Korean retail selloffs accelerate to avoid capital gain taxes

[Photo by MK DB]

Retail investors dumped Korean stocks worth about 1 trillion won ($789.4 million) on Monday in an apparent move to avoid the country’s 20 percent capital gains tax on large stock holdings ahead of the deadline on Wednesday.

According to the Korea Exchange, individual investors net sold 619.4 billion won worth of stocks on the Kospi and 340.2 billion won on the Kosdaq. This is the largest net selling since Nov. 11 (2.2105 trillion won).

They mainly unloaded large-cap stocks and secondary battery stocks, such as Samsung Electronics (net selling: 72.3 billion won), followed by Korea Aerospace Industries (27.8 billion won), POSCO Chemical (27.7 billion won), L&F (23.6 billion won), and Ecopro BM (23 billion won).

Retail investors’ massive selloffs have recently accelerated as they could be slapped with capital gains taxes for this year for their shareholdings as of Dec. 28.

Under the financial investment income tax law introduced by the previous Moon Jae-in government, shareholders with 1 billion won or more in stock holdings are slapped with taxes on capital gains from their stock investment.

Taxes will be imposed from 2023 on annual capital gains exceeding 50 million won from investing in listed stocks, bonds, and fund derivative products. A 20-percent tax will be levied on gains less than 300 million won and 25 percent on those exceeding 300 million won.

The Korean government under President Yoon Suk-yeol has been trying to postpone such taxation by two years to early 2025 and raise the standard for major shareholders subject to capital gains tax from 1 billion won to 10 billion won by the end of the year. But the standard was eventually confirmed at 1 billion won, forcing many large individual shareholders to dump local stocks to reduce their shareholdings below the standard before the deadline day, said Woo Jong-yoon, a private banker at Yuanta Securities.

In order not to pay the tax on stock gains, major shareholders must lower their stock holdings per company to less than 1 billion won by Dec. 27. Last year, when the tax base date was Dec. 29, individual investors net sold 8.5 trillion won between Dec. 21-28.