Year-End Tax Planning: How About Using 'Junggae-hyeong ISA·IRP'?

Brokerage-type ISA allows holding domestic stocks in the account with full tax exemption
IRP offers up to 1,485,000 KRW year-end tax deduction benefits just by making contributions by year-end

[Asia Economy Reporter Park Jihwan] With just over a month left until the end of the year, investor interest is growing in financial investment products that offer tax benefits. The most representative products are the brokerage-type Individual Savings Account (ISA), which allows domestic stocks to be held within the account and offers full tax exemption benefits starting the year after next, and pension savings and Individual Retirement Pension (IRP) products that provide year-end tax deduction benefits of up to 1,485,000 KRW simply by making contributions by the end of the year.

According to the Financial Investment Association's electronic disclosure system as of the end of September, the total number of ISA subscribers at securities firms was 1,662,379. Since the introduction of the brokerage-type ISA in February, the number of investors subscribing to this product has shown a steep increase over time: ▲230,000 in March ▲580,000 in April ▲720,000 in May ▲870,000 in June ▲1,210,000 in July ▲1,450,000 in August ▲1,660,000 in September. This is interpreted as a move to secure investment limits in advance in preparation for the full implementation of the financial investment income tax in 2023. Currently, general investors who are not major shareholders do not bear capital gains tax on stock trading profits, but starting two years from now, regardless of stock holdings or share ratios, if profits from trading domestic listed stocks exceed 50 million KRW annually, a 20% tax must be paid.

However, by utilizing a brokerage-type ISA account, all investment gains can be exempt from tax. For those who first subscribe to a brokerage-type ISA in 2023, when the financial investment income tax is introduced, the tax-exempt investment limit on capital gains is only 20 million KRW, but if you subscribe this year, you can secure a total investment limit of 60 million KRW (20 million KRW + 20 million KRW + 20 million KRW). Since the annual contribution limit is 20 million KRW and can be carried forward, you can secure the investment limit by simply opening the account in advance without immediately depositing funds.

Utilizing pension savings and IRP, which offer tax credits in year-end tax settlements, is also a worthwhile bonus benefit. For pension savings and IRP, the maximum annual contribution amount eligible for tax credit is 7 million KRW. Since the benefit is based on the total amount contributed within the year, investors can make a lump-sum payment by the end of the year and still receive the tax credit. Specifically, if you contribute a total of 7 million KRW combined to pension savings and IRP by the end of the year, you can receive a tax credit benefit of 1,155,000 KRW, which is 16.5%. If you are aged 50 or older, you can contribute up to 9 million KRW, in which case you can receive a refund of 1,485,000 KRW (= 9 million KRW × 16.5%).