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South Korea Launches Incentive Package to Attract Long-Term Foreign Investors and Stabilize the Won

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  Published in Stocks and Investing on Thursday, November 20th 2025 at 5:58 GMT by Channel NewsAsia Singapore

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South Korea Unveils a New Package of Incentives to Attract Long‑Term Foreign Investors and Curb Won Volatility

South Korea’s government is rolling out a suite of measures aimed at deepening the local equity market and smoothing out the wild swings that have plagued the won in recent months. The package – announced by the Ministry of Economy and Finance (MEF) in partnership with the Korea Exchange (KRX) – focuses on tax breaks, lower transaction costs and regulatory reforms designed to reward investors who commit to holding domestic shares for the long haul.

The Driving Force Behind the Initiative

Over the past year, the Korean won has experienced sharper fluctuations than usual, largely fueled by short‑term speculative trading and global monetary policy shifts. A 2023 study by the KRX noted that around 70 % of daily trade volume is conducted by foreign investors who routinely buy and sell within hours or days, contributing to the “heat” that can push the won against the U.S. dollar and other major currencies.

“The won’s volatility is not just a domestic problem; it has a ripple effect on export‑led growth and foreign investment flows,” said Kim Hoon‑soo, the MEF’s Deputy Minister for Trade, Industry and Energy. “We need a sustainable, long‑term investment environment if we want to keep attracting the capital that drives our economy.”

Key Features of the Incentive Package

1. Capital‑Gains Tax Reduction for Long‑Term Holdings
   Investors who hold Korean shares for more than two consecutive years will enjoy a 50 % reduction in capital‑gain tax.
   For holdings that exceed five years, the tax rate will be further reduced to 0 % on the first 30 % of gains, after which a standard 22 % rate applies.

2. Dividend Tax Incentives
   A 15 % rebate on the withholding tax for dividends paid to foreign investors holding shares for at least two years.
   The rebate can be claimed through an automated portal linked to the Investor Services Platform (ISP) operated by KRX.

3. Lower Stamp Duty on Equity Transactions
   The stamp duty on foreign equity trades will be cut from 0.035 % to 0.015 % for investors who have held their positions for at least one year.
   This is part of a broader push to reduce the “transaction cost barrier” that discourages long‑term participation.

4. Re‑design of the Foreign Investor Registration System
   KRX will roll out a “Long‑Term Investor” designation, allowing qualifying foreign investors to bypass certain brokerage account limits.
   The new system will automatically flag accounts that meet the holding‑period criteria, simplifying the compliance process.

5. Targeted Support for Emerging Sectors
   The government will also earmark a portion of the incentive package for investors in technology, green energy and semiconductor clusters – sectors considered pivotal to South Korea’s future growth.
   These investors will receive additional tax credits and, in some cases, priority access to public offerings.

How the Incentives Align With FX Stabilisation

The incentive package is not just about deepening equity markets; it’s part of a broader strategy to stabilize the won. By encouraging a more patient, risk‑averse investor base, the government hopes to reduce the frequency of speculative sell‑offs that tend to amplify currency swings. Coupled with other measures—such as a modest increase in foreign exchange reserves, more transparent disclosure of reserve holdings and the use of the won‑dollar swap line—the initiative represents a multi‑faceted approach to FX management.

“Long‑term capital flows are inherently more stable than short‑term ones,” explained Park Kyung‑ho, an analyst at KRX’s Research Division. “If we can turn a significant portion of foreign inflows into long‑term investments, the won’s volatility should ease, benefiting exporters, consumers and the wider economy.”

Implementation Timeline and Conditions

The MEF has laid out a phased roll‑out:

To qualify for the incentives, foreign investors must:

• Hold a minimum of 500,000 KRW (~$400) in domestic equities.
• Maintain the holding position uninterrupted for at least the threshold period (two or five years, depending on the incentive).
• File annual tax returns in accordance with South Korean tax law, providing evidence of the holding period.

Failure to meet these conditions will result in the loss of the associated tax advantage.

Market Reactions

The initial response from overseas institutional investors has been cautiously optimistic. A spokesperson for a leading European asset‑management firm noted that “the tax incentives signal a long‑term commitment by Seoul to a deeper capital market. However, we’ll need to see the first few years of implementation before fully adjusting our strategies.”

Conversely, some domestic market participants worry that the policy may create a “dual” market: one where long‑term investors enjoy preferential treatment, while short‑term traders are effectively penalised. “The incentive package could shift the risk‑reward balance in a way that might actually increase speculative activity if not carefully monitored,” warned a senior analyst at the KRX.

Looking Ahead

The South Korean government’s new incentive package is a bold move to reshape the structure of capital flows into the country. If the policy succeeds, it could set a precedent for other Asian economies grappling with similar issues of currency volatility and shallow equity markets. As the world watches the outcomes, one thing is clear: South Korea is determined to move beyond short‑term gains and create a robust, long‑term investment ecosystem that can better support its export‑driven economy and the stability of the won.