Investors seeking to receive the 80% capital gains deduction through a Return Investment Account (RIA) must place sell orders in time for the final settlement process to be completed by the end of this month.
The Financial Supervisory Service (FSS) said in a consumer advisory on the 26th that "when selling overseas stocks from an RIA account, the capital gains deduction rate is determined based on the sale settlement completion date, not the sale order execution date." The capital gains deduction rate for overseas stocks sold is 80% until the end of this month, after which it will be reduced to 50% (through the end of December this year). The capital gains deduction applies to overseas stocks acquired by December 23 of last year.
The FSS advised that because there is a time gap between the order execution date and the settlement date for overseas stocks, investors must confirm the settlement completion date with their trading brokerage. Investors holding U.S. stocks must sell by the 29th for settlement to be completed before the 31st. The tax benefit is granted only when the proceeds from selling overseas stocks are invested for one year or more in domestic listed stocks, domestic equity funds including exchange-traded funds (ETFs), or deposits, among others, through the RIA account.
The FSS also introduced major complaint cases related to Integrated Management Accounts (IMA) and ETFs. IMA products typically cannot be terminated early, and in addition to management fees, sales fees and performance fees may be charged, so investors should carefully review the product prospectus and other materials before subscribing.
When investing in ETFs through a bank's specified money trust, in addition to transaction fees and taxes, trust fees and early termination fees are charged, which can lower the actual ETF return below the initial target return. For specified money trust ETFs, a high upfront trust fee of typically around 1% is charged at the time of subscription. Since a fee of around 1% also applies when terminating the trust early, investors should be aware that they may bear high fees in short-term investments.
