The South Korean government is introducing a new 'productive finance individual comprehensive asset management account (ISA)' that will exempt all interest and dividend income from investments in domestic stocks and stock funds from taxation. Young investors will benefit from a 10% income deduction on their contributions in addition to the tax exemption.
The Ministry of Finance announced these details on August 3 during a meeting of the Tax Development Advisory Committee, unveiling the '2026 Tax Reform Plan.'
The productive finance ISA will be available to residents aged 19 and older, including workers aged 15 and above. All interest and dividend income generated from the account will be fully tax-exempt, regardless of the amount.
Currently, the general ISA allows for tax exemptions on interest and dividend income up to 2 million won for standard accounts and 4 million won for low-income accounts. Income exceeding these limits is subject to a separate tax rate of 9%. The productive finance ISA offers greater benefits by not imposing a separate tax exemption limit.
Young investors under 34 with a total salary of 75 million won or less can opt for the youth productive finance ISA. In addition to full tax exemption on interest and dividend income, they can receive a 10% income deduction on their contributions. If they reach the annual contribution limit of 20 million won, they can deduct up to 2 million won from their taxable income.
Eligible investments include domestic stocks, domestic stock funds, the National Growth Fund, and Business Development Companies (BDCs). The scope is limited to domestic investment products to ensure funds flow into domestic companies and capital markets.
Unlike the general ISA, which allows investment in domestic-listed overseas stock exchange-traded funds (ETFs), the productive finance ISA does not permit such investments. Funds that invest in deposits, savings, or overseas assets are also excluded.
The annual contribution limit is set at 20 million won, with a total limit of 200 million won. Unused annual contribution limits cannot be carried over to the following year. The mandatory subscription period is three years, which can be extended in three-year increments for a maximum of ten years.
Individuals who have been subject to comprehensive taxation on financial income in any of the last three tax periods are ineligible to participate. This measure aims to prevent high-net-worth individuals from using tax-exempt accounts as a tax avoidance tool.
In addition to the productive finance ISA, the government will introduce tax benefits for investments in BDCs. Dividend income from BDCs, which invest in venture and innovative companies, will be subject to a separate tax rate of 9% on contributions up to 100 million won. This provision will also not apply to those subject to comprehensive taxation on financial income.
The deadline for joining the productive finance ISA and the special tax treatment for BDC dividend income is December 31, 2029. The government plans to submit a legislative proposal for the amendment of the Tax Special Cases Restriction Act, which includes these details, to the National Assembly on September 3 after going through public notice and a Cabinet meeting.
* This article has been translated by AI.
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