Financial authorities issued guidance on investor precautions related to repatriation investment accounts (RIA), investment management accounts (IMA), and exchange-traded fund (ETF) specified money trusts. In particular, they urged caution for RIA accounts, which offer capital gains tax benefits on foreign stocks, noting that the capital gains deduction rate is determined based on the trade settlement completion date when selling foreign stocks.
On the 26th, the Financial Supervisory Service said interest in financial asset management among financial consumers has grown sharply in recent days, diversifying the range of investment products, and provided consumer precautions related to RIA accounts, IMA accounts, and ETF specified money trusts.
It noted that for RIA accounts with capital gains tax benefits on foreign stocks, investors should pay attention to the sale settlement completion date. RIA accounts
If an individual investor transfers foreign stocks acquired by Dec. 23 last year from an overseas stock account at a domestic securities firm to an RIA account, sells them, and then invests the sale proceeds for one year in domestic stocks and the like, the investor can receive a deduction on the capital gains tax imposed on foreign stock sale gains.
The capital gains deduction rate on sold foreign stocks will be gradually reduced to 80% through the end of this month and to 50% through the end of December.
The Financial Supervisory Service (FSS) explained, "At this time, the capital gains deduction rate is determined based on the date the sale is settled, not the date the foreign stock sell order is executed (T day)."
For foreign stocks, there is a time gap between the order execution date and the settlement date, so it is necessary to confirm with the transaction securities firm the settlement completion date, which is the reference date for the capital gains deduction.
For example, if the sell order is executed on July 27, the sale settlement completion date is July 29, so the 80% capital gains deduction rate can be applied. However, if the sell order is executed on July 31, the sale settlement completion date is Aug. 4, so the capital gains deduction rate is 50%.
It also noted that after selling foreign stocks in an RIA account, you must invest the sale proceeds from the RIA account in stocks listed on the domestic market and the like and hold them for one year to receive the tax benefit. Investable assets within an RIA account are limited to domestically listed stocks, domestic equity funds (including ETFs), and deposits.
For IMAs managed by comprehensive financial investment businesses, note that early termination is generally not possible. Although such firms can freely design IMA product types—such as closed-end vs. open-end and unit-type vs. additional-type—early termination may be impossible depending on the product type, such as closed-end products, so investors must check the prospectus.
In addition to management fees, sales fees and performance fees may also be charged, so investors should carefully review the prospectus and the like before subscribing.
When investing in ETFs through bank specified money trusts, keep in mind that, beyond transaction fees and taxes, trust fees and early termination fees are charged, which can cause the ETF's actual rate of return to fall below the initial target return.
The Financial Supervisory Service (FSS) explained, "For specified money trust ETFs, a relatively high front-end trust fee of around 1.0% is typically charged at subscription."