If Stock Transfer Gains Exceed 20 Million Won, Tax Burden Increases

Ministry of Economy and Finance, 'Direction for Advancing Financial Tax System'

Lower Securities Transaction Tax in Exchange for Capital Gains Taxation

Offsetting Gains and Losses on Financial Investment Income such as Stocks and Funds, with a 3-Year Carryforward Deduction

Im Jae-hyun, Director of the Taxation Office at the Ministry of Economy and Finance (center), is giving a briefing on the "Direction for Advancing Financial Taxation" at the Government Complex Sejong in Sejong City on the afternoon of the 24th. [Image source=Yonhap News]

[Asia Economy Reporter Joo Sang-don] The government has decided to reduce the securities transaction tax while imposing taxes on stock capital gains exceeding 20 million KRW, resulting in a reduced tax burden for small investors whose capital gains are below 20 million KRW. Additionally, financial investment income from stocks and funds will be aggregated and taxed only when there is a profit, with losses allowed to be carried forward and deducted for three years.

On the 25th, the Ministry of Economy and Finance announced the 'Financial Tax System Advancement Plan' containing these details.

Accordingly, from 2023, taxes will decrease for stock capital gains of 20 million KRW or less. For example, Mr. K purchased M stocks listed on the KOSPI at 50,000 KRW per share, totaling 50 million KRW. If he sells M stocks and earns 20 million KRW, the tax he must pay this year is 175,000 KRW. Since he is not a major shareholder, capital gains tax is not imposed, but he must pay securities transaction tax calculated as 0.25% of the transaction amount (70 million KRW). In 2023, this tax burden will decrease by 70,000 KRW. Because the stock capital gains are 20 million KRW or less, he will not have to pay capital gains tax as before, and the securities transaction tax rate will be lowered to 0.15%, resulting in a tax payment of 105,000 KRW.

On the other hand, if the profit from investment, i.e., stock capital gains, exceeds 20 million KRW, the tax burden increases. Mr. G, who holds 2,000 shares of J stock priced at 50,000 KRW per share (totaling 100 million KRW), sells all shares when the price rises to 70,000 KRW per share. Currently, he only pays 350,000 KRW in securities transaction tax. However, in 2023, he must pay 4 million KRW in capital gains tax (20%) on 20 million KRW, which is the capital gains (40 million KRW) minus the basic deduction (20 million KRW). Additionally, he must pay 210,000 KRW in securities transaction tax on the transaction amount of 140 million KRW. The tax burden increases from 350,000 KRW to 4.21 million KRW, an increase of 3.86 million KRW.

If an investor incurs a loss from stock investment, no tax will be imposed. Currently, even if an investor buys stocks worth 10 million KRW and the valuation drops to 5 million KRW resulting in a loss, they must pay transaction tax on the sale amount (5 million KRW). However, going forward, not only will transaction tax not be imposed, but the loss amount can also be carried forward and deducted for three years. For example, if the investor earns 10 million KRW the following year, they will only pay tax on 5 million KRW.

Gains and losses will be aggregated not only between stocks but also between stocks and funds. If an investor earns 50 million KRW from domestic stocks but incurs a 10 million KRW loss from funds, tax will be imposed on 40 million KRW. In this case, a basic deduction of 20 million KRW applies to capital gains from domestic listed stocks, and a combined deduction of 2.5 million KRW applies to income from overseas stocks, unlisted stocks, bonds, and derivatives. Ultimately, tax is only paid on capital gains of 20 million KRW.

Im Jae-hyun, Director of the Tax Policy Bureau at the Ministry of Economy and Finance, stated, "Applying a basic deduction of 20 million KRW on capital gains from listed stocks means that only about 300,000 people, or the top 5% of approximately 6 million stock investors, will bear tax burdens. About 5.7 million people (95%) who are not subject to stock capital gains tax will actually see a reduction in their tax burden due to the lowered securities transaction tax."

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