Government's Tax Reform Plan: Targeted Adjustments for ISAs, Real Estate Framework Remains Intact

Reviewing Relaxation of ISA Contribution Carryover and Contract Period Limits
Maintaining Differentiated Benefits for Productive Finance ISA

Supplementing Non-Residence Exceptions and "Stock Price Suppression" Measures
Bill to Be Submitted to

The government is currently reviewing measures to relax the annual contribution carryover and contract period restrictions on Individual Savings Accounts (ISA), reflecting feedback raised during the legislative notice process for the proposed tax reform bill.

For real estate taxation, the government plans to maintain the overall framework—such as deduction methods and tax rates—in the version submitted to the National Assembly, while discussing detailed issues further. In addition, for non-resident exemption requirements, which can be determined by executive order, a plan is being considered to specify these requirements by adding certain cases.

President Lee Jae-myung is delivering a congratulatory speech at the 81st Liberation Day Celebration held at Sejong Center for the Performing Arts in Jongno-gu, Seoul on the 15th. Photo by Yonhap News

According to relevant authorities on August 17, the government is reviewing necessary amendments to key issues in the tax reform bill based on feedback raised during the legislative notice period. In particular, the government is strongly considering revising the abolishment of annual contribution carryover for ISAs and the restriction on contract periods, both of which have been focal points of investor criticism.

The latest tax reform proposal introduced a new productive finance ISA, abolishing the annual contribution carryover and limiting the contribution period to a maximum of 10 years. For existing ISAs, the government also banned contribution carryover and limited the period to five years.

Previously, concerns were raised that this would disadvantage self-employed individuals and freelancers, who have irregular incomes, and could undermine the benefits of long-term investment and compounding returns. Reflecting this feedback, the government is now positively reviewing a plan that would allow contribution carryover as before and relax contract period restrictions so that contracts can effectively be extended indefinitely. It is highly likely that this adjustment will apply equally to both the existing ISA and the new productive finance ISA.

However, the differences in contribution limits and tax benefits between the two products will remain. Under the government proposal, the total contribution limit for standard ISAs is set at 100 million won, while for productive finance ISAs it is 200 million won. In addition, the productive finance ISA offers greater tax exemption benefits on investment returns.

Demands to allow overseas equity ETFs as investment targets for productive finance ISAs are reportedly difficult to accept. The plan is to maintain the current regulation that limits investment targets to domestic stocks, domestic equity funds, and national growth funds.

This approach reflects the fact that the productive finance ISA focuses on vitalizing the domestic capital market and the fact that individuals can subscribe to both the general ISA and the productive finance ISA simultaneously.

In the area of real estate taxation, opinions have been raised around increasing tax burdens, joint ownership by spouses, and non-resident exemption requirements.

It is reported that the government is likely to submit the revised bill to the National Assembly while maintaining the basic framework of the real estate tax system—such as the deduction method and tax rates. Detailed issues will be addressed during parliamentary discussions.

Within the ruling Democratic Party of Korea, while a range of opinions exists, some lawmakers representing constituencies in the Seoul metropolitan area have reportedly argued that the tax burden cap should remain at 150% to cushion the impact of increased comprehensive real estate holding taxes.

The government's proposal would raise the tax burden cap from the current 150% to 200% to reflect the increased comprehensive real estate tax rates.

For a couple who jointly own a single home, if they apply for the single-home household special exemption, they can receive the same 1.2 billion won comprehensive real estate tax deduction as sole owners. With the revised proposal, the deduction will increase to 1.4 billion won. The government’s position remains that taxpayers can choose the most advantageous method based on the available tax benefits.

Since non-resident exemption requirements can be determined by executive order, the government is considering adding some of the cases raised during the legislative notice period.

The proposal stipulates that in cases of unavoidable reasons—such as entering school, job changes, illness, transfers, overseas stays, or caring for parents—where a residence is relocated to another region, the non-residency period can be counted as the residence period for up to three years. Additionally, periods of construction due to redevelopment or reconstruction will also be recognized as part of the residency period.

As opinions emerge regarding additional cases—such as moving to care for grandchildren or renting in a particular school district—there is a possibility that further exceptions may be included in the executive order.

The government is reviewing ways to supplement the measures to prevent stock price manipulation by amending the proposal. It is also considered necessary to simultaneously improve shareholder protection and capital market systems, not only by revising the inheritance/gift tax valuation methods, but also through amendments to the Commercial Act and the Capital Markets Act.

It has been reported that the government is considering measures such as adjusting the scope of taxable targets and introducing a cap so that inheritance tax liabilities do not exceed inherited assets, by revising or adding certain conditions.

According to the government proposal, cases where the price-to-book ratio (PBR) over 12 out of the most recent 13 half-year periods ranks in the lowest 25% among KOSPI sectors or the lowest 10% for KOSDAQ companies, or when stock prices have fallen more than 30% over the past year—accompanied by practices like dual listings or issuance of exchangeable bonds—compared to the three-year average, are designated as presumptive conditions for stock price manipulation. If these conditions are met, the valuation period will be extended and at least a 30% premium will be added for tax purposes.

Market participants and political circles have pointed out that since only PBR in some periods needs to be managed to escape regulation, the effectiveness may be limited. They also argue that the scope of taxable targets and the level of sanctions are excessively lax. In response, the government is considering revisions to adjust the range of taxable objects.

A bill proposed by Democratic Party of Korea lawmaker Lee Soyoung and others specifies that, when a stock price falls below 80% of net asset value (PBR 0.8), the evaluation method for unlisted companies should be used rather than the stock price for inheritance tax calculation, with a lower limit set at 80% of net asset value.

There is also an opinion that, rather than resolving the issue of stock price manipulation solely through inheritance and gift tax valuation methods, shareholder protection and capital market system improvements should be promoted through amendments to the Commercial Act or Capital Markets Act as well.

An amendment to the Capital Markets Act proposed by Democratic Party of Korea lawmaker Kim Hyeonjeong in March requires listed companies with a PBR below 1 for two consecutive years to submit and disclose a plan to enhance corporate value. An amendment proposed in April makes it mandatory to publicly disclose the issuer’s stance and the interests of directors during a tender offer, and to include matters that significantly impact shareholder interests in major report filings. The government plans to put the revised bill through further legislative notice until August 20, deliberate on it at the vice-minister and cabinet meetings, and submit it to the National Assembly in early September.

An official from the Ministry of Economy and Finance stated, "We plan to carefully listen to a wide range of voices and thoroughly consider reasonable supplementary measures so that the purpose of the system reform is faithfully carried out."

This content was produced with the assistance of AI translation services.