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Government to Offer Tax-exempt Benefits for Reshoring Stock Investors

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Government to Offer Tax-exempt Benefits for Reshoring Stock Investors

The government has decided to provide tax-exempt benefits to investors who sell their overseas stocks and reinvest the proceeds into Korean stocks by introducing a “Reshoring Investment Account (RIA).”

On Dec. 24, the Ministry of Economy and Finance (MOEF) unveiled a package of tax support measures for domestic investment and foreign exchange market stabilization, introducing a new capital gains tax reduction scheme for overseas stock sales.

The government has decided to exempt capital gains taxes of up to 50 million won (approximately $34,151) on overseas stock sales for investors who sell foreign equities and reinvest the proceeds into domestic stocks, as part of efforts to stabilize the surging exchange rate. It also announced plans to exempt domestic taxes on dividends received by South Korean parent companies from their overseas subsidiaries.

Under the plan, investors who held overseas stocks as of Dec. 23, sell them, convert the proceeds into won, reinvest in domestic equities, and hold those investments for at least one year will be eligible for tax benefits. Capital gains generated on sales of up to 50 million won per person will be exempt from taxation. However, the level of tax relief will vary depending on the timing of reinvestment into domestic stocks.

Investors who return to the domestic market in the first quarter of next year, between January and March, will receive a 100% exemption on calculated capital gains tax. Those returning in the second quarter, from April to June, will receive an 80% exemption, while those returning in the second half of the year, from July to December, will be eligible for a 50% exemption. The structure is designed to encourage faster dollar selling and won buying by offering greater tax savings for earlier repatriation.

The government also announced plans to raise the dividend income exclusion ratio applied to dividends received by domestic parent companies from overseas subsidiaries to 100%, up from the current 95%. Previously, the remaining 5% of such dividends was subject to additional domestic taxation, but the revision will eliminate the tax burden entirely when overseas earnings are brought back to South Korea.

The expanded exclusion ratio will apply to dividends paid on or after Jan. 1 next year. The government said it will swiftly pursue legislative amendments to the Restriction of Special Taxation Act to support expanded domestic investment and stabilize the foreign exchange market.

In addition, the government said it will support major securities firms in quickly launching forward-exchange selling products for retail investors. The move is expected to expand the range of foreign exchange risk management tools available to individual investors.

The government also plans to grant capital gains tax benefits when individual investors hedge currency risk on overseas stock holdings through forward-exchange contracts. If investors hedge currency risk on overseas stocks held as of Dec. 23 this year, they will be eligible for additional income deductions within certain limits. The recognized hedging limit is set at an average annual balance of 100 million won per individual, and 5% of the amount invested in hedging products will be additionally deductible when calculating overseas stock capital gains tax, with a maximum deduction of 5 million won. This will allow individual investors to reduce potential exchange-rate losses from future currency declines without directly selling their overseas stock holdings.

submitted by /u/Substantial-Owl8342
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