Tax-Saving Strategies for Overseas and Unlisted Stock Investments

With the KOSPI index breaking through 5,000 points, individual investors' interest in stock investing is running high. Although the market briefly paused amid the recent U.S.-Iran conflict, the KOSPI has surged more than 34% from early 2026 to the present, delivering joy to investors. Many assume that profits from stocks are tax-free, but this is a misconception. It arises because the most common scenario — minor shareholders trading domestically listed stocks on-exchange — is simply not enumerated as a taxable event. If you have sold overseas stocks, sold domestic stocks as a major shareholder, traded listed stocks off-exchange even as a minor shareholder, or sold unlisted stocks at a profit, you are required to report and pay capital gains tax.

Investors must carefully examine whether they qualify as a major shareholder. If your market capitalization holdings were 5 billion won ($3.7 million) or more as of the end of the preceding fiscal year, or if your ownership stake is 1% or more for KOSPI, 2% or more for KOSDAQ, or 4% or more for KONEX, you are classified as a major shareholder. For unlisted stocks, the threshold is a market capitalization of 1 billion won or more or an ownership stake of 4% or more. However, for K-OTC transactions involving investments in venture companies, the market capitalization threshold is relaxed to 4 billion won or more. These major shareholder requirements are calculated based on a single shareholder in principle. However, for the largest shareholders, holdings of certain related parties are aggregated, so it is necessary to also check shareholding status among family members.

The applicable capital gains tax rates are divided into four categories depending on the investment type and holding period.

First, if profits arise from selling overseas stocks, a 20% tax rate applies. In rare cases involving shares of domestically incorporated small and medium-sized enterprises listed on foreign exchanges, the rate is reduced to 10%. Notably, an amendment to the Restriction of Special Taxation Act with retroactive application has been announced. It centers on the Reshoring Investment Account (RIA), which grants a deduction of a certain percentage of capital gains when proceeds from selling overseas stocks (targeting overseas stocks held as of December 23, 2025, with a 50 million won limit) are used to purchase domestic stocks.

Second, for major shareholders selling domestic stocks regardless of listing status, a 20% rate applies on taxable income up to 300 million won and 25% on amounts exceeding 300 million won. For holdings of less than one year, the rate rises to 30%.

Third, for minor shareholders selling listed stocks off-exchange or unlisted stocks, a 10% rate applies to shares of small and medium-sized enterprises, while a 20% rate applies to other companies.

Lastly, when trading shares of "real estate-heavy corporations" — companies whose real estate assets account for 50% to 80% or more of total assets — a basic tax rate of 6% to 45% may be imposed depending on whether the seller is a controlling shareholder and the asset structure of the company. For reference, capital gains tax is eligible for an annual basic deduction of 2.5 million won, and a local income tax equivalent to 10% of the capital gains tax is levied separately.

Another tax to keep in mind in stock transactions is the securities transaction tax. While capital gains tax is levied on profits earned, the securities transaction tax is imposed on the transaction amount itself regardless of whether a profit was made. It applies to most stock transfers except for certain shares listed on foreign exchanges. The current standard rate is 0.35%, but flexible rates apply by market: KOSPI at 0.05% (effectively 0.2% when combined with a 0.15% special rural development tax), KOSDAQ and K-OTC at 0.2%, and KONEX at 0.1%.

Most individual investors primarily conduct on-exchange transactions on the KOSPI or KOSDAQ through brokerage firms, making it easy to overlook tax issues. Since securities firms act as withholding agents for the securities transaction tax, there are frequent cases where people mistakenly believe that "stock trading carries no tax." However, investment methods are diversifying by the day, with overseas stock investing becoming commonplace and unlisted stock investments through private investment partnerships gaining traction. Failing to clearly understand the tax risks associated with one's investment approach could deal a significant blow to returns through unexpected tax burdens. A wise investor should seek professional tax advice or complete a self-review before realizing profits.