Capping Rollovers and Restricting Overseas Investment: Changes to ISA Accounts Draw Keen Attention

[Anchor]

Individual Savings Accounts (ISAs), introduced to help individuals build assets and encourage long-term investment, have already attracted over 9 million subscribers. However, due to the recent tax reform, many things are set to change starting next year. Complaints are growing that benefits might be reduced.

Reporter Min Gyeongho has the details.

[Reporter]

ISAs provide tax exemptions on profits up to 2 million won, and profits exceeding that amount are subject to a separate taxation rate of 9.9%, resulting in relatively lower taxes.

The contribution limit is 20 million won per year, up to a maximum 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 idle for four years and deposit the entire 100 million won at once in the fifth year.

However, starting next year, unused limits will expire at the end of the year.

This rule will apply equally to existing ISA accounts.

Another major change is that the maximum contract period will be limited to five years.

Another advantage of ISAs is that tax calculations are deferred until maturity. For example, let us look at a case where an investor makes a 10 million won profit in the first year, suffers a 10 million won loss in the second year, and makes a 2 million won profit again in the third year.

Normally, taxes are paid in the years when profits are made, but taxes are not refunded just because a loss occurred in the second year.

However, in an ISA account, if maturity is reached right after the third year, taxes are levied only on the final net profit of 2 million won.

Since this falls within the tax-free limit, there would ultimately be no tax to pay.

Therefore, people used to extend the maturity period indefinitely—such as to 99 years—to control the timing of tax settlement. Pointing out that this practically allowed indefinite tax deferral, the government reduced the period to five years.

Because this will not retroactively affect existing contract holders, the period limit can be avoided if the requirements for extension are met within this year.

A new type of account, the Productive Finance ISA, is being introduced.

Both interest and dividend income will be entirely tax-exempt, and young people aged 34 or younger can also receive income deductions.

It has a contribution limit of 20 million won per year and a total limit of 200 million won, with the maturity extendable up to 10 years.

However, unlike existing ISAs, investments cannot be made in overseas stock ETFs such as U.S. index funds.

[Interview: Lee Su-jin / Senior Researcher, Digital Pension Customer Team, Samsung Securities: If you invest mainly in domestic stock dividends, the Productive Finance ISA provides full tax exemption on both interest and dividends. However, domestic-listed overseas ETFs and similar products are not included. For those who prefer such investments, the existing general ISA investment...]

Criticism has emerged that blocking overseas investment in the new ISA forces domestic stock investment. The government explained that given the substantial tax benefits, it also considered stabilizing the exchange rate alongside boosting the domestic stock market.

(Video Editing: Kim Jin-won)
※ Please note: This article was translated by AI and may contain errors.