Investor A, a stock market novice weighing whether to invest in domestic or overseas equities amid the recent semiconductor boom, and Investor B, whose returns on existing domestic and overseas holdings have surged, likely share one common concern: how to save on taxes. Both direct investment and ETF investment are means of investing in stocks, but taxes can differ depending on what you invest in.
First, let's examine the taxation systems for trading gains on domestic and overseas stocks. For domestic listed stocks, capital gains tax is currently not levied on trading gains earned by ordinary investors. However, capital gains tax is imposed on those classified as major shareholders. Major shareholder status is determined based on the end of the fiscal year immediately preceding the fiscal year in which the transfer date falls. A person qualifies as a major shareholder if their holdings in a single stock amount to 5 billion won or more, or if their ownership stake is 1% or more on the KOSPI market or 2% or more on the KOSDAQ market. Major shareholders' transfer gains are subject to a tax rate of 22% (including local income tax) on the portion of the tax base up to 300 million won, and 27.5% (including local income tax) on the portion exceeding 300 million won. Therefore, ordinary investors currently bear no tax burden on trading gains generated from directly investing in domestic listed stocks.
Overseas stocks, on the other hand, are different. Regardless of major shareholder status, overseas stocks become subject to taxation whenever transfer gains occur. Investors must pay capital gains tax at a rate of 22% (including local income tax) after deducting a basic deduction of 2.5 million won from annual overseas stock transfer gains.
However, dividends generated from both domestic and overseas stocks are all taxed as dividend income. Dividend income is combined with interest income and included in financial income. If annual financial income is 2 million won or less, the tax obligation is settled through a 15.4% withholding tax. Conversely, if annual financial income exceeds 20 million won, the excess becomes subject to comprehensive financial income taxation, and the financial income exceeding 20 million won may be combined with other comprehensive income and subject to progressive tax rates.
Recently, ETF investment, not just direct investment, has been active. ETFs are popular because they allow investment in a variety of stocks or themes bundled together, rather than a single stock. Just as there is no tax when directly investing in domestic stocks, "domestic stock-type ETFs" that mainly hold domestic stocks are likewise not taxed on the profits ordinary investors make by selling them.
On the other hand, overseas ETFs listed domestically or bond-type ETFs are taxed in an entirely different way. Not only profits made from selling the ETF, but also the dividends (distributions) received while holding the ETF, are subject to a 15.4% dividend income tax, so this must be checked before investing. Therefore, when investing in such ETFs, it is advantageous to utilize tax-saving accounts rather than investing directly through a regular account. For example, using an ISA (Individual Savings Account) can lower the tax to 9.9%, and holding them in an IRP (Individual Retirement Pension) account for retirement and later receiving them as a pension can significantly reduce the rate to around 3% to 5%, making it an excellent tax-saving tool.
So let's return to direct investment in overseas stocks. In the case of overseas stocks, tax is imposed on transfer gains exceeding 2.5 million won annually, so an active tax-saving strategy is necessary. A representative system is the Returning Investment Account (RIA). If you meet certain requirements and reinvest funds from selling overseas stocks into domestic stocks and the like through an RIA account, you can reduce capital gains tax within a certain limit. However, the tax benefit applies to overseas stock sale amounts of up to 50 million won, and the actual amount of tax eligible for reduction is calculated based on the transfer gains excluding acquisition cost, not the sale amount. In addition, the capital gains tax reduction rate varies depending on the timing of the overseas stock sale, so it is advisable to check the expected tax-saving effect in advance before utilizing it.
Another tax-saving method is to utilize gifting. In the past, if stocks were gifted and the recipient sold them immediately, the acquisition cost was recognized as the market price at the time of the gift, which had the effect of reducing transfer gains. However, for gifts made from 2025 onward, if gifted stocks are transferred within one year, carryover taxation rules apply. In this case, the acquisition cost is calculated based on the donor's original acquisition cost rather than the recipient's gift value, so the tax-saving effect disappears. Therefore, if you are considering tax savings through gifting, it is important to hold the stocks for at least one year after the gift before transferring them.
In stock investing, tax management to fully protect the precious fruits earned is just as important as riding the market's waves to generate returns. Amid diversifying tax laws, we hope you establish a customized tax-saving strategy that suits you in advance and continue with successful and smart wealth management.
