president Lee Jae-myung has ordered the strengthening of tax incentives for long-term investors in domestic equities. the centerpiece of the long-term investment tax incentives is the expansion of ISA benefits and the push to separate dividend income taxation. here's a quick and detailed analysis of the tax breaks for ordinary investors and the implications of the introduction of a domestic ISA.
part 1. Why now, and why a 'bargain' for long-term investors?
boosting the domestic stock market and diversifying real estate funds
the entire financial investment market has been buzzing since President Lee Jae-myung officially instructed the government to come up with a tax incentive plan for long-term investors in domestic stocks. the momentum and policy significance of this directive goes beyond mere tax reform discussions, as it is being treated as a core task of the government's 2026 Economic Growth Strategy, which will be released next year.
there are two main reasons why the government is focusing so much on encouraging long-term investment. the first is to improve the health of the domestic stock market to reduce short-term speculative trading and increase its long-term stability and soundness. The second is to alleviate the phenomenon of a large amount of liquid funds in the market being channelled into the real estate market, and to channel funds into productive investments such as the domestic stock market. at a time when high interest rates are making real estate investments risky, it's an attempt to structurally change the flow of capital by opening up an attractive tax conduit to financial markets.
who benefits is clear: prioritizing 'ant investors'
the most important criterion for the design of the policy is "ensuring equity." The president has clearly pointed out that if the tax benefits go to the majority shareholders, i.e., those who hold shares to maintain control, it could lead to a "tax cut for the rich" controversy, and has ordered that the benefits be limited to ordinary individual investors, the so-called "ant investors".
these guidelines are key in determining the realistic design of the policy. currently, for domestic stocks, small shareholders are already exempt from capital gains tax when they sell their shares and realize a market gain. since the vast majority of ordinary investors do not pay capital gains tax on their shares, the "cut capital gains tax" card cannot be played on long-term investors. Therefore, if the government wants to provide real benefits to ordinary investors, it has no choice but to focus on reducing dividend income tax or expanding the benefits of tax-saving accountssuch as ISAs and IRPs.
part 2. analyzing the 3 key changes that will change the tax map for investors
the government's current proposals to encourage long-term investing fall into three main pillars, with clear distinctions between who each would benefit.
1. axis of Change: Decoupling Dividend Income and Reducing the Top Tax Rate (to 25%)
currently, dividend income from domestic stocks exceeding KRW 20 million per year is combined with other income, such as labor income and business income, and is subject to comprehensive financial income taxation. in this case, investors are subject to a progressive tax rate of up to 45% (49.5% when including local taxes), resulting in a very high tax burden.
one of the key points of the reform discussions is the separate taxation of dividend income from shares in high-dividend companies, with a top rate of 25% (27.5% with local taxes), which is even more drastic than the 35% originally proposed by the government.
who is this policy for? high net worth individuals
this policy provides a substantial "tax cut bomb" for high net worth individuals whose dividend income far exceeds KRW 20 million per year. for example, an investor who receives dividend income of more than KRW 100 million per year could save tens of millions of won in taxes under the 25% segregated taxation than under the current comprehensive taxation structure. this is a strong incentive for large funds, such as real estate funds, to lock in high-dividend stocks in the Korean stock market for the long term.
however, the policy has a limitation in that it is not felt by the vast majority of individual investors. according to National Tax Service statistics, the bottom 80 percent of individual investors earn an average of only 80,000 won in annual dividend income. even if they were to receive a tax cut, the tax savings would only amount to around KRW 10,000 per year, so it is clear that the dividend income separation tax policy is designed to favor the high net worth individuals rather than the middle class.
2. axis of change: Significant expansion of ISA benefits
while dividend taxation is for high net worth individuals, expanding ISA allowances is a 'real tax saving tool' for the majority of investors. currently, ISAs provide tax-free access to up to KRW 2 million of net income for the standard and KRW 4 million for the low-income tax brackets if held for at least three years, with the excess taxed separately at a low rate of 9.9%.
