeaways (U.S. lens)

✅ Major-shareholder threshold to fall from ₩5B to ₩1B per stock (≈ ~$3.6M → ~$0.7M), likely amplifying year-end supply as holders de-risk.
✅ Higher trading taxes & corporate rate (STT up; corporate tax back to 25%) trim after-tax returns and raise the policy-risk premium.
✅ Separate dividend taxation could support select high-payout names, but eligibility looks narrow.
✅ Not final yet: political pushback and public petitions mean the package could change during National Assembly debate.

📉 Why the selloff hit so fast

Within one trading day, KOSPI −3.88% and KOSDAQ −4.03%.
Foreign and institutional selling dominated, with local retail as net buyers.
Policy risk overshadowed otherwise supportive headlines—even news on U.S.–Korea tariff negotiations struggled to lift sentiment.

🏦 Major-shareholder rule: structural supply risk

Cutting the threshold from ₩5B to ₩1B greatly broadens who is captured by capital-gains rules.
Because the reference date is year-end (Dec 31, KST), selling pressure can cluster in late December as investors manage their status.
Some locals may rotate toward U.S. ETFs or large-cap overseas names, reducing domestic liquidity at the margin.

⚡ From catalyst to risk

Korea’s securities transaction tax (STT) is set to rise to 0.05% on KOSPI and 0.20% on KOSDAQ, and the top corporate tax rate returns to 25%.
This effectively reverses a prior pro-growth tilt and lowers the after-tax appeal of local equities.
A new separate dividend taxation regime was announced, but applies to a limited set of high-payout firms—muting the initial enthusiasm.

📊 Intent vs. backlash—by the numbers

The government aims to raise about ₩35.6 trillion over five years through the package.
Public petitions reportedly topped 60,000 signatures in two days, and calls for revision have emerged across the political spectrum.
For markets, this is not just a tax debate—it’s about policy credibility and the stability of the reform path.

❓ FAQ (U.S. investors)

Q: When would the ₩1B major-shareholder threshold take effect?
A: The government targets 2026 (subject to National Assembly approval), so positioning into late-2025 still matters.

Q: Are the STT hike and corporate tax reset final?
A: Not yet. They must clear the Assembly and could change—headline risk is high.

Q: Who benefits from separate dividend taxation?
A: Only dividends from listed companies that meet high-payout criteria. U.S. holders should still model treaty withholding and FX.

My view: This episode tests investor trust more than it changes any single earnings line. The market had been rewarding Korea’s governance and capital-return story; the tax pivot raises the policy-risk premium.

Bottom line for U.S. investors: Prepare for year-end supply effects, reassess after-tax returns, and consider diversification/position sizing across FX and regions. Track National Assembly headlines for any softening of the proposals.

This content is for information only and is not investment advice. All investment decisions are your responsibility. We are not liable for losses arising from reliance on this material.

Sources: Korean outlets (Newsis, Korea Economic Daily, Maeil Business), and Korean government releases (Aug 2025).