Article 88-4 (Taxation Special Provisions for Employee Stock Ownership Association Members, etc.)

Where an employee stock ownership association member (hereinafter referred to as "employee stock ownership association member") under the 「Act on the Establishment and Management of Employee Stock Ownership Associations」 subscribes to an employee stock ownership association (hereinafter referred to as "employee stock ownership association") under the same Act to acquire employee stock, the amount, if any, which is the lesser of the subscribed amount for that year and 4,000,000 won (15,000,000 won for employee stock ownership association members of venture enterprises, etc. under Article 16 (1) 3 of this Act) shall be deducted from the earned income amount for that year. <Amended by 2010.6.8, 2017.12.19>

Where an employee stock ownership association member is allocated employee stock, acquired through contributions to the corporation, etc. under Article 36 (1) of the 「Act on the Establishment and Management of Employee Stock Ownership Associations」 or through purchase in a securities market, etc. under the 「Capital Markets and Financial Investment Business Act」, from the employee stock ownership association, no income tax shall be imposed. <Amended by 2010.6.8>

Where an employee stock ownership association member withdraws employee stock allocated from an employee stock ownership association, income tax shall be imposed on the amount calculated in accordance with Presidential Decree (hereinafter referred to as "withdrawal amount" in this Article) for employee stock other than the following employee stock (hereinafter referred to as "taxable withdrawal stock" in this Article) from the withdrawn employee stock, and it shall be treated as earned income under Article 20 of the 「Income Tax Act」. In this case, the income receipt date shall be the date of withdrawal of the employee stock, and the corporation shall withhold income tax calculated by applying the tax rates under Article 55 (1) of the 「Income Tax Act」 to the withdrawal amount. <Amended by 2010.6.8> 1. Employee stock acquired with the subscribed amount for which income deduction was not received under paragraph ①. 2. Employee stock under the first sentence of paragraph ④. 3. Employee stock gratuitously paid to employee stock ownership association members due to the capitalization of surplus.

Where an employee stock ownership association member withdraws contributions without using them to acquire employee stock, the withdrawn amount (excluding amounts for which income deduction was not received under paragraph ①) shall be included in the withdrawal amount under paragraph ⑤. <Amended by 2010.6.8>

Where dividends are received from employee stock held by an employee stock ownership association member through an employee stock ownership association and deposited with a securities finance company, income tax shall not be imposed if the following requirements are met. However, if the employee stock is withdrawn within one year from the deposit date, the dividend income paid before the withdrawal date shall be considered to have been paid on the withdrawal date, and income tax shall be imposed. <Amended by 2010.6.8> 1. It is confirmed that the employee stock held by the employee stock ownership association member is deposited with the securities finance company as of the dividend record date, based on a share deposit certificate issued by the securities finance company. 2. The employee stock ownership association member is a small shareholder as prescribed by Presidential Decree (hereinafter referred to as "small shareholder" in this Article). 3. The total face value of employee stock held by the employee stock ownership association member does not exceed 18,000,000 won per individual.

The withholding agent shall submit a statement of non-taxation of dividend income for employee stock ownership association members and employees under paragraphs ⑨ and ⑩ to the head of the competent tax office in accordance with Presidential Decree.

Donations paid by a resident to an employee stock ownership association (excluding donations paid by an employee stock ownership association member; hereinafter the same applies in this paragraph) may be included in necessary expenses under Article 34 (3) of the 「Income Tax Act」 or deducted from the calculated income tax of the comprehensive income under Article 59-4 (4) of the 「Income Tax Act」, within the limits of the amounts classified in subparagraphs 1 and 2. Donations paid by a corporation to an employee stock ownership association may be included in deductible expenses within the limit of the amount in subparagraph 3. <Amended by 2020.12.29, 2022.12.31> 1. Where a resident includes such donations in necessary expenses when calculating business income for the relevant tax year: An amount calculated by the following formula. ┌──────────────────────────────┐ │ Limit Amount = [A - (B + C)] × 30/100 │ │ A: Standard income amount under Article 34 (2) 2 of the 「Income Tax Act」 │ B: Net operating loss carried forward under Article 45 of the 「Income Tax Act」 │ C: Donations included in necessary expenses under Article 34 (2) of the 「Income Tax Act」 └──────────────────────────────┘ 2. Where a resident deducts such donations from the calculated income tax of the comprehensive income for the relevant tax year: An amount calculated by the following formula. ┌──────────────────────────────┐ │ Limit Amount = (A - B) × 30/100 │ │ A: Comprehensive income amount (excluding interest income and dividend income subject to withholding tax rates under Article 62 of the 「Income Tax Act」) │ B: Donations under Article 59-4 (4) 1 of the 「Income Tax Act」 └──────────────────────────────┘ 3. Where a corporation includes such donations in deductible expenses when calculating income for the relevant tax year: An amount calculated by the following formula. ┌───────────────────────────────┐ │ Limit Amount = [A - (B + C)] × 30/100 │ │ A: Standard income amount under Article 24 (2) 2 of the 「Corporate Tax Act」 │ B: Net operating loss carried forward (However, for corporations that apply the deduction of net operating loss carried forward within 80/100 of the income for each business year pursuant to the proviso to Article 13 (1) of the 「Corporate Tax Act」, the limit shall be 80/100 of the standard income amount under Article 24 (2) 2 of the 「Corporate Tax Act」). │ C: Donations included in deductible expenses under Article 24 (2) of the 「Corporate Tax Act」 (including amounts included in deductible expenses carried forward under Article 24 (5) of the 「Corporate Tax Act」). └───────────────────────────────┘