Wanggaemi's Capital Gains Tax Saving Strategy: 'Cutting Losses on Overseas Stocks'

Tax-saving Strategies Heard at PB Center
Reduce Tax by Cutting Losses on Overseas Stocks
No Burden Due to Low Gains on Domestic Stocks

[Asia Economy Reporter Hwang Junho] #1. Mr. Kim Manbok (pseudonym) recently sold U.S. SPAC stocks that had suffered losses of over 70% in one year. Although there was some expectation of a rebound due to the significant drop, he decided to realize the loss and plans to repurchase the stocks early next year.

Mr. Kim's 'loss-cutting' strategy is the core of this year's tax-saving strategy recommended to major retail investors managing tens of billions of won in stocks at WM (Wealth Management) centers in the Gangnam area. Securities firms' WM centers provide asset management services for high-net-worth individuals with financial assets exceeding tens of billions of won.

Tax Saving through Loss-Cutting

Jung Seho, head of the PB team at Korea Investment & Securities GWM Center, explained on the 27th, "Many investors who have earned considerable profits this year by investing in top U.S. stocks like Tesla and Microsoft are being guided to reduce capital gains tax by selling stocks that had losses but were held onto, thereby reducing the overall gains."

Capital gains from overseas stock investments realized over one year (January 1 to December 31) must be reported and paid by May of the following year. Capital gains tax is calculated by subtracting fees and a basic deduction of 2.5 million KRW from the gains, then applying a 22% tax rate (including local income tax). Capital gains are netted by combining profits and losses from sales.

For example, if an investor made a 60 million KRW profit on stock A and a 20 million KRW loss on stock B, the capital gains would be 57.5 million KRW after subtracting the 2.5 million KRW deduction. Applying the tax rate results in a tax of 12.65 million KRW. However, if the loss on stock B is realized by selling it, the net gain becomes 40 million KRW (=60 million KRW - 20 million KRW). After deducting the 2.5 million KRW basic exemption, the taxable amount is 37.5 million KRW, resulting in a tax of 8.25 million KRW. Although there may be differences in purchase prices, realizing the loss and repurchasing stock B can save a significant amount of tax. Jung explained, "U.S. SPAC stocks, which were expected to be popular last year but have sharply declined due to a sorting process, are typical candidates for sale."

However, since the tax on overseas stocks is imposed in May, repurchasing decisions must consider various factors. Koo Kyomin, team leader (director) of Samsung Station WM1 Team at Mirae Asset Securities, advised, "If you estimate a net profit of 60 million KRW at year-end and a tax of 12.65 million KRW, but then reinvest and the profit falls below 60 million KRW, this situation can occur. It is better to consult an expert about whether to reinvest." He added, "If you reinvest and make a profit, capital gains tax will be imposed again that year, so it is more appropriate to view this as deferring tax rather than actual tax saving."

Capital Gains Tax Trapped in Box Market

On the 21st, the KOSPI opened at 2,981.67, up 18.67 points (0.63%) from the previous trading day, at the Hana Bank dealing room in Jung-gu, Seoul. The won-dollar exchange rate started at 1,189.8 won, down 1.0 won from the previous trading day. Photo by Hyunmin Kim kimhyun81@

For domestic stocks, there is relatively less burden from capital gains tax this year. Since last year, the threshold for major shareholders subject to capital gains tax has been set at a market value of 1 billion KRW, and many major retail investors have prepared in advance. Also, as the domestic stock market has been trapped in a box range this year, few major retail investors have made significant profits. Especially, major retail investors tend to invest heavily in blue-chip large-cap stocks such as Samsung Electronics, Celltrion, and Samsung Biologics, and even if prices fall, they tend to hold due to high loyalty, according to PBs. Director Koo said, "For this reason, while about 10 people visited the branch last year worried about domestic stock capital gains tax, now fewer than five people come to the branch."

Seo Hyemin, tax specialist at Mirae Asset Securities VIP Consulting Team, urged, "If your domestic stock holdings meet the major shareholder criteria, you must reduce the holdings to below 1 billion KRW by the 28th to avoid tax. Since the valuation is based on the closing price on the last day, you need to sell an appropriate quantity so that the market value does not exceed 1 billion KRW."

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