US stocks. Taxation on foreign stocks is different from domestic stocks. What are the taxes and standards? I thought it would be a good idea to prepare in advance before filing the global income tax return in May.
Capital gains tax refers to a tax levied on profits (income) generated by an individual transferring real estate such as land, buildings, stocks, and other real estate rights, such as the transfer or sale right, as the subject of taxation.
If you do not sell, there is no capital gains tax.
Capital gains tax is not the appraised amount, but the amount determined by selling and selling. So, if you don't sell, there is no capital gains tax.
The taxable period is from January 1 to December 1 of the previous year.
The tax period is one year, the tax year. That is, from January 1st to December 1st.
Capital gains tax is reported and paid at the time of global income declaration in May, so it is from January 5 to December 5 of the previous year as of May.
The taxable date is based on the payment completion date
It should be noted that the taxable period is the date the settlement is completed, not the day I traded.
In the United States, it takes 3 business days, so the last selling date is not December 12, but 31 days before the weekend.
Overseas stock transfer tax is calculated as profit and loss (imposed on net income)
Domestic stocks will not be subject to capital gains tax until 2022. There is no reduction in capital gains tax on the amount of loss or tax-free to a certain extent.
For foreign stocks, net profit is calculated by adding up profits and losses. This is called profit and loss. After total profit and loss, up to 250 million won of net income is not taxed, and tax is imposed on the amount in excess of 250 million won.
For example, if you made 1000 million won in profit and lost 600 million won due to a stop loss, your net profit would be 400 million won.
Revenue +1,000 million won
Loss -600 million won
400 million won in net profit
From 2023, domestic stocks will be totaled for profit and loss just like overseas stocks.
Foreign stock capital gains tax is 250% on net profit exceeding 22 million won
Up to 1 million won of net profit for one year is not taxed. Capital gains tax of 250% is levied on the amount in excess of 250 million won in net profit. 22% is 22% capital gains tax and 20% local tax.
For example, if your net profit is 400 million won, you can deduct up to 250 million won in foreign stock transfer tax, so you have to pay capital gains tax on the remaining 150 million won.
400 million won in net profit
Tax-free -250 million won
150 million won subject to tax
Domestic stocks do not pay capital gains tax on profits from trading, but from 2023, capital gains tax must be paid just like overseas stocks.
Since the tax amount is in Korean Won, of course, it is in Korean Won. Investing in foreign stocks should take into account the exchange rate, as is the tax. It follows the exchange rate of the date of settlement, not the date of sale.
□ For foreign currency conversion related to overseas stock transactions, the standard exchange rate or arbitrage exchange rate according to the Foreign Exchange Transactions Act as of the date set below is applied. You can inquire through the exchange rate and the trading standard rate by period.)
When the exchange rate is applied
The exchange rate on the date the transfer amount is deposited;
In the case of receiving in multiple installments, the exchange rate of each deposit
The exchange rate on the day when necessary expenses such as acquisition price, capital expenditure, transfer cost, etc. are withdrawn;
In the case of spending several times, the exchange rate of each withdrawal date
※ How to apply the exchange rate when converting the gains from the transfer of foreign stocks into foreign currency, etc. (International Tax Service-229 , 2010.5.10.)
○ For foreign currency conversion of transfer gains on the transfer of foreign assets, the exchange rate on the date the payment is deposited or withdrawn from the customer account is applied. In this case, the transfer profit is calculated using the first-in-first-out method, but in the case of a person who purchases foreign stocks for the purpose of trading or short-term investment, it is continuously applied for each tax year for the driver in accordance with the corporate accounting standards generally recognized as fair by the securities company. It is possible to calculate the transfer profit using the moving average method.
Different brokerages have different methods of calculating profit and loss.
When calculating the capital gains tax on foreign stocks, if the same stock is acquired and transferred several times, how can I calculate the transfer profit and convert foreign currency?
□ If the same stock is acquired or transferred multiple times during overseas stock trading, the acquisition is deemed to have been disposed of first (first-in, first-out method), and transfer gains are calculated (Major §1625).
