[Practical Finance] Investment Limits on Intermediary Type Accounts After 2 Years... Opening an Account Early is a 'Jeolsega-in'

Securities Firm Sign-up Event Bang Bang

Most Offer Lifetime Discount on Trading Fees
Some Provide 1 Year Free Related Agency Fees
Cash and Department Store Gift Certificates Given
Public Offering Subscription Limit Expanded by 200%

Be Careful When Switching to Discretionary or Trust Types
Must Cancel Existing Products to Open New Account
Benefits May Need to Be Returned if Terminated Early

[Asia Economy Reporter Ji-hwan Park] With the government deciding not to impose taxes on income generated from domestic stock investments through Individual Savings Accounts (ISA) starting in 2023, brokerage firms' intermediary-type ISA products have emerged as essential tax-saving tools. Unlike existing products, intermediary-type ISAs allow investment in domestic stocks and, from 2023, offer full tax exemption on investment income. Experts advise that it is advantageous to sign up within this year to maximize tax benefits. By taking advantage of brokerage firms' subscription events, additional benefits such as commission discounts and cash rewards are also available.

According to the financial investment industry on the 18th, a new financial investment income tax will be introduced from 2023, requiring stock capital gains tax payments even for non-major shareholders. Currently, only major shareholders pay capital gains tax, but in two years, regardless of stock holdings or share ratios, profits from trading domestic listed stocks exceeding 50 million KRW annually will be subject to taxation. However, by utilizing intermediary-type ISAs, all investment profits can be exempt from tax. This is because the government decided on the 26th of last month, through tax reform, not to tax profits generated from investments in stocks and stock-type funds within ISA accounts.

Until now, ISAs only included ‘discretionary’ and ‘trust-type’ accounts, which did not allow investment in listed stocks. It was only in February that intermediary-type ISAs, which allow investment in domestic listed stocks, were launched.

The annual contribution limit for intermediary-type ISAs is 20 million KRW, with a maximum of 100 million KRW per account. A notable feature is that the contribution limit can be carried forward. For example, if you join an intermediary-type ISA product this year and contribute 5 million KRW but do not contribute at all next year, you can make a lump sum contribution of 55 million KRW (15 million KRW + 20 million KRW + 20 million KRW) in 2023. Lee Seung-jun, a tax specialist at Samsung Securities, said, "Since intermediary-type ISAs have an annual contribution limit of 20 million KRW and allow carryforward, it is better to consider joining as soon as possible. For those opening accounts for the first time in 2023, when the financial investment income tax is introduced, the tax-exempt investment limit on capital gains is only 20 million KRW, so opening an account early to increase the tax-saving limit is the best way to gain the greatest benefit."

Commission fees and preferential treatment for public offering subscriptions are also important considerations in brokerage firm events. Most brokerage firms offer lifetime discounts on domestic stock trading commissions, with subscribers only bearing the basic related institution fees of 0.0036%. NH Investment & Securities has even declared this fee free for one year. Depending on account balance maintenance conditions, benefits such as cash or department store gift certificates may also be provided. For investors interested in public offering investments, KB Securities can be a good choice. KB Securities currently offers customers who subscribe to intermediary-type ISAs and maintain a balance of over 20 million KRW a benefit of doubling their public offering subscription limits to 200%.

However, there are precautions when opening an account, especially when switching from existing ISA accounts such as discretionary types. Since only one ISA account per person can be opened, investors who have subscribed to existing discretionary or trust-type ISA products must close those accounts before opening an intermediary-type ISA account. The tax specialist advised, "Only one ISA account can be opened per financial institution, so when subscribing to an intermediary-type ISA, the existing account must be closed. If the account is terminated early without meeting the subscription period, the tax benefits received so far may have to be returned, so caution is needed."