Office worker Choi (36) gets angry when he thinks of over-the-counter stock taxes. Over-the-counter stocks are stocks that are not listed on the stock market, such as the KOSPI or KOSDAQ. Choi bought 500 Kakao Bank over-the-counter stocks at 78,000 won per share in December of last year, and sold them all at 105,000 won in April and May. The profit alone was 13.5 million won. But the joy was short-lived. I heard from an acquaintance that “over-the-counter stocks have to pay capital gains tax and securities transaction tax”. I searched the internet and calculated it, and it came out that I had to pay about 2.65 million won in taxes.
[금융SOS] Over-the-counter stock investment and tax
Choi said, “I invested without knowing it, and I got hit with a tax bomb close to a month’s salary.”
Kakao Bank Seoul office in Yongsan-gu, Seoul. News 1
Transfer tax plus securities transaction tax
Fever for public offering shares is spreading to the over-the-counter stock market. This is because the demand for catching ‘big fish’, which is expected to rise after the listing, is increasing. However, not many people know that the transfer tax burden is high when buying and selling over-the-counter stocks.
Capital gains tax is levied on the profits earned from buying and selling over-the-counter stocks. It is different from listed stocks without transfer tax unless you are a major shareholder (holding more than 1 billion won in one stock). The tax burden is not small even for minority shareholders. After deducting 2.5 million won from the sales profit, 11~33% of transfer tax (including local income tax) must be paid on the remaining amount. The specific tax rate varies depending on the size of the investment company and whether it is a major shareholder. If a minority shareholder buys or sells over-the-counter stocks of small and medium-sized companies, a 10% tax rate is applied, and if a non-SME shares is transferred, a 20% tax rate is applied. Large shareholders are taxed a bit higher. If you hold stocks for more than one year, you must pay 20% if the annual tax base (the amount minus the deductions from profits) is 300 million won or less, and 25% if it exceeds 300 million won. If the holding period of the stock is less than one year, 30% is charged.
In addition, local income tax is levied at an additional 10% of the transfer tax. For example, if a minority shareholder A earned 50 million won by buying and selling Hyundai Engineering’s over-the-counter stock, the transfer tax would be about 10.45 million won. It is the result of applying the 22% tax on stock transfers (including local income tax) other than small and medium-sized enterprises to the amount after subtracting the basic deduction (2.5 million won) from the profit.
It’s not just this. If you sell over-the-counter stocks, you must also pay a securities transaction tax. Literally, it is a tax on the transaction, so even if it is a loss, not a profit, you have to bear it. The tax rate is 0.43% of the sale amount. It is higher than the listed stock transaction tax (0.23%). However, there are tax benefits when investing in over-the-counter stocks through K-OTC operated by the Financial Investment Association. Lee Hwan-tae, head of K-OTC at the Financial Investment Association, explained, “If minority shareholders transact ventures, small and medium-sized enterprises, transfer tax is exempted, and the securities transaction tax rate is 0.23%, which is less burdensome.” In addition to the K-OTC market, over-the-counter stock platforms include Securities Plus unlisted and Seoul Exchange unlisted.
How much is the over-the-counter stock transfer tax rate? Graphic = Hyunseo Kim kim.hyeonseo12@joongang.co.kr
Profits made in the first half must be reported in August
It is important to note that investors must report and pay transfer tax and securities transaction tax directly to the National Tax Service. It must be completed within two months from the end of the semi-annual to which the date of sale of the shares falls. If you sold stocks in the first half of this year, you can report them by the end of this month, and if you sold them after last month, you can report them within February of next year. If you bought and sold several stocks in the same quarter, you can add up the profit and loss. This includes selling foreign stocks.
For example, suppose you sold Krafton (over-the-counter) and Tesla (overseas) stocks in the first half of last year and made a profit of 20 million won and a loss of 10 million won, respectively. In this case, you only have to pay tax on the 7.5 million won, minus the 2.5 million won from the 10 million won in the combined profit.
If you make a profit of 2.5 million won or more from over-the-counter stock trading, but do not report it, you will be subject to a penalty of 20% of the tax paid. In addition, a penalty of 0.025% per day for delay in payment due to not paying the tax on time is levied.
Kim Ye-na, a tax expert at Samsung Securities, said, “In the case of minority shareholders, if they sell their over-the-counter stocks after listing, their tax burden will be greatly reduced.”
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Reporter Hwang Eui-young apex@joongang.co.kr
