There's good news for long-term investors in domestic equities.

at the Cabinet meeting on the 11th, President Lee Jae-myung instructed us to prepare a tax benefit plan for long-term investors in domestic stocks. The domestic stock market has been volatile due to the repeated inflows and outflows of short-term speculative funds. The government is reviewing the tax benefit plan to revitalize long-term investment and alleviate the phenomenon of market funds being tilted toward real estate.

in particular, the policy is being designed to significantly reduce the tax burden on long-term investors who receive dividends consistently. It is expected that more investors will be interested in long-term investment if the tax burden on domestic stocks is reduced.

reducing the top dividend income tax rate to 25 percent

currently, financial income such as dividends and interest is taxed at a rate of 6 to 45 percent when combined with other income, up to a maximum of 49.5 percent when local taxes are included. The more dividends you receive from stock investments, the higher the dividend income tax.

the government and the ruling party are considering a separate taxation system for dividend income instead of a comprehensive taxation system and lowering the top tax rate to 25 percent. If this system is introduced, the tax burden will be significantly reduced for investors who receive dividends for a long time.

to give you a concrete example, investors with a taxable base of more than $1 billion currently pay a 45 percent tax rate. With a 25 percent dividend income tax, the tax rate would be reduced by 20 percentage points, which is a significant reduction in the tax burden. The reduction in dividend investment taxes is expected to encourage more investors to invest in dividend stocks for the long term.

Significant increases to ISA tax-free allowance and contribution limits

as part of the government's plans to expand the benefits of ISAs, the government is looking to significantly increase the tax-free and contribution limits. Currently, the ISA tax-free limit is 2 million won for the standard ISA and 4 million won for the low-income ISA, and the government is considering increasing this limit to 5 million won for the standard ISA and 10 million won for the low-income ISA.

the annual ISA contribution limit and total contribution limit will also be increased. The annual contribution limit will be increased from 20 million won to 40 million won, and the total contribution limit will be increased from 100 million won to 200 million won. This will allow you to put more money into an ISA account and enjoy tax-free benefits.

we are also considering introducing a junior ISA for minors, which will be designed to exempt parents' contributions from gift tax and allow them to keep the account until age 18 and withdraw their contributions at age 19. This will be a great opportunity for parents who want to help their children develop long-term investment habits.

new domestic ISA to be launched

the government is also discussing the creation of a Domestic Investment ISA, which would be a dedicated ISA for domestic stocks, funds, and ETFs. Currently, there are three types of ISAs: brokerage, trust, and discretionary, and we want to add a new type called a Domestic Investment ISA.

instead of restricting investments to the domestic stock market, the ISA is likely to offer greater tax advantages, and is key to our policy of encouraging long-term investment to maximize the diversification of property funds and drive money into domestic equities.

if introduced, it could be more tax advantageous to invest long-term in domestic stocks rather than overseas investments. It would be a great opportunity to invest in the growth of domestic companies and receive tax benefits.

who will benefit most from this tax break for long-term investors?

investors with long-term investments, particularly in dividend stocks, will benefit the most from this tax change. Higher-income investors with higher dividend income will see the biggest tax cut, while the increased ISA allowance will really benefit middle-income investors.

younger investors will be able to use the Junior ISA to start their children's financial education, and the Home Investment ISA will be an attractive option for anyone who wants to invest in the growth of home-grown companies.

however, the specific timing and terms of implementation have yet to be finalized. We will have to wait for the final decision of the government and the ruling party. Policy discussions have been moving quickly since President Lee Jae-myung's order, so we expect to hear more details soon.

frequently asked questions

Q1. When will the 25 percent dividend income separation tax be applied? A1. The specific implementation date has not been announced yet. The government needs to prepare a bill and pass it through the National Assembly, so it could be as early as 2026.

Q2. Will the increase in the ISA tax-free allowance apply to existing accounts? A2. Generally, these improvements are often applied retrospectively to existing savers as well as new savers, but we won't know for sure until the final policy is announced, so check the official announcement.

Q3. Can anyone sign up for a Junior ISA? A3. It is expected that parents with minor children will be able to open a Junior ISA in their child's name, although certain conditions may need to be met to qualify for the gift tax exemption.

Q4. Can't I invest in overseas stocks with a domestic ISA? A4. As the name suggests, the ISA will only be designed to invest in domestic stocks, domestic ETFs, and domestic funds. If you want to invest in overseas assets, you'll need to use a traditional ISA.

Q5. What do I need to do now? A5. Even before the policy is finalized, it's a good idea to start researching domestic dividend-paying stocks and consider opening an ISA account so you're ready to take full advantage of the benefits once it's implemented.

wrapping up

the extension of tax relief to long-term investors in domestic equities is a real boost for investors, and with the reduction in dividend income tax and the extension of ISA benefits becoming a reality, the long-term investment landscape will improve significantly.

which of these tax breaks are you most excited about? share your thoughts in the comments. and don't forget to subscribe and set up alerts for more great investing tips.