The paper presents an inductively coupled distributed static compensator (IC-DSTATCOM) designed to enhance power quality in three-phase, three-wire electric power distribution systems. This system, which integrates an inductive coupling transformer with a direct coupled DSTATCOM, demonstrates improved performance regarding harmonic reduction, power factor correction, load balancing, and voltage regulation compared to traditional methods. Utilizing MATLAB/Simulink for simulations, the proposed IC-DSTATCOM indicates significant advantages in efficiency and operational flexibility, making it a promising solution for modern electrical distribution challenges.