One of the most powerful features of an ISA is profitand loss accumulation. if you make a gain on an equity fund and a loss on a bond fund within the account, you can offset the two and only pay tax on the net gain, which is very beneficial for the average investor with a complex portfolio.
considering a dramatic increase in the tax-free threshold
the most likely option under consideration by the government is to increase the tax-free limit of this ISA to over £4 million, but there is also talk of sliding the benefits over time to further incentivize long-term investment. for example, the tax-free allowance could be increased each year to £4 million for investments held for five years or more, and £9 million for investments held for 10 years or more. If the tax-free allowance is realistically increased, this would provide the most significant tax savings for all individual investors, including small investors.
Here's how the expected change with ISA enhancements compares to the current standard.
Before and after ISA allowance enhancement (expected)
categorycurrent ISA (Standard)proposed enhanced long-term investment allowancekey changes Significance tax-free limit net income 2 million won 4 million won or more (consider further expansion for long-term holdings) maximize tax savings for general investors taxation of excess profits 9.9% low-rate segregated taxation 9.maintain 9% low-rate segregated taxation minimize tax burden with low tax rate key Features grossing up profits and losses keep your profits and losses consolidated optimize portfolio management
3. axis of change: Introducing a 'homegrown ISA' to focus on domestic equities
In addition to extending the ISA allowance, we're also considering introducing a 'home-grown ISA ' that limits the allowance to investments in domestic equities. this is a strategy to focus the tax-saving features of ISAs solely on the goal of boosting the domestic stock market.
this policy direction is similar to Japan's New NISA, which recently reformed its tax-saving account to maximize capital flows into the local stock market. with the Domestic Investment ISA, the government is effectively tying private funds to the domestic capital market and demonstrating a strong commitment to stimulating the supply of capital for the long-term growth of domestic companies.
part 3. additional policies to force long-term investments (tied to retirement savings)
in addition to ISAs, the government is also considering complementary policies to encourage long-term investment.
Discussions on raising the IRP (Individual Retirement Plan) limit
individual Retirement Plans (IRPs) are an excellent way to encourage investors to lock in their money for the long term, as they generally do not allow early withdrawals. currently, IRPs are eligible for a tax credit of up to $9 million when combined with pension savings contributions. by raising the tax credit limit to 9 million won, the government is seeking to encourage long-term investment in domestic stocks while simultaneously saving for retirement. This is an important attempt to link the economic goal of asset building with the welfare goal of securing a secure retirement.
considering Reviving the 'Dividend Income Special Exemption for Long-Term Held Stocks'
the 'long-term holding dividend tax exemption' system, which existed briefly from 1997 to 2010 after the past foreign exchange crisis, is also under review. This system provided dividend income tax relief to small shareholders who held their shares for a certain period of time, ranging from one to three years. If revived, it could provide a direct tax incentive for individual investors to make long-term investments in general securities accounts rather than utilizing specialized accounts such as ISAs or IRPs.
part 4. sobering advice from the experts: what to do now
the current policy drive by the government is a strong signal of clear benefits for long-term investors in domestic equities. However, retail investors need to clearly identify the beneficiaries of these policies in order to create the most efficient tax saving strategy.
first, the beneficiaries of the policies should be clearly distinguished.
separate taxation of dividend income (25%): this overwhelmingly favors high-net-worth individuals with annual dividend income in excess of $20 million.
ExtendedISA relief: This is the most realistic and practical tax-saving measure for the vast majority of retail investors, as it allows them to receive tax-free relief on their entire portfolio income (interest, dividends, fund gains).
second, an ISA pre-emption strategy is a top priority for the average investor.
for most individual investors, the impact of the dividend tax relief will be minimal, so the best way to benefit from the government's policy is to pre-emptively open an ISA account and utilize the contribution limits.
ISAs can only be opened by one person, and you can contribute up to 20 million won per year, or 100 million won in total. any contributions not made in a given year are carried over to the following year. before the government finalizes a policy to increase the tax-free or contribution limits, the smartest thing to do is to open an ISA account and make sure you can afford to contribute. iRPs with limited early withdrawals are also likely to see their tax-free limits expanded, making them even more valuable as a long-term asset for retirement planning.
tax incentives always give the greatest gifts to those who are prepared. rather than waiting for the new policy to be finalized, now is the time to turn your attention to the national savings vehicle, the ISA, and take a long-term investment perspective. we recommend designing a portfolio with a three-, five-, and 10-year view, rather than a one-hit wonder, to make the most of the upcoming tax changes.