To Avoid Year-End Stock Tax Burden...Avoid Major Shareholder Designation and Focus on Gift Transfers

If Stock Holdings Exceed 1 Billion Won
Requirements Must Be Met by the 28th of Next Month

Organize Loss-Making Overseas Stocks
Tax Savings Through Gifts to Children, etc.

[Asia Economy Reporter Park Jihwan] #Kim, a company employee in his 40s, is currently troubled by the issue of selling overseas stocks. The return on Tesla stocks he bought at the beginning of the year has reached 49%, but the problem is taxes. Kim recently judged that Tesla's stock price has reached a peak, surpassing $1,000, and is considering realizing gains. In this case, with an investment principal of 50 million KRW and a profit of 24.5 million KRW, after deducting 2.5 million KRW and considering a tax rate of 22%, he would have to pay about 4.84 million KRW in taxes. However, Kim's eyes lit up when a tax expert told him that gifting these stocks to his children could reduce capital gains tax. Since he believes the outlook for the electric vehicle sector remains bright, he plans to use gifting to provide future tuition or wedding funds for his children rather than paying taxes now by realizing profits.

There are two major stock market tax issues that investors should prepare for at year-end. First, for domestic stocks, if you meet the major shareholder criteria, capital gains tax applies on trading profits. For overseas stocks, anyone with trading gains exceeding 2.5 million KRW, regardless of the number of shares held, faces tax liability. With more than a month left until year-end, here are legal tax-saving strategies to avoid paying unnecessary taxes.

To Avoid Becoming a Major Shareholder, Meet Requirements by Next Month 28

Currently, domestic stock investments exempt small shareholders and general investors from taxes on on-market trades. Only major shareholders, who hold more than 1 billion KRW per stock or exceed 1% ownership in KOSPI or 2% in KOSDAQ, are subject to capital gains tax of 22-33% (including local tax) on trading profits. If capital gains are under 300 million KRW, the tax rate is 22%; for amounts exceeding 300 million KRW, the rate is 27.5%. If the holding period is less than one year, the capital gains tax rate rises to 33%. The major shareholder status includes not only the individual’s own shares but also shares held by special related parties such as paternal and maternal grandparents, parents, children, grandchildren, and spouse. Siblings, brothers-in-law, and sisters-in-law are excluded.

The legal way to reduce taxes on domestic stock gains is to avoid major shareholder status. The cutoff date for confirming major shareholders subject to capital gains tax next year is the 28th of next month. To avoid this, holdings must be reduced below 1 billion KRW per stock by that date. If an individual classified as a major shareholder trades stocks after April next year, they must pay capital gains tax on profits. The filing deadline is two months from the end of the half-year period in which the sale occurred. For example, if stocks are sold on May 1 and gains occur, the report must be filed within two months from June 30, the end of that half-year.

Overseas Investors Should Offset Losses and Use Gifting to Reduce Taxes

Unlike domestic stocks, where capital gains tax applies only to major shareholders holding over 1 billion KRW per stock, overseas stocks are taxed if total net gains exceed 2.5 million KRW regardless of the number of stocks held. Although the tax filing deadline is May next year, taxes are calculated based on the settlement date of trades made this year.

Tax experts recommend offsetting losses and gifting as ways to reduce overseas stock capital gains tax. First, investors who have made significant profits from overseas stocks this year can realize losses on certain stocks before year-end to enjoy tax benefits. This is because the taxable base for overseas stock capital gains tax is calculated by combining gains and losses across all stocks, not by individual stock. If you hold overseas stocks with losses, selling them at a loss can lower your taxable base.

Another way to reduce taxes is through gifting to children or others. When using gifting for tax savings, spouses can receive up to 600 million KRW, adult children up to 50 million KRW, and minor children up to 20 million KRW in tax exemptions over 10 years. For example, if parents bought stocks for 10 million KRW that have risen to 50 million KRW, resulting in a capital gain of 40 million KRW, selling now would incur 8.25 million KRW in taxes, but gifting can transfer the stocks to children without gift tax burden.

Kim Geumsun, CEO of Daon Tax Accounting, said, "The gifting parents can save taxes on the 40 million KRW capital gain, and from the children's perspective, the acquisition cost of the stocks becomes 50 million KRW, significantly reducing capital gains tax when they sell in the future. However, the proceeds from the sale of these stocks must belong to the children, not the parents."

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