The deadline for the full tax benefit under Korea's Returning Investment Account (RIA), which reduces capital gains tax on overseas stocks when proceeds are reinvested in the domestic market, is approaching, drawing growing attention from investors. To qualify for a 100% capital gains tax deduction, investors must complete their overseas stock sales by 8-9 a.m. on November 28 Korea time.
"Sell Overseas Stocks, Invest Domestically for Tax Cut"
According to the financial investment industry, the RIA (Returning Investment Account) is a system that partially reduces capital gains tax on overseas stocks when proceeds from their sale are reinvested in the domestic stock market.
The system was introduced by the government to stabilize the foreign exchange market and revitalize the domestic stock market, and was implemented following the passage of the so-called "three laws for foreign exchange stability."
The program applies to overseas stocks held before December 23 of last year. Investors can receive the capital gains tax deduction by transferring such stocks to an RIA account, selling them, and investing the proceeds in domestic assets for one year.
The deduction rate varies by period. If the sale settlement is completed by the end of this month, investors can receive a 100% capital gains tax deduction. The rate then declines in stages — to 80% from June through the end of July, and to 50% from August through year-end.
For US Stocks, "Must Sell by 8-9 a.m. on the 28th"
The point that confuses investors most is the "timing of the sale." Unlike domestic stocks, overseas stocks involve a time gap between the order execution date and the actual settlement date. The tax deduction standard is based on the "settlement completion date," not simply the sell order.
Since the 30th and 31st fall on a weekend, to complete settlement within this month, sales must be executed during the regular session or after-hours market on the 27th (local time) on the US stock market. In Korea time, that means before 8-9 a.m. on the 28th.
However, settlement deadlines vary slightly among brokerages, with some setting 8 a.m., and others setting 8:50 a.m. or 9 a.m. as the cutoff for order execution.
"Because the deadlines differ by brokerage, investors must check the standard set by their own brokerage," a financial investment industry official told Yonhap News Agency.
Conditions Must Also Be Met to Receive Tax Benefits
Simply selling overseas stocks does not automatically exempt the seller from taxes. After selling overseas stocks through the RIA account, the proceeds must be invested in domestic assets for one year.
Eligible investments include not only domestic listed stocks but also domestic equity funds, domestic equity ETFs, and deposits. Domestic bond funds, mixed-type products, and parking-type ETFs are not recognized.
For example, if an overseas stock is sold for 50 million won with a capital gain of 20 million won, a general account would apply a 22% tax rate to the amount remaining after the basic deduction of 2.5 million won. However, if the requirements are met through an RIA, the tax can be fully deducted. The contribution limit for an RIA account is 50 million won.
KOSPI Tailwind Pushes Balance Near 2 Trillion Won
Amid the recent rise in the domestic stock market, fund inflows into RIAs have also been growing rapidly.
According to the government and the Korea Financial Investment Association, as of the 19th, the cumulative number of RIA accounts stood at approximately 240,000, with total balances of about 1.9 trillion won. Of this, the amount that has actually flowed into domestic stocks and equity funds has surpassed 1.2 trillion won.
The industry believes that additional fund inflows are likely to continue as the deadline for the 100% capital gains tax deduction approaches. Korea Investment & Securities analyzed that when Indonesia previously implemented a similar system, about 12% of overseas assets returned to the domestic market.
However, rising volatility in the domestic stock market has been cited as a variable. Industry officials advise that "rather than aggressively moving funds solely for the tax benefit, investors need to consider both their domestic investment allocation and market conditions."
