Investor Tax Incentives

Capital Gains Tax Exemption for Venture Investment

Detailed explanation of capital gains tax exemption requirements and reporting procedures when transferring venture company shares.

Capital Gains Tax ExemptionCapital Gains Tax Exemption
Exemption from capital gains tax when selling venture enterprise shares held for 3+ years.1 related guides for Venture Investment

When an individual who has invested in a venture enterprise sells shares and earns a profit, how much capital gains tax do they actually pay? If the legally-defined requirements are met, no capital gains tax need be paid at all. This is the capital gains tax exemption system — the second core tax benefit of venture investment.

The capital gains tax exemption for venture enterprise shares is based on Article 14 of the Special Tax Treatment Control Law. This provision stipulates special tax treatment on income arising from the transfer of SME and venture enterprise shares, and is a special provision different from the general unlisted share capital gains tax (up to 30%).

For reference, when transferring ordinary unlisted shares, capital gains tax of 10–30% must be paid depending on the holding period and equity ratio. The venture enterprise tax exemption benefit is a powerful incentive that completely exempts this tax.

Requirements for Tax Exemption

The following requirements must all be met to receive the capital gains tax exemption.

Requirement 1: Individual Direct Investment

This tax exemption benefit applies when an individual directly acquires venture enterprise shares. Cases where a corporation invests, or where indirect investment through a fund is involved, are not the direct targets of this tax exemption provision.

However, even in cases of investment through individual investment associations or venture enterprise investment trusts, there are tax benefits when the association or fund transfers venture enterprise shares, but separate provisions apply.

Requirement 2: Timing of Venture Enterprise Confirmation

The company must have been in a state of venture enterprise confirmation at the time of investment. However, it is acceptable if the venture enterprise confirmation has expired at the time of share transfer. That is, the status at the time of investment is the standard.

For example, if Company A was a venture enterprise in 2022 and an individual acquired its shares, the tax exemption benefit may apply even if Company A's venture enterprise confirmation has expired when the shares are transferred in 2026.

Requirement 3: Holding Period Requirement

The acquired shares must be held for a certain period. This requirement is separate from the 3-year holding obligation for income deductionsIncome Tax Deduction
Tax deduction system for venture enterprise investment: 100% for up to 30M KRW, 70% for 30-50M KRW, 30% for over 50M KRW.1 related guides. While there is no separate holding period restriction for the capital gains tax exemption, provisions regarding the taxation of short-term trading gains may apply separately.

In practice, it is common to hold for at least 1 year before transferring. Even in cases of short-term (less than 1 year) transfer, the tax exemption provision may apply, but the tax office may closely examine whether there is tax avoidance.

Requirement 4: SME or Venture Enterprise Shares

The target of the tax exemption benefit is KOSDAQ-listed SME or unlisted venture enterprise shares. The following cases may not be eligible for the tax exemption or may be subject to restrictions.

  • Shares of KOSPI-listed companies (large corporations): separate taxationSeparate Taxation
    Taxation method that separates income from aggregate taxation. Stock option exercise gains can be separately taxed at 10-20%.1 related guides     standards apply
  • Shares acquired after venture enterprise IPO: shares acquired after listing are subject to the general listed share taxation provisions

Tax Exemption Limit

The capital gains tax exemption has no monetary limit. That is, even if hundreds of millions or tens of billions of won in capital gains arise, the entire amount is tax-exempt if the requirements are met.

This is an extremely exceptional benefit compared to tax exemption provisions for real estate and other assets. For example, if shares acquired for KRW 1 billion are sold for KRW 10 billion generating KRW 9 billion in capital gains, the tax exemption applies if the requirements are met.

However, when general share capital gains taxation criteria (major shareholder requirements, etc.) apply simultaneously, the tax exemption benefit may be restricted, soStock Option
Stock purchase rights granted to venture enterprise employees. Up to 200M KRW/year in exercise gains are tax-exempt, with optional separate taxation.1 related guides in cases where large-scale capital gains are expected, it is advisable to consult with a tax specialist in advance.

