As the government rolled out a measure to temporarily exempt capital gains tax for Korean retail investors trading U.S. stocks who sell U.S. shares and return to the domestic market, investors preparing year-end tax calculations are stirring.
The government said on the 24th that if an individual investor converts into won the funds from selling overseas stocks held through the 23rd of this month and invests in domestic stocks for one year, capital gains tax on overseas stocks will be temporarily exempted up to 50 million won per person.
Currently, when overseas stocks are sold and revenue occurs, a 22% capital gains tax must be paid on the portion exceeding 2.5 million won of the net profit amount. For example, if an investor bought overseas stocks for 17.5 million won and sold them for 50 million won, about 6 million won would be paid in taxes. However, going forward, if the funds from selling overseas stocks are invested in the domestic stock market, this tax will be temporarily exempted up to a per-person sale amount of 50 million won.
As the government, grappling with a high exchange rate, shifted from strengthening capital gains taxes on overseas stocks to offering incentives for domestic stocks, big-money Korean retail investors trading U.S. stocks will see their tax burden eased. Until now, Korean retail investors trading U.S. stocks have used a "netting" strategy at year-end to cut taxes by realizing gains within the 2.5 million won tax-free limit or selling loss-making stocks together to reduce taxable amounts. Complex tax-saving tactics, such as raising the acquisition cost through a spousal gift deduction, have also been employed.
Investor reactions are mixed to the government's drastic proposal. On online stock communities, some said, "The higher the rate of return, the greater the tax-saving effect, so it's worth trying up to the 50 million won limit," and added, "If we use this opportunity to dispose of overseas stocks we couldn't sell due to the tax burden and switch to quality domestic blue chips, we can save even a few hundred thousand won." Another investor said, "Even if funds are tied up for a year, there is enough chance of success if it's undervalued domestic dividend stocks or blue chips."
On the other hand, another user said, "Since the 50 million won threshold is based on the sale amount, not capital gains, there doesn't seem to be a big merit unless the rate of return is extremely high," and noted, "It's unclear whether to accept the risk of being tied to domestic stocks for a year." In another community, reactions included, "I don't want to lose principal in the Korean stock market while trying to save on taxes," and, "I sold early before the 23rd because of taxes, and there's a fairness issue."