[Practical Finance] If You Don't Know This While Investing, You're a 'Jaerini'... Sweet Tips to Pay Less Tax on Investment Gains

ISA surpasses 6 million subscribers in 9 years
Rising number of subscribers in their 20s and 30s
Enhanced benefits this year... Subscriber numbers expected to grow further

The number of subscribers to the Individual Savings Account (ISA), known as the "all-purpose investment account," has surpassed 6 million nine years after its launch. This "all-purpose account" allows investment in all financial products?from domestic listed stocks to funds, exchange-traded funds (ETFs), and deposits?through a single account. It also offers tax benefits, making it a must-have product for investment enthusiasts. Especially this year, with the government planning to expand tax-exempt benefits, the number of subscribers is expected to increase further.

The very 'all-purpose account' known as the national tax-saving account... What exactly is it?

If you are interested in investment, you might have heard of ISA. ISA stands for Individual Savings Account and is called 'Gaein Jonghap Jasan Gwalli Gyejwa' in Korean. It is a tax-advantaged product that allows you to manage and invest in various financial products such as domestic listed stocks, funds, ETFs, REITs (Real Estate Investment Trusts), equity-linked securities (ELS), and deposits all in one place. ISA was launched in 2016 to help build wealth through comprehensive asset management. According to the Korea Financial Investment Association, nine years after its launch, the number of subscribers reached 6,043,000, with subscription amounts totaling 36.54 trillion KRW.

The number of ISA subscribers and subscription amounts sharply increased after the introduction of the "brokerage-type ISA," which allows subscribers to directly invest in domestic bonds and stocks, in February 2021. As of the end of February this year, the number of brokerage-type subscribers was 5,056,000, nearly 30% higher than the total at the end of 2023 (3,889,000). This accounts for 73.7% of all subscribers.

By age group, the increase was particularly high among those in their 20s and 30s. The proportion of 20- and 30-year-olds among ISA subscribers rose from 32.8% at the end of 2020 to 40.1% at the end of last month, an increase of 7.3 percentage points.

The Korea Financial Investment Association analyzed, "With the launch of brokerage-type ISA, it seems to have gained great popularity among people in their 20s and 30s, who are more familiar with financial investment products than middle-aged and older generations."

The biggest advantage of ISA is that it does not impose taxes on profits ranging from 2 million KRW to 4 million KRW depending on income. If the government’s announced ISA tax benefit enhancement policy changes in the future, tax exemption could increase to between 5 million and 10 million KRW, and for amounts exceeding the tax-exempt limit, instead of paying the full 15.4% tax, investors can enjoy a tax-saving effect with a reduced rate of 9.9%.

Where and how to subscribe? ... "Consider product types according to investment preferences"

ISA accounts can be opened through banks and securities firms’ applications (apps), websites, or by visiting in person. ISA accounts are divided by subscriber type into general, low-income, and farming/fishing categories, and product types include brokerage-type, trust-type, and discretionary-type.

For farmers and fishermen, only those with an income of 38 million KRW or less are eligible. The general type is available to residents aged 19 or older and workers aged 15 to under 19. The low-income type is for workers with a total salary of 50 million KRW or less or business owners with a comprehensive income of 38 million KRW or less. The low-income type offers tax exemption up to 4 million KRW, while the general type offers up to 2 million KRW. To subscribe to the low-income type, an income verification certificate must be submitted.

Regarding product types, if you want to entrust an expert, choose the "discretionary type"; if you want to invest directly, choose the "trust type" sold by banks; and if you want brokerage services, choose the "brokerage type" sold by securities firms.

However, there are some points to be cautious about. There is a mandatory subscription period of three years, during which you must not cancel to receive benefits. While the principal can be withdrawn freely, to withdraw profits earned from investments, you must cancel the account. Also, note that investing in overseas listed stocks is not allowed.

Benefits improve this year... Number of subscribers expected to rise

The Korea Financial Investment Association expects the number of subscribers to increase as the government plans to expand ISA tax benefits. According to the government's "2025 Economic Policy Direction" announced earlier this year, the tax-exempt limit will rise to 5 million KRW for the general type (10 million KRW for the low-income type), and the annual contribution limit will increase from 20 million KRW (total 100 million KRW) to 40 million KRW (total 200 million KRW).

Lee Hwan-tae, Head of the Industrial Market Division at the Korea Financial Investment Association, emphasized, "ISA, known as the 'all-purpose investment account,' has expanded opportunities for the public to build assets while serving as a catalyst for real economy growth. If the tax benefits are expanded and the eligible age is extended to minors, it will help activate national investment and strengthen the virtuous cycle structure of the capital market."