"August! Don't Forget to Report Capital Gains Tax on OTC Stock Transactions"

Minority Shareholders Also Subject to Capital Gains Tax
Additional Penalties for Failure to Voluntarily Report and Pay

[Asia Economy Reporter Park Ji-hwan] As the enthusiasm for investing in unlisted stocks reaches an all-time high, attention is focused on the reporting and payment period for capital gains tax on over-the-counter (OTC) stocks, which arrives this month. Unlike listed stocks, where only major shareholders are obligated to pay capital gains tax, investors who profit from selling OTC stocks and fail to pay taxes on time may face unexpected additional penalties on top of the capital gains tax, requiring caution.

According to the Korea Financial Investment Association on the 9th, the total trading value of the Korea Over-the-Counter Stock Market (K-OTC) in the first half of this year recorded 795.4 billion KRW. The average daily trading value increased by 50% compared to the same period last year, reaching 6.47 billion KRW, marking an all-time high. As the scale of OTC stock investment has surged recently, the taxable amount this year is also expected to be significantly higher than in previous years.

The biggest tax difference between OTC stocks and regular listed stocks is whether capital gains tax is imposed on small shareholders. OTC stocks are subject to capital gains tax on trading profits regardless of whether the investor is a major shareholder. This differs from regular listed stocks, where only major shareholders holding more than 1 billion KRW in a single stock are liable for capital gains tax.

For OTC stocks, capital gains tax rates of 11-33% (including local income tax) are applied to the “tax base,” which is the trading profit minus a basic deduction of 2.5 million KRW. Generally, a 10% tax rate applies to OTC stocks of small and medium-sized enterprises (SMEs), while a 20% rate applies to stocks of non-SMEs. For major shareholders who have held stocks for more than one year, if the annual tax base is 300 million KRW or less, the tax rate is 20%, and if it exceeds 300 million KRW, the rate is 25%. If the holding period is less than one year, a 30% tax rate applies. A major shareholder is defined as someone holding 4% or more, or 1 billion KRW or more, of the total stock. In addition to capital gains tax, a securities transaction tax of 0.43% of the transfer price must be paid.

If capital gains tax and securities transaction tax are not reported and paid, a penalty of 20% of the unpaid tax amount will be imposed. Taxes must be reported and paid directly by the investor to the National Tax Service. If unlisted stocks were sold in the first half of this year based on the transfer date, voluntary reporting and payment must be completed by the end of this month.

If a small shareholder transfers venture, small, or medium-sized enterprise stocks through K-OTC operated by the Korea Financial Investment Association, they may be exempt from capital gains tax. However, the limitation is that only 141 stocks are listed on K-OTC out of about 10,000 companies in the entire OTC market. Additionally, it is advised that buying unlisted stocks first in the OTC market and then selling them after listing can be a tax-saving strategy.

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