On December 24, the Ministry of Economy and Finance announced tax support measures for domestic investment and foreign exchange (FX) stability, aimed at promoting the revitalization of the domestic capital market and addressing structural supply-demand imbalances in the FX market.

As overseas investments by individual investors have increased sharply in recent years, the need has arisen for enhanced FX risk management to mitigate volatility in investment returns. In addition, although the domestic stock market has delivered one of the strongest performances among global capital markets this year, individual investors’ overseas equity investments have surged, while their domestic equity investments have declined. At the same time, there has been a growing call to attract domestic employment and investment by encouraging the repatriation of overseas assets held by export-oriented companies. Against this backdrop, the Government intends to pursue the following three institutional reforms.

I.          Introduction of Tax Support for Reshoring Investment Accounts (RIAs)

First, temporary tax incentives (for a one-year period) will be granted on capital gains from overseas stocks for individual investors who sell overseas stocks held as of December 23, 2025, convert the proceeds into Korean won, and make long-term investments in domestic equities (e.g., by maintaining the investment for at least one year). Capital gains tax will be exempted up to a specified per-person cap on the amount of sales proceeds (e.g., KRW 50 million), with tax relief benefits applied differentially depending on the timing of the return to the domestic market.

II.       Introduction of FX Forward Contracts for Individual Investors and Establishment of Capital Gains Tax Deductions for FX Hedging

Second, in light of the limited range of FX risk management instruments available to individual investors, the Government will provide support to enable major securities firms to swiftly introduce FX forward selling products tailored for individual investors. Also, it will grant capital gains tax benefits for overseas stocks held as of December 23, 2025, where FX hedging (FX forward selling) is implemented.

From the perspective of individual investors, the measure is expected to help minimize FX losses resulting from future exchange rate declines (appreciation of the Korean won) without requiring them to sell their overseas stock holdings. In the FX market, an immediate increase in the supply of foreign currencies, including the U.S. dollar, is anticipated to contribute to market stability.

III.    Increase in the Income Exclusion Ratio for Dividend Income Received from Overseas Subsidiaries

Third, in order to mitigate double taxation on dividends received by domestic parent companies from their overseas subsidiaries, the Government will raise the income exclusion ratio for such dividend income from 95% to 100%.

With the implementation of these tax support measures, it is expected that a substantial portion of individual investors’ overseas stock holdings – amounting to USD 161.1 billion as of the end of the third quarter of 2025 (based on the International Investment Position) – will be redirected toward domestic investment or hedged against FX risk, thereby leading to an expansion in the supply of foreign currencies.

The Government plans to promptly pursue legislation to amend the Act on Restriction on Special Cases Concerning Taxation, with a view to fostering domestic investment and stabilizing the FX market. In particular, as part of efforts to encourage the repatriation of overseas assets, the tax incentives under (1) RIA and (2) FX hedging will be applied immediately upon the launch of RIAs and FX forward selling products for individual investors on or after January 1, 2026, while (3) the expanded income exclusion ratio will apply to dividends distributed on or after January 1, 2026.

Please refer to the attached files.