Investors in Funds That Paid Taxes Overseas Can Claim Tax Credits in Korea

"Fund Foreign Tax Credit" Implemented for the First Time
Taxpayers Must Apply for the Tax Credit Directly
No Separate Application Needed for Those Not Subject to Comprehensive Taxation on Financial Income

Individuals subject to comprehensive taxation on financial income can receive a tax credit for foreign taxes already paid by domestic funds when making overseas investments through those funds.

The National Tax Service announced on the 24th that the "Fund Foreign Tax Credit System" will be implemented for the first time in May this year.

Previously, the system allowed for foreign taxes to be credited at the fund level. However, starting from this year's comprehensive income tax filings, the approach has been rationalized so that taxpayers must now apply for the tax credit themselves.

The eligible recipients are those subject to comprehensive taxation on financial income, specifically domestic residents whose annual total interest and dividend income exceeds 20 million won. If such individuals earn income from indirect investments in overseas financial or real estate assets through domestic funds, exchange-traded funds (ETFs), or real estate investment trusts (REITs), and have paid taxes abroad, they may apply for the credit.

To apply for the credit, during the comprehensive income tax filing in May this year, applicants must submit the "Indirect Investment Company, etc. Foreign Tax Credit Calculation Statement" as a supporting document. Eligible funds are those established in Korea, specifically including: ▲domestically listed S&P 500 ETFs, ▲Nasdaq 100 index-tracking ETFs, ▲domestically listed overseas real estate REITs ETFs, and ▲public overseas bond funds established in Korea.

Fund Foreign Tax Credit Structure.

If a resident who earns dividend income from such funds is subject to comprehensive taxation on financial income, they may apply for the foreign tax credit. However, if the individual is not subject to comprehensive taxation on financial income, the foreign tax credit is already applied during the withholding process by the fund distributor, and a separate application is not necessary.

The National Tax Service has provided guidance to financial institutions and the Korea Financial Investment Association regarding the purpose of the system and how to complete the required forms to ensure that fund investors can claim the tax credit without inconvenience. The agency also plans to distribute a guideline summarizing key points for filing. In addition, it will conduct in-person training sessions for the association of tax agents and distribute explanatory materials, actively assisting taxpayers to file their taxes conveniently.

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