Capital gains tax on stocks likely to kick in in 2023 as planned in S. Korea

South Korean stock investors may have to pay capital gains taxes on their stock investments next year because the South Korean government’s proposal to postpone the implementation of capital gain tax by 2025 is on the verge of being scuttled in the face of strong opposition by the liberal Democratic Party.

According to multiple sources from the securities investment industry and the National Assembly on Tuesday, the liberal DP led by Shin Dong-kun, executive secretary of Strategy and Finance Committee, has formally decided to oppose to the government’s plan to postpone the implementation of financial investment income tax by two years. The liberal party plans to vote against the plan during tax law and budget examination kicking off next month.

If the government’s proposal fails to gain approval from the committee, Korean investors are expected to pay capital gains taxes on stock investments starting 2023.

Under the current law, shareholders with 1 billion won ($701,729) or more in stock holdings are imposed capital gains tax on gains from stock investments. The previous Moon Jae-in government introduced financial investment income tax that imposes tax on capital gains by individual investors while lowering stock transaction taxes.

A financial investment income tax is total taxation on realized gains from financial investment products like stocks, bonds, and fund derivative products.

Taxes will be imposed from 2023 on annual capital gains exceeding 50 million won from investing in listed stocks, bonds, and fund derivative products, according to the original plan designed by the previous administration. A 20 percent tax is imposed on gains less than 300 million won and 25 percent on those exceeding 300 million won.

But the new government under President Yoon Suk-yeol proposed in its tax revision plan this year to postpone such taxation by two years to early 2025. Yoon during presidential campaign had pledged to abolish financial investment income tax. The government instead vowed to relax capital gain tax standard of large shareholders of local stocks from 1 billion won to 10 billion won from next year to 2025.

As capital gains tax is expected to be imposed on stock investments as planned, controversy is brewing that domestic investors would be thrown into an unlevel playing field because foreign investors are not taxed on capital gains from their Korean stock investments.

According to Financial Supervisory Service, foreign ownership in local stocks reached 550.4 trillion won as of end of September.

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