S. Korea to Impose Capital Gains Tax on All Financial Products

Source: Regulation Asia Editors, Regulation Asia 2020-06-29

The new framework will see a 20% capital gains tax imposed on retail investor profits over 20mn won, and 25% on profits over 300mn won.

A tax rate of 25 percent will be applied to profits exceeding KRW 300 million.

South Korea plans to revamp its tax regime for the financial sector, proposing what it calls a “simple and fair” framework to promote investment in financial products.

The new framework will impose a flat 20 percent capital gains tax on profits from financial investments over KRW 20 million (USD 16,600) in a year, although losses made in the previous three years can be deducted from overall gains.

A tax rate of 25 percent will be applied to profits exceeding KRW 300 million.

Currently, capital gains taxes only apply to large shareholders, i.e. those with stakes in listed companies exceeding 1 percent or KRW 1 billion. Under the new regime, the top 5 percent of all retail investors, or about 300,000 people, are expected to be impacted.

Institutional investors will not be affected by the proposed revisions as they are subject to corporate income tax rather than capital gains taxes.

Under the new regime, the securities transaction tax will gradually be lowered over 2022 and 2023 to 0.15 percent, down from 0.25 percent currently.

“The plan seeks to advance the tax plan for financial investment, a set of measures set up to help resolve concerns and criticism raised over fairness, neutrality and rationality,” said Deputy Prime Minister and Finance Minister Hong Nam-ki. “The envisioned rules will help the financial market become more innovative and induce greater investment.”

Critics of the plan say imposing capital gains tax on stock transactions will drive domestic investors to pursue investment opportunities elsewhere. There are also concerns that the imposition of capital gains and securities transaction taxes would constitute double taxation.

The new tax regime will be finalised in July and included in the 2020 tax revision bill.

Additional reporting from Korea Times.

S. Korea

Capital Gains Tax

S. Korea to Impose Capital Gains Tax on All Financial Products

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