The Ministry of Economy and Finance (MOEF) announced on December 24 a new tax incentive package aimed at stabilizing the foreign exchange market and correcting structural imbalances in capital flows. The measures are designed to address heightened FX volatility caused by the rapid increase in overseas investments by individual investors and to encourage the repatriation of capital back into domestic markets.

According to the ministry, despite strong performance in Korea’s equity market compared with major global peers this year, domestic stock investment by individuals has declined while overseas equity investment has surged. This divergence has contributed to persistent demand for foreign currency and amplified volatility in the FX market, prompting the government to pursue a structural policy response rather than short-term intervention.

Institutional Reforms to Promote Capital Repatriation and FX Hedging

The package consists of three key policy measures.
First, the government will introduce a Reshoring Investment Account (RIA), which allows individual investors who sell overseas equities held as of a specified date and reinvest the proceeds into Korean equities to receive temporary tax relief on capital gains from overseas stocks. The level of tax reduction will vary depending on the timing of reinvestment, encouraging earlier capital repatriation.

Second, the government plans to expand FX hedging options for individual investors by supporting the launch of retail-accessible forward-selling products. In addition, investors who actively hedge currency risk will be eligible for additional deductions when calculating capital gains tax on overseas stock investments. These measures aim to reduce exchange-rate exposure without forcing investors to liquidate foreign assets, while simultaneously increasing FX market supply.

Third, the package raises the dividend income exclusion rate for dividends received from overseas subsidiaries by Korean parent companies to 100%, up from 95%. This change is intended to lower tax friction on inbound profit flows and encourage multinational firms to repatriate overseas earnings for domestic investment.

Short-Term Stabilization, Structural Limits Remain

In the short term, the tax package is expected to provide a stabilizing signal to the FX market by expanding foreign currency supply through both individual and corporate channels. Expanded FX hedging by retail investors and increased dividend repatriation could help ease exchange-rate volatility.

However, from a medium- to long-term perspective, tax incentives alone may be insufficient to fundamentally reverse overseas investment trends. Global capital flows are primarily driven by interest rate differentials, growth expectations, and industrial competitiveness. Without a corresponding improvement in the attractiveness of Korea’s domestic capital market, the policy’s impact may remain limited. As such, the package is best viewed as a buffer mechanism rather than a structural turning point.

Editor’s Opinion | Winning Back Investors Requires a Shift in Economic Narrative

The recent surge in the U.S. dollar and the market’s strong alignment around U.S.-led, AI-driven equity growth have shaped investor behavior globally, including in Korea. In this environment, Korean investors are increasingly inclined to pursue global market leaders, even at the cost of higher currency risk.

Reversing this trend will be difficult through tax incentives alone. To truly regain investor confidence and redirect capital toward domestic markets, a broader shift in Korea’s economic narrative is required. Exchange-rate stability is important, but it must be accompanied by a compelling domestic growth story—particularly in advanced industries such as AI and next-generation technology. Only when Korea’s market offers a clear and competitive long-term vision will investor sentiment begin to realign naturally.

— Peter Kim, Korea-based journalist

[Original document]

[Ministry of Economy and Finance] [Press Release]

[Release Date: Dec. 24, 2025 (Wed) 10:00 / Distribution Date: Dec. 24, 2025 (Wed) 07:30]

Announcement of Measures for Tax Support for Domestic Investment and Foreign Exchange Stability to Stimulate Domestic Capital Market and Resolve Structural Supply-Demand Imbalance in Foreign Exchange Market

-New temporary reduction of capital gains tax on overseas stocks when investing long-term in domestic markets after selling overseas stocks
-Introduction of forward exchange for individual investors and new capital gains tax deduction for FX hedging
-Increase in dividend income exclusion rate for dividends received by domestic parent companies from overseas subsidiaries –

The Ministry of Economy and Finance announced measures for tax support for domestic investment and foreign exchange stability on Dec. 24 (Wed) to promote the vitalization of the domestic capital market and resolve the structural supply-demand imbalance in the foreign exchange market.

