[Practical Finance] Check Profitability Due to Different Fees and Tax Standards for Overseas Stocks

Overseas Stock Investment Handy Tips

[Asia Economy Reporter Minji Lee] As the volatility of global stock markets increases due to the impact of the novel coronavirus infection (COVID-19), more investors are broadening their horizons overseas. According to the Korea Securities Depository on the 3rd, the amount of overseas stock purchases by domestic investors reached $29.046 billion as of the 29th of last month this year. This is about a 268% increase compared to $7.891 billion recorded during the same period last year, marking an all-time high. However, blindly investing in the overseas stock boom is risky. Since the standards for domestic stock trading, fees, and tax calculations differ, there can be discrepancies between the rate of return and the actual profits credited to the account.

◆ How to start investing in overseas stocks? = First, to trade overseas stocks, you need to open a stock trading account at a securities company. Prospective investors without a stock account can download the securities company's application and open an account non-face-to-face. With just an ID card prepared, you can create a securities account in a short time. You can also visit a nearby securities company branch in person to open an account, but since the spread of COVID-19, securities companies have been encouraging non-face-to-face account openings. Investors who already have a domestic stock account do not need to open a separate account.

The countries available for trading differ depending on the contracts each securities company has with overseas exchanges. This means the countries you can invest in vary depending on which securities company account you hold. For example, NH Investment & Securities allows trading stocks from nine countries including the United States, China, Hong Kong, Germany, Australia, the United Kingdom, Indonesia, and Vietnam through its Home Trading System (HTS) and Mobile Trading System (MTS). Mirae Asset Daewoo enables online trading of stocks from nine countries including Hong Kong, Japan, Germany, the United Kingdom, Vietnam, Indonesia, Canada, China, and the United States. For stocks from other countries, you can use customer centers or branches.

Once you have opened a comprehensive securities account, you must sign a foreign currency securities trading agreement. Foreign currency securities trading refers to an agreement on the fees incurred when an investor trades foreign currency securities on foreign exchange markets or domestic over-the-counter markets.

Next, you need to exchange Korean won into the currency of the country where you want to invest. Recently, some securities companies have been providing automatic currency exchange services to accommodate the surge in investors trading overseas stocks without requiring manual currency exchange. Securities companies first pay the purchase margin in Korean won and automatically convert it into foreign currency at the time of the transaction.

◆ How are taxes on overseas stocks calculated? = When trading overseas stocks, you need to consider transaction fees, currency exchange fees, capital gains tax, and dividend income tax. The overseas stock transaction fees proposed by major securities companies are maintained at around 0.2% to 0.3% assuming transactions are made through HTS and MTS. Currency exchange fees also occur during the process of converting Korean won to foreign currency. These fees typically range between 0.2% and 1%.

If you make a profit from overseas stock trading, you must pay capital gains tax on the income generated in that year. Specifically, the gains and losses from holdings between January 1 and December 31 of the year in which profits were made through overseas stock trading are calculated. If the total gain is 2.5 million KRW or less, it is exempt; if it exceeds 2.5 million KRW, a capital gains tax rate of 22% is applied to the excess amount.

Dividend income tax must also be considered. When dividends are received from overseas stocks, taxes are levied on the dividend portion. When trading domestically, a combined 15.4% tax is applied, consisting of 14% dividend income tax and 1.4% local income tax (10% of the dividend income tax). Dividend income tax is withheld at source, but if the overseas dividend tax rate is lower than the domestic rate, additional tax is imposed. For example, in the case of Chinese stocks, the dividend income tax rate is 10%, so an additional 5.4% tax is collected.

This content was produced with the assistance of AI translation services.