[Practical Finance] Lowered Entry Bar for ISA... Should We Include Domestic Stocks This Year?

Subscription without income verification for those aged 19 and over
Mandatory subscription period shortened from 5 to 3 years

On the 15th, when the National Tax Service's 'Year-end Tax Settlement Simplification Service' began, employees at the Jongno Tax Office in Seoul were reviewing the year-end tax settlement guidebook. Starting this year, according to the newly revised tax law, data such as postpartum care center expenses, museum and art gallery admission fees, Zero Pay usage amounts, and KOSDAQ venture investment amounts have been added to the materials provided by the Year-end Tax Settlement Simplification Service. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Oh Hyung-gil] Year-end tax settlement has returned. For some, it is the ‘13th month salary,’ but for others, it means unexpected expenses. The deduction items change slightly every year, making it complicated and confusing. However, there is a star product that has provided tax-exempt benefits for several years.

The protagonist is the Individual Savings Account (ISA). The eligibility criteria have been expanded, and the mandatory subscription period has been shortened, increasing the tax benefits. Experts advise that to prepare smartly for next year’s year-end tax settlement, attention should be paid to ISA starting now.

ISA is a product that allows integrated management of various financial products such as savings deposits, funds, equity-linked securities (ELS), exchange-traded funds (ETF), and real estate investment trusts (REITs) within a single account. Introduced by the government in March 2016 as part of a national wealth-building project, it gained tremendous popularity with 2.4 million subscribers within nine months of launch.

However, since only those with income such as earned income or business income could subscribe, income verification documents were required, and to receive tax-exempt benefits, a mandatory subscription period of five years had to be fulfilled, which gradually reduced interest. According to the Korea Financial Investment Association, as of the end of November last year, the number of ISA subscribers through banks was 1.79 million, steadily decreasing from 1.99 million at the end of 2018 and 1.92 million at the end of 2019.

In response, the government recently amended tax laws to revitalize the ISA system by increasing tax benefits and expanding the range of investment products.

From this year, residents aged 19 and older can subscribe without separate income verification documents. The mandatory subscription period has been reduced from five years to three years. Even after the mandatory period, the maturity can be extended to maintain tax-exempt benefits. Up to 2 million KRW of earnings are tax-exempt, and earnings exceeding 2 million KRW are subject to separate taxation at 9.9% (including local income tax).

If the annual ISA contribution limit of 20 million KRW is not fully used, the unused amount can be carried over to the next year for additional contributions. Also, if funds are needed during the subscription period, early withdrawal is allowed within the range of the principal amount contributed.

Source: Hana Financial Management Research Institute

Conversion to Pension Account ISA... Tax Credit Available

Especially since last year, if the maturity amount of ISA is converted to a pension account (individual IRP, pension savings insurance, pension savings fund) and additional contributions are made, year-end tax credit is possible. The deduction amount is 10% of the additional amount paid from ISA to the pension account (up to 3 million KRW), which can reduce taxes by up to 495,000 KRW.

With the recent ‘Samcheonpi (KOSPI 3000)’ era, interest in stock investment has increased, and ISA’s ability to build diverse portfolios is also an advantage. In addition to existing deposits, savings, and funds, domestic stocks can be included starting this year.

Shinhan Bank is conducting the ‘Easier ISA’ event, offering coffee coupons and prizes through a lottery for ISA subscribers. Until the end of February, all new ISA subscribers contributing at least 100,000 KRW will receive a Coffee Bean vanilla latte coupon. Additionally, through a lottery, prizes such as LG CordZero robot vacuum cleaners, Emart 50,000 KRW gift certificates, and Coffee Bean dessert sets will be provided.

KB Kookmin Bank is also running the ‘2021 Year of the Ox, Start Saving Taxes Today with ISA’ event for ISA subscribers. Until the end of March, the first 10,000 new ISA subscribers contributing at least 100,000 KRW will receive ice cream mobile coupons. Among new subscribers contributing over 1 million KRW who maintain their accounts until the end of April, a lottery will be held to award prizes including LG Tromm WashTower, MacBook Pro 13-inch 512GB, and Nespresso Vertuo Plus.

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