With the recent surge in overseas investment by individual investors, the need for foreign exchange risk management to mitigate investment return volatility is emerging. Additionally, although the domestic stock market this year is showing the best performance among global capital markets, individual investors’ overseas stock investment has surged while domestic stock investment has decreased. Opinions are also expanding that domestic employment and investment should be attracted by promoting the return of overseas assets from exporting companies. Accordingly, the government intends to pursue the following three institutional improvements.

Annual return rates of major stock markets (YTD, %, ‘25.1.1~12.23): (KOR KOSPI) 71.6, (KOR KOSDAQ) 35.6, (US S&P500) 17.2, (US NASDAQ100) 21.6, (EU Stoxx50) 33.8, (JPN NIKKEI) 27.6, (CHN Shanghai Composite) 21.9 ** Individual (resident) overseas/domestic stock investment (KSD/KRX, ‘25.1~11): (Overseas) $30.9 billion, (Domestic) △11.6 trillion KRW

[① New tax support for Reshoring Investment Accounts (RIA)]

First, if an individual investor sells overseas stocks held as of Dec. 23, 2025, converts the funds into KRW, and invests long-term in domestic stocks (e.g., maintaining for 1 year), temporary (1 year) tax benefits will be granted for capital gains tax on overseas stocks.

The capital gains tax will be exempted up to a certain selling amount per person (e.g., 50 million KRW), and tax reduction benefits will be differentiated according to the timing of the return.

E.g.) 100% reduction for return in Q1 2026, 80% for Q2 2026, 50% for the second half of the year

[② Introduction of forward exchange for individual investors and new capital gains tax deduction for FX hedging]

Second, for individual investors who lack available foreign exchange risk management tools, the government will support major brokerage firms to quickly launch “forward exchange selling products for individual investors,” and grant capital gains tax benefits if FX hedging (selling forward contracts) is conducted for overseas stocks held as of Dec. 23, 2025.

E.g.) 1) Recognized limit for FX hedging per person: 100 million KRW based on annual average balance 2) An additional income deduction of 5% of the hedging product purchase amount (annual average balance) (maximum 5 million KRW) when calculating capital gains tax on overseas stocks

From the perspective of individual investors, foreign exchange losses due to future exchange rate drops (KRW appreciation) can be minimized without directly selling held overseas stocks. In the foreign exchange market, an immediate increase in the supply of foreign currencies such as USD is expected to bring a stabilization effect.

[③ Increase in dividend income exclusion rate for dividends from overseas subsidiaries]

Third, the dividend income exclusion rate for dividends received by domestic parent companies from overseas subsidiaries—to adjust for double taxation—will be raised from 95% to 100%.

With this tax support, if a significant portion of the $161.1 billion in overseas stock holdings by individual investors (as of the end of Q3 ’25, based on the International Investment Position) is converted to domestic investment or hedged, an effect of expanding foreign exchange supply is expected to appear.

The government plans to promptly promote legislation (legislative proposal by a member of the National Assembly for the Restriction of Special Taxation Act) for expanding domestic investment and stabilizing the foreign exchange market.

In particular, to encourage the domestic return of overseas assets, the RIA and FX hedging tax benefits will be granted immediately after the launch of the RIA and forward exchange selling products for individual investors after Jan. 1, 2026. The expansion of the dividend income exclusion rate will apply to dividends paid after Jan. 1, 2026.

Contact Information
Ministry of Economy and Finance
– Tax Bureau, Financial Tax Division: Director Yoon Su-hyun (044-215-4230) / Deputy Director Park In-won
– Tax Bureau, International Tax Division: Director (Vacant) / Deputy Director Lee Geum-seok
– International Finance Bureau, Foreign Exchange Fund Division: Director Jeong Yeo-jin (044-215-4730) / Deputy Director Lee Yong-jun
/ Deputy Director Kim Yong-jun / Deputy Director Byeon Jae-man

Financial Services Commission
– Financial Policy Bureau, Financial Market Analysis Division: Director Lee In-uk (02-2100-2850) / Deputy Director Oh Dong-hun

Financial Supervisory Service
– Capital Market Supervision Department: Director Park Si-mun (02-3145-7580) / Team Leader Kim Yong-jin / Team Leader Seol Jae-hun