[Anchor]
The Individual Savings Account (ISA), introduced to help individuals build assets and encourage long-term investment, has already surpassed 9 million subscribers. However, many things are set to change starting next year due to the latest tax code revisions, sparking growing complaints that benefits may be reduced.
Reporter Min Gyeongho has the details.
[Reporter]
ISAs offer tax exemptions on profits up to 2 million won, with a relatively low separate tax rate of 9.9% applied to any amount exceeding that threshold.
The contribution limit is 20 million won per year, up to a total of 100 million won. Previously, if the annual limit was not fully used, the remaining amount could be carried over to the following year.
In extreme cases, it was possible to leave the account untouched for four years and deposit the full 100 million won all at once in the fifth year.
However, starting next year, unused contribution limits will expire at the end of each year.
This rule will also apply equally to existing ISA accounts.
Another major change is that the maximum contract period will be capped at 5 years.
Another advantage of the ISA is that tax calculations are deferred until maturity. For example, let us look at a case where a subscriber makes a profit of 10 million won in the first year, suffers a loss of 10 million won in the second year, and makes a profit of 2 million won again in the third year.
Normally, taxes are paid in the year profits are made, but losses incurred in the second year would not result in a tax refund.
However, in an ISA account, if it reaches maturity right after the third year, taxes are levied only on the final profit of 2 million won.
Since this falls within the tax-exempt limit, there would ultimately be no tax to pay.
Therefore, people could extend the maturity period indefinitely—such as to 99 years—to control the timing of tax settlement. Pointing out that this effectively allowed indefinite tax deferral, the government shortened the period to 5 years.
Because this change will not be applied retroactively to existing contractors, individuals who meet the extension requirements within this year can avoid the period restriction.
A new type of account, the Productive Finance ISA, is also being introduced.
Both interest and dividend income will be completely tax-exempt, and young people aged 34 or younger will also be eligible for income deductions.
It has an annual limit of 20 million won and a total limit of 200 million won, with the maturity extendable up to 10 years.
Unlike existing ISAs, however, investments cannot be made in overseas stock ETFs such as U.S. index funds.
[Interview / Lee Su-jin / Senior Specialist, Digital Pension Customer Team, Samsung Securities: If you mainly invest in domestic stock dividends, the Productive Finance ISA offers complete tax exemption on both interest and dividends. However, domestic-listed overseas ETFs and similar products are not included. For those who prefer that type of investment, the existing general ISA investment....]
Criticism has emerged that restricting overseas investments in the new ISA is essentially forcing domestic stock investments. The government explained that given the substantial tax exemption benefits, it also considered stabilizing the exchange rate alongside boosting the domestic stock market.
(Video Editing: Kim Jin-won)
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