For overseas stock investors, May is the "month of taxes." Unlike domestic stocks, capital gains tax on overseas stocks is not withheld at source, so investors must file it themselves. If you do not check in advance who must file and how, it can lead to an additional tax burden, so preparation is necessary.
In particular, starting this year some brokerages allow investors to choose how to calculate stock acquisition cost, making tax-saving strategies more important.
For capital gains on overseas stocks, a 22% tax rate, including local income tax, applies to the amount excluding the basic deduction of 2.5 million won. The taxable amount is capital gains realized from Jan. 1 to Dec. 31 each year, and capital gains for 2025 must be filed in May this year. If you do not file, a 20% additional tax will be imposed.
You can file through a tax accountant or do it yourself via the National Tax Service's Hometax. Major securities firms also offer proxy filing services for capital gains tax in April, which you can use. Even if you use multiple securities firms, many support filing by aggregating transaction records from other firms.
First, to determine whether you are subject to taxation, you need to check both the exchange rate and the settlement date standard. The actual taxable gain can differ from the simple price gain depending on exchange rate differences at the time of purchase and sale. Also note that for overseas stocks, profit and loss are finalized based on the settlement date, not the trade date, so in substance only trades settled by Dec. 29 are subject to taxation.
To save on taxes, consider offsetting gains and losses and the acquisition cost calculation method. First, using gain-loss netting can reduce your tax burden. If annual gains exceed 2.5 million won, you can sell loss-making stocks together to reduce the taxable gains.
For example, if you earned a gain of 10 million won from Nvidia during the year and recorded a loss of 3 million won from Microsoft, tax is levied only on 4.5 million won after subtracting the 2.5 million won basic deduction from the 7 million won net gain.
The method each securities firm uses to calculate acquisition cost also affects the tax burden. Mirae Asset Securities and Kiwoom Securities use the first-in, first-out method, while Samsung Securities, Korea Investment & Securities Co., Daishin Securities, and Toss Securities apply the moving average method.
The moving average method calculates the acquisition cost based on the average unit price of the entire holdings, while the first-in, first-out method assumes that shares bought earlier are sold first and applies the earliest acquisition costs.
In particular, NH Investment & Securities, Shinhan Investment & Securities, and KB Securities allow investors to choose the acquisition cost method, which can change the tax burden depending on the situation. When buying the same stock, if the initial purchase price is low, the moving average method can relatively reduce taxable gains; if the initial purchase price is high, the first-in, first-out method can do so.
For example, if you bought the same stock at 500,000 won in January and 700,000 won in September and the sale price is 1 million won, FIFO produces a gain of 500,000 won, but the moving average method calculates only a 400,000 won gain based on the average purchase price. In this case, applying the moving average method reduces the taxable amount.
Conversely, if you bought the same stock at 700,000 won in January and 500,000 won in May and the sale price is 1 million won, FIFO produces a gain of 300,000 won, while the moving average method produces a gain of 400,000 won, making FIFO the structure that relatively lowers the taxable amount.
Meanwhile, the tax-saving effect of the Return-to-Domestic-Equity Account (RIA) will be reflected starting next year. RIA is a product that provides up to a 100% deduction of capital gains tax when you sell overseas stocks and reinvest in the domestic market, and since it was introduced this year, the actual tax benefit will apply from returns filed in May next year.