The Korean government will introduce currency forward products for retail investors and provide tax incentives for foreign exchange hedging to help individual investors manage currency risks on their overseas stock holdings.
The Ministry of Economy and Finance announced on Thursday a "Tax Support Plan for Domestic Investment and Foreign Exchange Stability," stating it will support major securities firms in quickly launching forward exchange products for retail investors. The move is expected to expand currency risk management tools available to individual investors.
Under the plan, retail investors who hedge currency exposure on their overseas stock holdings through forward sales will receive capital gains tax benefits. Those who implement hedging on overseas stocks held as of December 23 this year will be eligible for additional income deductions within certain limits.
The hedging allowance is set at 100 million won ($69,000) based on average annual balance per individual, with 5% of the hedging product purchase amount deductible when calculating capital gains tax on overseas stocks. The maximum deduction is capped at 5 million won.
The measure will allow retail investors to reduce potential currency losses from won appreciation without directly selling their overseas stock holdings.
From a foreign exchange market perspective, increased forward sales by retail investors are expected to immediately boost dollar supply, helping ease downward pressure on the won.
The government plans to pursue legislative amendments, including revisions to the Special Tax Treatment Control Act, to fully implement the system starting next year. The tax benefits for currency hedging will take effect immediately after retail investor forward products are launched following January 1.