Filing Method

The capital gains tax exemption is not automatically applied. Capital gains tax filing must be submitted to receive the tax exemption.

Filing Timing

  • Preliminary filing: within 2 months from the last day of the month in which the transfer date falls
  • Final filing: May 1 to May 31 of the year following the year of transfer

In practice, final filing is often processed without preliminary filing, but missing the filing period may result in additional tax penalties.

Filing Process

  1. Access HomeTax: log into www.hometax.go.kr
  2. Prepare tax return: select 'Report/Payment' > 'Tax Filing' > 'Capital Gains Tax'
  3. Enter transfer details: enter acquisition date, acquisition price, transfer date, transfer price
  4. Indicate tax exemption application: select 'Venture Enterprise Share Capital Gains Tax Exemption' item
  5. Attach supporting documents: investment confirmation certificateInvestment Confirmation Certificate
    Document confirming investment in a venture enterprise. Required for income deduction applications.1 related guides    , share transfer agreement, payment receipt evidence

Required Documents

  • Venture enterprise investment confirmation certificate (issued by KBAN)
  • Share acquisition-related documents (share acquisition agreement, deposit evidence)
  • Share transfer-related documents (share transfer agreement, payment receipt evidence)
  • Copy of investee company's business registration certificate
  • Copy of venture enterprise confirmation certificate at the time of investment

Impact When Venture Enterprise Confirmation is Revoked

If the venture enterprise confirmation of the relevant company is revoked or expires after investment, what is the impact on the capital gains tax exemption?

Principle: based on the time of acquisition — if the company was a venture enterprise at the time of investment, the tax exemption benefit is maintained regardless of whether the confirmation exists at the time of transfer.

However, the following cases are different.

  • If venture enterprise confirmation is revoked retroactively: if confirmation is revoked due to non-fulfillment of requirements from the outset, both income deductions and tax exemption benefits cannot be applied retroactively
  • If venture enterprise confirmation was obtained through fraudulent documents: all related tax benefits are revoked and additional tax penalties are imposed

Therefore, it is important to thoroughly verify the validity of the venture enterprise confirmation and the certification history of the relevant company before investing.

Tax Exemption for Shares After IPO (Listing)

When a venture enterprise in which you have invested proceeds to list on KOSDAQ (IPO), the taxation method for shares changes after listing.

In cases where pre-listing acquired shares are transferred after listing: - Tax exemption requirements are met since it was a venture enterprise at the time of acquisition - However, if the major shareholder criteria (equity ratio of 1% or more, or holdings of KRW 1 billion or more) are met after listing, separate taxation applies - Capital gains from listed shares transferred by minority shareholders are generally tax-exempt

As such, in EXITExit
The process by which investors recover their investment through IPO, M&A, or secondary sale.1 related guides scenarios through IPO, tax planning that comprehensively considers the equity ratio held, holding amount, and transfer timing is necessary.

Relationship Between Capital Gains Tax Exemption and Income Deduction

Venture investment has two benefits together: income deduction (at time of investment) and capital gains tax exemption (at EXIT). The two benefits can be applied simultaneously.

For example: - 2023: KRW 50 million investment → Income deduction approximately KRW 34 million (tax savings of approximately KRW 14 million) - 2027: EXIT at KRW 200 million → KRW 150 million capital gain fully tax-exempt

In this way, combining the income deduction at the time of investment with the capital gains tax exemption at the time of EXIT significantly increases the actual rate of return on venture investment.

Practical Checklist

Here is a summary of items to prepare in advance for the capital gains tax exemption.

  • [ ] Retain original venture enterprise confirmation certificate at time of investment
  • [ ] Obtain and retain KBAN investment confirmation certificate
  • [ ] Retain share acquisition agreement and payment evidence
  • [ ] Include venture enterprise statement items when preparing share transfer agreement
  • [ ] Retain transfer payment receipt evidence
  • [ ] Preliminary filing within 2 months of transfer, or final filing in May of the following year

The capital gains tax exemption for venture enterprise shares is a powerful EXIT incentive given to investors. With proper document management and compliance with filing procedures, the enormous tax burden arising from investment returns can be completely exempted.