"Stock Price Suppression" Criteria Announced... Increased Taxes for Low-PBR Listed Firms Over Six Years [2026 Tax Reform]

Share Price Valuation Period for Inheritance and Gift Tax to be Extended up to 6 Years and 6 Months
New Productive Finance ISA Introduced; 9% Dividend Tax Rate for BDCs

The government has finalized the criteria for identifying so-called "stock price suppression" companies—firms that deliberately keep their stock prices low to reduce inheritance and gift taxes. This includes KOSPI-listed companies ranking in the lowest 25% and KOSDAQ-listed companies in the lowest 10% of their respective industries by price-to-book ratio (PBR) over the past six years. If a company is ultimately designated as engaging in stock price suppression, the tax assessment basis will be at least 30% higher than before, increasing the burden of inheritance and gift taxes.

On August 3, the Ministry of Economy and Finance announced the "2026 Tax Reform Plan," which includes these details. In the area of capital markets, the reforms cover improvements to the valuation of listed shares in cases of stock price suppression, the introduction of a new Productive Finance Individual Savings Account (ISA), the introduction of tax incentives for Business Development Companies (BDC), and the restructuring of the taxation system regarding treasury stock.

The most notable change is the revision of inheritance and gift tax rules to prevent intentional stock price suppression by listed companies. The government will consider companies whose PBR ranks in the lowest 25% (for KOSPI) or lowest 10% (for KOSDAQ) of their industries over the last six years as being suspected of stock price suppression. In addition, companies that have engaged in actions that could undermine corporate value, such as dual listing or issuance of exchangeable bonds (EB) in the previous year, and companies whose share prices have fallen by more than 30% over the past three years, will also fall under this category.

If a company is classified as a stock price suppression company, the valuation method for inheritance and gift tax calculation will be tightened, increasing the expected tax burden. Under the current system, the tax is calculated based on the average share price over the four months (two months before and after the inheritance or gift). The reformed plan, however, extends the evaluation period to a maximum of six years and six months. Specifically, for low-PBR companies, the taxable amount will be determined by the greater of either the "average share price for the six months to six years and six months prior" or "1.3 times the current valuation standard." For companies whose stock price plunged due to actions undermining corporate value, the "average share price over the past six months to three years" will be used.

Previously, there have been ongoing concerns that majority shareholders seeking to transfer management control would intentionally keep stock prices low to reduce inheritance tax burdens, thereby being less motivated to enhance corporate value. In this context, the government's measures are seen as an attempt to eliminate these incentives and address the "Korea Discount." The final categorization as a stock price suppression company will be determined by an evaluation committee. If a taxpayer can provide legitimate reasons for the decrease in corporate value, the existing valuation method will still apply. The government currently estimates that as many as 200 companies—or about 7.5% of all KOSPI and KOSDAQ-listed firms—could fall under this stock price suppression category.

However, while the market generally agrees with the purpose of the reform, there have been concerns about the methodology for estimating stock price suppression companies. It has been pointed out that the onus on companies to prove the absence of actual stock price manipulation could become burdensome. Moonseong Oh, professor of Tax Accounting at Hanyang Women's University, commented, "PBR cannot be trusted unconditionally. There is a concern that companies could be subject to taxation even if their stock prices have not been intentionally suppressed. Proving their innocence may also become a burden." Ki Yong Hong, professor of Business at Incheon National University, also stressed, "Because South Korea has the highest inheritance tax rates, such concerns about stock price suppression naturally arise. Lowering the inheritance tax rate and supporting corporate growth should take greater priority."

In addition, the government will introduce a new Productive Finance ISA that focuses on tax benefits for domestic investment. Eligible investment targets include Korean stocks, domestic equity-type funds, National Growth Fund, and BDCs. The payment limit is 20 million won per year, up to a total of 200 million won. All interest and dividend income will be tax-exempt, and for the youth-type Productive Finance ISA, an additional 10% of contributions can be deducted from taxable income. The general ISA system will also be revised to allow an extension of the investment period up to five years.

The tax reform package also includes support measures for BDCs to expand the supply of venture and innovation capital. BDCs are public fund-type investment vehicles that gather capital from ordinary investors and invest in pre-IPO innovative companies. The government will apply a separate tax rate of 9% on dividend income generated from BDC investments, up to an annual contribution limit of 100 million won, until 2029.

Furthermore, the taxation system for treasury stock will be revised in line with the amended Commercial Act. If a corporation acquires its own shares, these will be considered as capital transactions and not subject to deemed dividend taxation, thereby aligning the provisions of the Commercial Act and the tax code. Additionally, in cases where shares acquired through non-cash contributions in the process of establishing or converting to a holding company become treasury shares due to a merger and are then canceled, the government plans to apply a tax deferral benefit, allowing companies to postpone tax payments.

This content was produced with the assistance of AI translation services.