Intermediated ISA Approaches 2 Million Subscribers in Just 8 Months

Popular for Tax Exemption and Low-Rate Separate Taxation
Investment Funds Increase to 2.7731 Trillion Won

[Asia Economy Reporter Park Jihwan] The intermediary-type Individual Savings Account (ISA), which allows investment in the domestic stock market, has reached 2 million subscribers just 8 months after its launch.

According to the Korea Financial Investment Association on the 3rd, as of the end of October, the number of subscribers to the intermediary-type ISA was recorded at 1,905,662. The intermediary-type ISA surpassed 1 million subscribers within 5 months of its launch at the end of February, gathering 1,219,493 subscribers by the end of July. In the following 3 months, it added 686,169 more subscribers, bringing it close to 2 million subscribers just 8 months after its launch. During the same period, the investment amount also increased by about 300 billion KRW each month, reaching 2.7731 trillion KRW.

The popularity of the intermediary-type ISA lies in the ability to invest in stocks while simultaneously enjoying tax-exempt benefits. The intermediary-type ISA is a tax-saving account where profits earned from investments within the account are tax-exempt up to 2 million KRW, and profits exceeding that are subject to a low separate taxation rate of 9.9%.

For example, if an investor invests 80 million KRW in Company A, which pays a 5% dividend, they receive 4 million KRW annually in dividends. In a regular stock account, there is no tax exemption, so a dividend income tax rate of 15.4% applies, resulting in 616,000 KRW in taxes. However, if the investor uses an intermediary-type ISA account, dividend income up to 2 million KRW is tax-exempt, and the remaining 2 million KRW is subject to a 9.9% separate tax, resulting in only 198,000 KRW in taxes. This means a tax saving of 418,000 KRW depending on whether the intermediary-type ISA account is used.

Another attractive feature is that gains and losses among the included products are offset, and taxes are calculated only on net profits. For example, if an investor earns 4 million KRW profit from an overseas stock fund but incurs a 2 million KRW loss from domestic stocks, the net profit is 2 million KRW. Since the intermediary-type ISA offers tax exemption up to 2 million KRW, this investor would not have to pay any tax.

Stronger tax benefits will be introduced starting the year after next. From 2023, the government plans to apply tax exemption up to 50 million KRW on profits from trading domestic listed stocks, and impose a 22% tax on profits exceeding that amount. For instance, if an investor earns 100 million KRW profit from stock trading in a regular securities account, they must pay 22 million KRW in financial investment income tax on the 50 million KRW exceeding the basic exemption amount of 50 million KRW. However, if the investment is made through an intermediary-type ISA account, the entire capital gains will be tax-exempt, saving over 10 million KRW in taxes.