Deferred tax on employee contributions (Article 88-4 of the Restriction of Special Taxation Act)

For money contributed by an employee to an ESOA, tax on contributions up to 4 million won per year may be deducted in the year the contribution was made. Income tax is levied upon the withdrawal of the shares acquired using the said contribution money. However, for shares that are withdrawn after having deposited them for an additional two years (four years) exceeding the mandatory depositing period, income tax will be levied on only 50% (25%) of the total taxable withdrawn stocks.

Tax exemptions for shares acquired through the contribution of the company or shareholders (Article 88-4 of the Restriction of Special Taxation Act)

For shares acquired through the contribution of the company or shareholders, tax is not levied when the shares are allocated to individual employee accounts. Tax is imposed when the respective employee withdraws the shares from the said individual accounts.

Tax exemption for low-interest loans (Article 44 of the Enforcement Rule on the Corporate Tax Act)

Income tax is not levied on gains from zero-interest or lower-than-market-interest loans extended by the company to an employee to acquire stocks under ESOP.

Tax exemption for dividend income (Article 88-4 of the Restriction of Special Taxation Act)

Tax is not levied on dividend income from the employee stocks acquired through ESOA and deposited in the depository institution, if the following conditions are fully satisfied;

1. 1.the stocks are deposited in the depository institution as on the base date at which the dividends are paid;
2. 2.an ESOA member is a minority stockholder; and
3. 3.the total par value of the employee stocks held by each ESOA member does not exceed 18 million won.

However, dividend income tax is levied in the year of withdrawal if shares are withdrawn within one year from the date of deposit.

The following persons are not eligible:

1. 1.a person appointed as an executive officer at a general shareholders’ meeting;
2. 2.a shareholder employed as an employee: provided that minority shareholders are excluded; and
3. 3.persons who have family ties or special relations with the largest shareholder.

*Minority shareholders: shareholders holding stocks either equivalent to 1% of the total amount of issued stocks or to 300 million won, whichever is less (such amount is calculated based on face value).

Recognition of contributions to ESOAs as an expense (Article 19 of the Enforcement Decree of the Corporate Tax Act)

Contribution of money or stock (book value) by the company to the ESOA can be recognized as an expense.

Recognition of subsidies for ESOAs as an expense (Article 45 of the Enforcement Decree of the Corporate Tax Act)

ESOA operating expenses shouldered by the company can be recognized as an expense.

Tax exemption on the ESOA’s income (Article 88-4 of the Restriction of Special Taxation Act)

Income tax is not levied on income accrued from the funds or the employee stocks held by the ESOA.

Tax deduction for a donation made by a resident (Article 88-4 of the Restriction of Special Taxation Act)

A donation made by a resident(including shareholder) to the ESOA may be either included in necessary expenses(under Article 34 (2) of the Income Tax Act) or deducted from the amount of global income for the relevant taxable year(under Article 59-4 (4) of the Income Tax) within the limits of an amount calculated by multiplying the amount of global income minus donations(under Article 34 (3) of the Income Tax Act) by 30/100.