If you contribute to your company’s employee stock ownership association (uri sajoo johap), there is a year-end deduction that is easy to miss. Article 88-4(1) of Korea’s Restriction of Special Taxation Act lets a member who contributes in order to acquire company shares deduct the lesser of the year’s contribution and 4 million won (15 million won for members at venture businesses etc.) from that year’s earned income. When the shares are later withdrawn, those bought with deducted contributions are taxed as earned income, but paragraph 6 makes 50%, 75% or 100% of the withdrawal tax-free depending on how long they were held (2, 4 and 6 years for SMEs; 2 and 4 years otherwise). Try the numbers below.
1. Up to 4 million won a year of contributions comes off earned income — 15 million won at venture businesses etc. (Art. 88-4(1)).
2. Withdrawing shares bought with deducted money is taxed as earned income, withheld by the company (para. 5).
3. Held 2 years or more: 50% tax-free; 4 years: 75%; SMEs at 6 years: 100% (para. 6).
Calculator
Updates as you type. The deduction comes off earned income; the overall 25 million won income-deduction cap (Art. 132-2) is not applied here. The withdrawal part only applies the tax-free shares in Art. 88-4(6). For the withdrawal amount, enter the lower of the purchase price etc. of the taxable shares and their market value on the withdrawal day, as Decree Art. 82-4(4) sets (see the Q&A below).
Article 88-4 — the text
| Type | What the source says | Worth noting (ours) |
|---|---|---|
| Para. 1 (contribution deduction) | Where a member contributes to the association to acquire employee shares, the lesser of the year’s contribution and 4 million won (15 million won for members at venture businesses etc.) is deducted from that year’s earned income. | Earned income, not global income |
| Para. 5 (withdrawal taxed) | When allotted shares are withdrawn, the withdrawal amount of taxable shares is treated as earned income under Income Tax Act Art. 20; income arises on the withdrawal day and the company withholds | Shares bought with undeducted contributions, bonus shares etc. are excluded |
| Para. 6(1) (SMEs) | Tax-free: held 2 to under 4 years 50%, 4 to under 6 years 75%, 6 years or more 100% | Held from the day after the compulsory deposit period ends to withdrawal |
| Para. 6(2) (others) | Tax-free: held 2 to under 4 years 50%, 4 years or more 75% | No 100% tier |
| Para. 7 | Contributions withdrawn without buying shares count in the withdrawal amount (except undeducted ones) | Taking deducted money back out is taxed |
| Para. 8 | If the contribution is 4 million won (15 million for ventures) or less, the gap between the acquisition price and market value is not taxed. | Cheap shares bought with the excess are taxed on the gap |
Four sums — our example
| Case (our example) | Result | Worth noting (ours) |
|---|---|---|
| Ordinary company, 3 million won contributed | Deduct 3 million | Within 4 million, so all of it |
| Ordinary company, 6 million won contributed | Deduct 4 million | 2 million not deducted |
| Venture business etc., 20 million won contributed | Deduct 15 million | 5 million not deducted |
| SME, 10 million won withdrawn, held 5 years | 7.5 million tax-free, 2.5 million taxed | 4 to under 6 years: 75% |
For the same 10 million won withdrawal, holding past 6 years makes it fully tax-free at an SME, while at other companies it stays at 75% (7.5 million won). Under 2 years, nothing is tax-free (our sum).
Because the deduction comes off “earned income”, it matters to members with salary income. It also sits inside the 25 million won overall income-deduction cap with card spending and housing funds; see income deduction overall limit calculator.
Checklist
- ☐ This year’s association contributions (year-end papers)
- ☐ Venture business etc.? — 4 million / 15 million won
- ☐ Holding period before withdrawal — 2, 4, 6 years
- ☐ SME? — only SMEs reach 100%
- ☐ Within the 25 million won overall cap
Questions that remain
How is the withdrawal amount worked out?
Paragraph 5 says it is “calculated as the Presidential Decree provides”, and Enforcement Decree Art. 82-4(4) sets it as the lower of the “purchase price etc.” of the taxable shares and their “market value” on the withdrawal day (zero if the company has been declared bankrupt). The “purchase price etc.” is what the association actually paid for the shares (para. 1 item 2 — for shares donated by the company or a major shareholder, or bought below 70% of market value, 70% of market value), and “market value” follows Inheritance and Gift Tax Act Art. 63 but looks at the one month before the valuation date (para. 1 item 1). If shares were allotted more than once, those allotted first are treated as withdrawn first (para. 5).
For example, shares with a purchase price of 10 million won withdrawn when worth 15 million give a withdrawal amount of 10 million; withdrawn when the value has fallen to 8 million, it is 8 million (our example — the gain does not enter the withdrawal amount). Enter the amount chosen this way in the calculator (Decree text checked 2 November 2026).
Are dividends taxed?
Paragraph 9 exempts dividends on shares deposited with a securities finance company if, among other things, the member is a minority shareholder with par value totalling 18 million won or less. Withdraw within a year of depositing and earlier dividends are taxed.
What counts as a venture business etc.?
Paragraph 1 refers to Article 16(1)3: a venture business, or an SME within 3 years of start-up as the Decree provides. Ask your HR or finance team.
Sources
- Korean law database (law.go.kr) — Restriction of Special Taxation Act Art. 88-4 — source (current text, effective 18 September 2026, Act No. 21467; checked 2 November 2026). Para. 1 contribution deduction (4 million / 15 million won), para. 5 withdrawals taxed as earned income, para. 6 tax-free shares by holding period (50/75/100%), paras. 7 and 8, para. 9 dividends; Art. 16(1)3 for “venture businesses etc.”.
- Korean law database (law.go.kr) — Enforcement Decree of the Restriction of Special Taxation Act Art. 82-4 — source (current text, effective 18 September 2026, Presidential Decree No. 36587; checked 2 November 2026). Para. 1 item 1 “market value” (Inheritance and Gift Tax Act Art. 63 applied, one month before the valuation date), item 2 “purchase price etc.”, para. 4 the withdrawal amount (the lower of the purchase price etc. and the market value on the withdrawal day; zero if the company is declared bankrupt), para. 5 shares allotted first are withdrawn first.
- Not read. The rest of the Decree (the allotment cap, withdrawals on mergers, minority shareholders and other paragraphs of Art. 82-4), the Framework Act on Labor Welfare, the text of Art. 132-2 (we relied on our existing post).
- What we added. The “worth noting” column and the Korean everyday gloss.
Where to check further
- Your ESOP association or the securities finance company — contributions and deposit periods.
- Hometax year-end simplified service — whether the deduction shows.
Written on 2 November 2026. The content is from the source; the glosses are ours.
