Foreign total return (TR) exchange-traded funds (ETFs), which reinvest within the fund without distributing dividends, will effectively disappear.
The Ministry of Strategy and Finance announced on the 16th the '2025 Tax Law Amendment Follow-up Enforcement Decree,' stating, 'Starting in July, interest and dividends generated from foreign TR ETFs will be subject to a dividend income tax (15.4%).'
TR ETFs do not distribute interest or dividend income under the guise of index replacement, automatically reinvesting the entire amount. Investors can enjoy tax deferral benefits by not paying dividend income tax until selling.
However, with this enforcement decree, the operational method of overseas equity TR ETFs will fade away. Once the enforcement decree is implemented, overseas equity TR ETFs must settle accounts and distribute at least once a year. The advantage of not having to pay dividend income tax until selling will also disappear.
The government decided to maintain domestic equity TR ETFs as before to support the domestic market. A representative from the Ministry of Strategy and Finance noted, 'Due to the tax law structure, interest and dividends are generally subject to distribution and taxation,' adding, 'Exceptions will be recognized for domestic equity TR ETFs to promote the domestic market.'
The Ministry of Strategy and Finance also announced amendments related to government bonds, fractional investments, and real estate investment trusts (REITs) on this day.
First, the government decided to apply tax benefits to 5-year government bonds for individual investors as well. Previously, only those holding government bonds for more than 10 years could qualify for separate taxation on interest income (14%), but the same benefits will now apply to 5-year bonds. Separate taxation on interest income will be applied for purchases under 200 million won per person.
The government will also impose a dividend income tax (15.4%) on profits earned from fractional investment starting in July this year. Previously, there was confusion as each investment product—such as art, real estate, Korean beef, and music—had different taxation methods, but a uniform taxation method was established. A representative from the Ministry of Strategy and Finance explained, 'Profits generated from investment contract securities and non-monetary trust income securities will be included in dividends.'
If real estate investment trusts (REITs) distribute more than 90% of their distributable income, the distributed amount will be deducted from taxable income. Additionally, considering fairness relative to real estate funds, evaluation gains from assets such as real estate held by real estate investment companies will be excluded from distributable income.