The government will give individuals who invest in the public-participation National Growth Fund an income deduction benefit of up to 40 percent. It will also detail measures to prevent “cherrypicking” by reducing benefits if investors in a “return-to-domestic-market account” (RIA) buy overseas stocks again after selling them and bringing funds back home, through revisions to the law.

On Jan. 20, the Ministry of Economy and Finance said it will pursue revisions to the Special Tax Treatment Control Act and the Rural Special Tax Act at an extraordinary National Assembly session in February, as follow-up steps to measures to revitalize the domestic capital market and stabilize the foreign exchange market.

If investors make long-term investments of at least 3 years in the public-participation National Growth Fund, which is scheduled to be launched in June to July, a new special provision will be introduced. It will apply a separate 9 percent tax rate on dividend income generated by the fund, with contributions capped at 200 million won, and provide an income deduction of up to 40 percent depending on the investment amount.

It will apply 40 percent to amounts up to 30 million won, 20 percent to amounts over 30 million won up to 50 million won, and 10 percent to amounts over 50 million won up to 70 million won.

A business development company (BDC) will also be granted the benefit of a separate 9 percent tax rate on dividend income, with contributions capped at 200 million won.

A new system will also be introduced to deduct capital gains on overseas stocks when funds from selling overseas stocks in a return-to-domestic-market account are converted into won and invested.

Investors must invest in domestic stocks and domestic stock funds for 1 year, and holding cash generated during stock transactions will be allowed.

In the process of investing in domestic stocks within an RIA, profits exceeding the principal amount contributed can be withdrawn at any time.

The sale amount is capped at 50 million won per person, and income deductions will vary depending on the timing of the return. They will be 100 percent for sales in the first quarter, 80 percent for sales in the second quarter, and 50 percent for sales in the second half of the year.

Steps will also be detailed to block cherrypicking, in which investors seek only tax benefits and reinvest in overseas stocks through “rolling over funds”.

Funds deposited into a return-to-domestic-market account can be invested freely in domestically listed stocks and domestic stock funds. If an investor net-buys overseas stocks through a regular account, income deduction benefits will be adjusted in proportion to the amount.

A special provision will also be introduced to deduct 5 percent of the investment amount from capital gains on overseas stocks when investing in FX-hedged products for individual investors. The deduction limit is 5 million won per person.

The non-taxable inclusion rate for dividend income received by a domestic parent company from an overseas subsidiary will also be raised to 100 percent from 95 percent.

The special provisions covering capital gains tax for bringing overseas stocks back to the domestic market and FX-hedged transfers, as well as raising the non-taxable inclusion rate for dividend income from overseas subsidiaries, will be operated only this year on a temporary basis to stabilize the foreign exchange market.

A ministry official said, “This revision will be submitted as a lawmaker-sponsored bill and is expected to be discussed at the extraordinary National Assembly session in February.” The official added, “Financial products eligible for tax support, such as return-to-domestic-market accounts, will be launched in cooperation with relevant agencies in line with the timing of the bill’s implementation.”