"I Saved $3,200": Korean Investors Rush to Lock In Foreign-Stock Tax Breaks Before May Deadline

May Is Tax Settlement Month for Korea’s Retail Investors in Overseas Stocks

File Last Year’s Gains, Then Use an RIA to Cut Next Year’s Tax Bill

The deadline to file capital gains taxes on profits from overseas stock investments earned last year is now one month away. For South Korean retail investors in foreign shares, May is the key month to settle last year’s gains and look for ways to cut taxes. This year, the math has become more complicated with the introduction of the RIA, a temporary tax-advantaged account that offers unusually generous benefits on gains from overseas stock sales. Investors still holding stocks with large unrealized gains may want to use the RIA to reduce next year’s tax burden in advance.

Miss the Filing Window and the Penalty Is 20%

The first item investors need to address is the regular filing for capital gains generated between Jan. 1, 2025, and Dec. 31, 2025. The filing period runs from May 1 to May 31. Capital gains tax on overseas stocks is not included in aggregate taxation of financial income and is imposed at a flat 22% rate, including local income tax.

Investors can file directly through Hometax, the online portal operated by the National Tax Service. After logging in with a joint certificate, they can go to the "Report/Pay" menu and choose "Final Capital Gains Tax Return." Once they enter the basic information, including acquisition cost, sale price and the exchange rate at the time of each trade, the system calculates the tax automatically.

There are several points to note. Tax is based not on the day the stock was sold but on the settlement date, when the money actually changes hands. In the US market, settlement is completed three trading days after a sale. That means a stock sold in late December last year would not be included in this year’s filing if settlement was pushed into January. It would instead be reported next year.

Netting gains and losses, along with the basic deduction, is also central to the filing. Netting means combining all gains and losses across multiple stocks during the year. If an investor made 10 million won on one stock and lost 5 million won on another, the final gain is 5 million won. The first 2.5 million won is exempt under the basic deduction. Tax is levied only on the amount above that threshold.

Investors also need to remember that the National Tax Service calculates tax based on gains converted into won, not on gains in US dollars. Even if a stock price rose, the gain in won terms may shrink if the Korean currency strengthened against the dollar between purchase and sale. The reverse can also happen. A stock may have fallen, but if the exchange rate rose sharply, the investor could still show a profit in won terms and owe tax. Investors must file voluntarily if taxable gains exceed the threshold by even 1 won. Missing the filing deadline triggers a non-filing penalty equal to 20% of the unpaid tax.

Taxation of virtual assets is scheduled to begin in 2027. Until then, trading gains by individual investors remain tax-exempt. Even after 2027, only gains accrued after the tax takes effect will be taxed, while earlier appreciation will be excluded.

Sell Through an RIA by May for a Full Exemption

Once last year’s gains are settled, investors need to think about how to protect this year’s profits. Those still sitting on sizable gains in overseas stocks may be able to cut next year’s capital gains tax bill through an RIA.

The RIA is a temporary tax-saving account introduced by the government to encourage investors to bring proceeds from overseas stock sales back into the domestic market. If investors transfer overseas shares into the account, sell them there and reinvest the proceeds in domestic won-denominated assets for at least one year, the 22% capital gains tax is waived.

Used properly, the RIA can reduce tax to zero within the deduction limit, regardless of how large the gain is. For example, if an investor bought an overseas stock for 27.5 million won and its value rose to 50 million won, generating a gain of 22.5 million won, selling it through a regular account would result in roughly 4.4 million won in tax. But if the shares are moved into an RIA and sold by the end of May, the investor qualifies for a 100% exemption on the capital gains tax. The amount due falls to zero.

To maximize the benefit, investors should use the RIA first for the stocks with the largest gains in their portfolio. The deduction rate varies with the timing of the sale. Selling by May 31 qualifies for a full 100% reduction in capital gains tax. Sales in June and July receive an 80% reduction, while sales from August through year-end get 50%.

The RIA also comes with strict maintenance requirements. The deduction applies only to sales of up to 50 million won per person. The proceeds must remain in the account for at least one year in the form of domestically listed stocks, domestic equity exchange-traded funds or won deposits. Withdrawing even 1 won before the one-year period ends, or closing the account early, cancels all tax benefits. There is also a penalty provision: if an investor buys new overseas stocks this year through another regular account, the amount eligible for the RIA deduction is reduced by that purchase amount.

For positions above the RIA’s 50 million won sales limit, or for additional high-gain stocks, gifting shares to family members can be an alternative. The recipient’s acquisition cost is reset to the market price at the time of the gift, which can reduce capital gains. The acquisition price is based on the average closing price over a four-month window spanning the two months before and the two months after the gift date. Between spouses, tax-free gifts of up to 600 million won are allowed over 10 years. For investors who have already filled the RIA limit, gifting remaining high-gain shares to a family member and then selling them with a higher cost basis can be effective. Still, after a tax-law revision that took effect last year, gifted shares must be held for at least one year to avoid anti-avoidance rules related to carryover taxation. If the recipient sells the shares and then transfers the proceeds back to the original giver, the transaction may be treated as an indirect gift and taxed again.

Park Ju-yeon, Hankyung.com reporter

grumpy_cat@hankyung.com