– However, if a securities company applies the moving average method to stocks for trading or short-term investment, the moving average method is also available, and you can choose between the first in, first out method and the moving average method by year. (International Tax Service-229, 2010.5.10.)
It will be applied collectively from 2023, but now the method of calculating profit and loss is different for each securities company. According to the broadcast on November 2021, 11 (Tuesday), there are securities companies that calculate in the order of purchase, and there are securities companies that calculate the average price.
From 2023, it is calculated to be disposed of in the order of purchase. It would be easier for us to calculate if it was a review, but we have no choice but to see how the stock app calculates it.
Gains from the transfer of foreign stocks are not included in the comprehensive financial income taxation.
Gains from the transfer of foreign stocks are not included in the comprehensive financial income taxation. So, if you have a lot of other income, investing in foreign stocks may be advantageous from a tax perspective.
Capital gains tax return
Foreign stock capital gains tax must be reported voluntarily
Capital gains tax is not levied by the state, but must be reported voluntarily.
Foreign stock capital gains tax is reported and paid in May every year.
May is the month for filing global income tax returns, and foreign stock capital gains tax must also be reported and paid for one month from May 5st to May 5st.
Even if there is no profit, you must report it
Even if the amount of capital gains does not exceed 250 million won, you must file a tax return.
Penalty tax imposed for non-reporting of foreign stock transfer income tax
If you do not file within the reporting period, you will have to pay a penalty tax for negligence. In addition, a penalty tax of 20% per day is imposed for non-payment of tax due to failure to pay the tax on time.
Money comes in from overseas brokerages, and all of this is processed electronically, so the National Tax Service has no choice but to know. It is better to report it unconditionally and not pay the penalty.
However, if you report late, you can reduce the burden of details.
If a report is not filed within the deadline, 1% of the penalty for non-fidelity reporting is reduced if the report is filed within one month of the statutory filing period, 50% if the report is filed within 1 to 3 months, and 30% if filed within 6 months.
If you report within the statutory deadline, but report an incorrect number, you can correct it. In this case, depending on the elapsed period from the date of filing a statutory report, the penalty for failure to report can be reduced or exempted from 10% to 90%. Penalty tax for failure to pay on a daily basis is not reduced or exempted even if a report is filed after the deadline or amended.
Report on capital gains tax on overseas stocks through a securities company
You can file a transfer tax return through a securities company instead of through a tax accountant. I don't know how long, but it's still free to file a transfer tax return at a securities company.
You can check the expected transfer tax on the app for each securities company.
I found a video that explains the foreign stock transfer tax in an easy way.
dividend income tax
Dividend income tax
Dividend income tax is levied on dividends or distributions.
Dividend income tax is 15.4%, withholding tax
The dividend income tax in Korea is 15.4%, which is 14% income tax + 1.4% inhabitant tax.
In the case of foreign stocks, if the tax rate of the listed country is lower than the domestic dividend income tax rate (14% national tax + 1.4% local tax), the difference is additionally taxed.
In the United States, dividend income tax is 15%, which is higher than the domestic tax rate (14%), so no additional tax is collected. It is also subject to withholding tax, so individual investors do not need to file a tax return.
Dividend income tax is deducted from dividend income tax when dividends are paid.
If your financial income (dividend + interest) is 2000 million won or more, you must report and pay
This applies to cases where the total financial income including dividends and interest is 2000 million won or less. If the sum of financial income is 2000 million won or more, the tax amount must be calculated by adding it to other global income, and then report and pay by May 5 of the following year.
For comprehensive taxation, a progressive tax rate of 6 to 45% is applied depending on the tax table. In this case, dividend income tax paid abroad is deducted, so a foreign tax payment receipt should be issued and used for tax saving. In the case of domestic stocks, brokerage-type ISA accounts can be used for tax savings, but foreign stocks cannot be traded.
Tips for saving capital gains tax on overseas stocks