Up to 40% Income Deduction for National Growth Fund Investments... Reduced Tax Benefits for RIA Cherry-Picking

Double Benefit: 9% Separate Taxation on Dividends

Yonhap News Agency

The government will offer an income tax deduction of up to 40% for investments in the National Growth Fund, which is set to launch between June and July this year, if the investment is held for more than three years. Investors will also be eligible for a double benefit, as dividend income will be subject to a separate 9% tax rate.

On January 20, the Ministry of Economy and Finance announced that it would push for amendments to the Restriction of Special Taxation Act and the Special Rural Development Tax Act containing these measures at the provisional National Assembly session next month.

Specifically, for investments held in the National Growth Fund for more than three years, a new tax incentive will be introduced: until the end of 2030, up to 200 million won in contributions will be eligible for a 9% separate taxation on dividend income generated by the fund, and up to 40% of the investment amount can be deducted from taxable income. For investments of up to 30 million won, a 40% deduction applies; for amounts exceeding 30 million won but up to 50 million won, a 20% deduction; and for amounts exceeding 50 million won but up to 70 million won, a 10% deduction.

Business Development Companies (BDCs) will also be eligible for a 9% separate taxation on dividend income for contributions up to 200 million won. This is the same tax rate that was applied to New Deal funds during the Moon Jae-in administration. The intention is to attract retail investors’ funds, currently dispersed in overseas stocks and real estate, back into the domestic capital market.

To support the return of retail investors who have been investing overseas, a special measure will be introduced: if investors sell their overseas stocks, convert the proceeds into Korean won, and invest them in a Domestic Market Return Account (RIA) for one year, they will receive a capital gains tax exemption.

The exemption will apply to gains of up to 50 million won per person. If investors return in the first quarter of this year, 100% of capital gains will be exempted; for returns in the second and third quarters, the exemption will be reduced to 80% and 50%, respectively. The earlier the return to the domestic market, the greater the tax benefit.

Funds transferred to an RIA can be freely invested in domestic stocks and equity funds. However, to prevent "cherry-picking"-where investors take advantage of tax benefits and then reinvest in overseas stocks-the government plans to adjust the income deduction proportionally if investors make net purchases of overseas stocks through other general accounts.

Additionally, a new foreign exchange forward-selling (FX hedge) product for individual investors will be launched. When hedging currency risk on overseas stocks, 5% of the investment amount, up to 5 million won per person, can be deducted from capital gains on overseas stocks. The non-taxable portion (exclusion from taxable income) of dividends received from overseas subsidiaries will also be raised from the current 95% to 100%.

The capital gains deduction for FX hedging and the increased exclusion rate for overseas dividend income will apply to investments and dividends made from January 1 of this year. These measures will be implemented temporarily for this year only, to help stabilize the foreign exchange market.

This amendment is a follow-up to the measures announced in the government's "2026 Economic Growth Strategy" and will be submitted as a legislative bill for discussion at the provisional National Assembly session in February. Specific details such as investment periods, limits, and tax benefits will be finalized through discussions with the National Assembly. A Ministry of Economy and Finance official stated, "We will work with relevant institutions to ensure that financial products eligible for tax support, such as the Domestic Market Return Account, are launched in line with the implementation of the law."