Basic Deduction Up to 50 Million KRW for All Securities Accounts Starting Next Year

[Sejong=Asia Economy Reporter Son Seonhee] Starting next year, when withholding tax on financial investment income is applied, the profits and losses from accounts scattered across multiple securities firms will be aggregated. The existing enforcement decree, which allowed a basic deduction of up to 50 million KRW only from one securities firm account, has been revised to withhold tax by combining the profits and losses from accounts at multiple financial companies. This will apply to applications made from January 1, 2023.

According to the Ministry of Economy and Finance on the 9th, the government announced a follow-up amendment to the enforcement decree of the tax law that allows the basic deduction to be applied in a split manner across multiple financial companies when withholding tax on financial investment income. Financial investment income earned from stock investments, etc., is subject to a 20% withholding tax rate after a basic deduction of 50 million KRW.

Previously, withholding tax could only be applied through an account at one financial company, but going forward, it will be applied by aggregating the profits and losses from accounts at multiple financial companies. For example, even if an investor earned 100 million KRW in investment gains from an account at Securities Firm A, if the same-named account at Securities Firm B had a 50 million KRW investment loss, the combined amount is 50 million KRW or less, so the basic deduction can be applied.

Until now, the basic deduction application had to be made through the National Tax Service, but from now on, individuals can apply directly to the financial company they use. Financial companies must immediately notify the centralized institution for basic deduction data of investors' applications, and through the centralized institution, confirm the deduction amounts applied for at other financial companies.

However, taxes will not be imposed on stock price increases before taxation. This is to prevent market distortion caused by small shareholders selling off stocks ahead of taxation.

To this end, the government applies a deemed acquisition price when calculating income amounts from stocks, etc. When calculating withholding tax on financial investment income, shareholders can pay taxes based on whichever is more favorable between the actual stock acquisition price and the closing price on the last trading day of the year.

However, this excludes cases where a major shareholder owns stocks of the relevant company worth 1 billion KRW or more at the time of determining major shareholder status. Major shareholders who applied the deemed acquisition price at withholding must pay additional taxes through a final tax return.

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