South Korea Reconsiders ISA Tax Changes After Investor Backlash Over Curbs on Compounding

South Korea’s Ministry of Economy and Finance 2026 tax revision plan

Proposal would limit ISA maturities and scrap carry-forwards of unused contribution room

Long-term investors would lose the benefits of tax-deferred compounding

Government is reviewing the plan after backlash, especially from younger investors

“Current benefits will likely remain”

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In <Ko Jeong-sam’s Tax-Saving GPT>, tax issues readers want to understand are explained based on tax law. In the 33rd installment, with Song Ju-young, a tax specialist at Yuanta Securities, we examine the Individual Savings Account, or ISA, often called an all-purpose investment account.

A salaried worker in his 30s, identified only as Mr. A, has spent the past four years making regular investments in foreign exchange-traded funds listed in South Korea through a brokerage ISA. He was rattled after reviewing the government’s latest tax revision proposal. It would cap the maturity of ISAs, which had effectively been extendable indefinitely, and eliminate the carry-forward of unused contribution limits.

“Posts are flooding online investment communities urging people to extend maturities as much as possible before the law changes,” he said. “My account now matures in 2031, but I feel like I should close it and open one in advance with a 99-year maturity.”

The ISA has become a political flashpoint after the government proposed shortening the contract term for standard accounts and scrapping the carry-forward rule. That would strip away the compounding benefits that made the product attractive for long-term investors. As criticism mounted, especially among younger investors who called the plan a blow to asset-building opportunities, the government began reviewing whether to preserve the current benefits.

According to the tax industry on Aug. 15, the Ministry of Economy and Finance announced on Aug. 3 a proposed tax law revision that would limit standard ISA contracts to an initial three years plus a two-year extension. An ISA is a multiuse investment account that allows savers to hold deposits, installment savings, stocks and funds in a single account. Net gains, calculated by combining profits and losses across holdings, are taxed separately at a preferential 9.9% rate after a tax exemption of 2 million won ($1,450) for standard accounts and 4 million won ($2,900) for lower-income accounts.

Song Ju-young, a tax specialist at Yuanta Securities, said income from the account is not added to earnings subject to South Korea’s comprehensive financial income tax, which carries a top rate of 49.5%. Nor is it included in the calculation of national health insurance premiums.

Taxes on capital gains or dividends generated inside an ISA are deferred until the account matures, instead of being withheld whenever a trade is made or income is paid. Investors can also carry forward unused portions of the current annual contribution limit of 20 million won ($14,500), up to a total cap of 100 million won ($72,500). That allows money that would otherwise go to taxes to stay invested, maximizing the compounding effect over time.

The problem is that the government’s tax proposal would cap maturities at five years and abolish the carry-forward system, making those benefits unavailable. If accounts are settled every five years, taxes on gains at that point are locked in, and investors must start over with after-tax funds.

Song said investors had effectively set ISA maturities at 99 years to preserve compounding benefits and rolled unused contribution room into future years. That allowed them to reinvest for decades before paying tax and steadily build wealth. If the account is forced to settle every five years, that compounding cycle is broken.

As backlash against the ISA tax overhaul intensified, the government began considering a reversal that would preserve the current benefits. It plans to revise the original tax proposal by next week. The measure would then go to the Cabinet early next month before being submitted to the National Assembly.

Tax law revisions are typically finalized after parliamentary debate concludes in late November, with final confirmation in early December, Song said. There is no need for investors to rush to close or transfer accounts.

Still, investors should review their account maturity dates, whether they have met mandatory holding periods, the profit-and-loss status of their accounts and any history of being subject to comprehensive taxation on financial income, he added. Preparing scenarios for either outcome — the government proposal being finalized or the current system being maintained — is the most reasonable tax strategy for now.

Ko Jeong-sam, Hankyung.com reporter jsk@hankyung.com