South Korea Advances STO Legislation, Stablecoin Frameworks, and Dividend Tax Reform

South Korea is making significant moves to modernize its financial sector by addressing digital assets and taxation simultaneously. As discussions on Security Token Offerings (STOs) and stablecoin legislation gain momentum, the nation's ruling People Power Party has unveiled plans to overhaul its dividend income tax system. These synchronized efforts aim to ensure financial innovation, attract investors, and bolster the country’s global competitiveness.

The Push for STO and Stablecoin Legislation

The Financial Investment Association (FIA) has intensified calls for immediate action to legislate STOs and stablecoins. In an October 29 meeting at FIA headquarters, Chairman Seo Yoo-seok underscored the urgency of integrating South Korea’s financial market with the rapidly evolving global landscape. “To foster the growth of a healthy capital market, it’s crucial to secure international compatibility with the rapidly changing financial ecosystem,” Seo said, advocating for regulatory frameworks that keep pace with international trends.

Seo went on to stress the need for regulatory innovation in capital markets. He argued that global financial integration necessitates swift legislative action, particularly in areas such as STOs and stablecoins. Additionally, Seo called for tax reforms to support wealth accumulation among citizens. Simplifying dividend income tax structures and modernizing retirement pension systems were highlighted as crucial steps toward ensuring long-term financial stability for retirees.

Modernizing South Korea’s Dividend Tax Structure

On the same day, the ruling People Power Party presented proposals to lower the dividend income tax rate—a move aimed at stimulating the capital market. Currently, the top tax rate for dividend income can reach a staggering 49.5%, leading to widespread criticism about fairness and competitiveness.

Key party figure Jang Dong-hyuk outlined the initiative, affirming the government’s commitment to activating the domestic capital market. “We are committed to introducing definitive policies that will serve as catalysts for capital market activation. We will implement separated taxation on all domestic stock dividends and lower the tax rate,” Jang stated.

The proposed tax adjustments include reducing the rate for dividend incomes under KRW 20 million from 14% to 9%. For dividend incomes above KRW 20 million, which are currently taxed at a top rate of 45%, the proposal seeks to lower this maximum rate to 25%. These measures are designed to encourage more individuals to invest in dividend-yielding assets, fostering broader participation in the domestic market.

Addressing Criticism of the Existing Tax System

The initiative to reform dividend taxation also responds to critiques of the current system. Dividend incomes exceeding KRW 20 million are now subject to comprehensive financial taxation, with rates that can climb as high as 49.5%. People Power Party Floor Leader Song Eon-seok described the system as inequitable and in need of overhaul. “This framework has faced widespread criticism for being both unfair and unreasonable,” Song remarked.

To resolve these issues, the ruling party has introduced amendments to the Income Tax Act. These updates aim to implement separated taxation for dividend income, ensuring a fairer and more attractive investment environment. “Our goal is to promote shareholder returns, enhance the competitiveness of the domestic financial market, and protect the interests of the public by reforming the tax framework,” Song emphasized.

Balancing Financial Innovation and Investor Appeal

South Korea’s dual strategy—pioneering STO and stablecoin regulations alongside reforms to the dividend tax structure—is poised to make the nation a leader in modern financial governance. If enacted, these legislative efforts would address two key priorities: fostering technological advancements in digital tokenization and attracting global and domestic investors with market-friendly policies.

By expediting the legislative process for STOs and stablecoins, the government aims to provide greater clarity for market participants while aligning the domestic financial ecosystem with international norms. Simultaneously, adjusting dividend taxation is intended to draw more investment capital into South Korea's markets, enabling wealth creation for citizens while boosting the economy.

A Proactive Move in a Competitive Financial Landscape

The proposed reforms mark a significant milestone in South Korea’s efforts to maintain relevance in a fast-changing global financial environment. By focusing on innovation, international compatibility, and investor-friendly policies, the country is setting the stage for robust economic growth.

These developments highlight South Korea's proactive approach to balancing financial transformation with market stability. As global financial ecosystems evolve, South Korea’s legislative initiatives could serve as a model for harmonizing regulatory innovation with investor confidence.