SEOUL — In a sweeping effort to stimulate domestic capital markets and help young citizens build long-term wealth, the South Korean government has officially announced a comprehensive reform package centered on a new tax-advantaged investment account. Unveiled by the Ministry of Economy and Finance as part of its '2026 Tax Reform Plan,' the centerpiece initiative—dubbed the 'Productive Finance Individual Savings Account (ISA)'—is designed to channel retail savings directly into domestic equities, venture funds, and growth vehicles.

Under the proposal, all interest and dividend income generated within the Productive Finance ISA will be completely exempt from taxation without any upper ceiling. In exchange for full tax exemption, investment eligible assets are strictly restricted to domestic instruments, including South Korean listed stocks, domestic equity funds, National Growth Funds, and Business Development Companies (BDCs).

Expanded Limits and Targeted Youth Tax Deductions

The Productive Finance ISA dramatically raises investment thresholds compared to the existing general ISA framework. Individual investors can deposit up to ₩20 million annually, up to a total lifetime cap of ₩200 million—doubling the current ₩100 million limit. Unused annual contribution caps cannot be rolled over to the next year. Accounts require an initial minimum maturity period of 3 years, which can be extended up to a maximum duration of 10 years.

To encourage young citizens to begin wealth accumulation early, the government has added a direct income tax deduction. Eligible young investors aged 15 to 34 with an annual total salary of ₩75 million or less (or total business income of ₩63 million or less) will receive a 10% tax deduction on their annual ISA contributions. Mandatory military service (up to 6 years) will be deducted when calculating age eligibility. Contributions made in any calendar year where total salary exceeds ₩85 million will be excluded from the deduction.

Capital Rollover Rules and Withdrawal Penalties

To ensure continuous capital accumulation, investors will be permitted to roll over lump-sum funds from maturing general ISAs, Youth Tomorrow Savings accounts, and Youth Leap Accounts directly into the Productive Finance ISA up to a ₩200 million rollover limit.

To prevent speculative trading, strict clawback regulations will apply: if an investor withdraws principal-exceeding profits within 3 years of account creation, the account will be liquidated and subjected to retroactive income taxation on previously exempted gains. Youth investors who prematurely withdraw principal will similarly face tax deduction clawbacks.

Overhaul of Existing ISAs and Venture Capital Support

Parallel to the new account launch, existing general ISAs will undergo structural updates. Contract extensions for general ISAs will be capped at 5 years maximum, and unused annual contribution rollover will be eliminated starting next year. Both general and Productive Finance ISAs will operate under a sunset clause through December 31, 2029.

To support mid-stage corporate growth, tax incentives for venture investments will expand from companies under 7 years old to those under 10 years old. Corporations investing directly in eligible 10-year-old ventures will receive a 5% tax credit, while direct venture investments made in population-declining non-capital regions will enjoy an enhanced 7% tax credit. Capital gains tax exemptions for individual and VC venture stock acquisitions will be permanently codified into tax law.

"The Productive Finance ISA serves as a core policy instrument to support household wealth creation while reinvigorating domestic capital markets," stated a Ministry of Economy and Finance official. "Concurrently, expanding tax benefits for scale-up ventures ensures sustained capital flow into high-growth regional and technology enterprises."

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