Do foreigners pay tax in Korea for selling US stocks?

When you have a Hong Kong passport but work in Korea, where do you pay tax on capital gains you have made last year from selling US stocks?

When it comes to tax, the term ‘resident’ or ‘non-resident’ is often used rather than nationality or passport country. If you had an address in Korea and have been in Korea for a while, it is very likely that you are a resident of Korea for tax purposes.

• In the US, non-resident aliens are subject to no U.S. capital gains tax. So you are not likely to pay tax on the capital gains from US stocks.
• In Korea, gains from selling domestic stocks(with certain conditions) and overseas stocks are to be reported and taxed. The tax filing due date is May 31, 2021 for realized capital gains made from stocks during the year of 2020.

The taxable income is computed after deducting respective service fees and transaction fees from the realized capital gains. A basic deduction of KRW 2,500,000 is applied to your taxable income. Therefore, if you have made less than KRW 2,500,000 on realized capital gains from overseas stocks last year, there is no tax. The taxable income is the sum of the gains and losses on your entire stock portfolio from January 1, 2020 to December 31, 2020.

There are a few important things to remember.

• F/X rate matters much more than you think. You have to apply the foreign exchange rates specified by Korean tax law in calculating the taxable income, and any foreign exchange gain is added to your income.
• You have to report your income to the NTS, even if you have no tax payable.
• Your overseas realized capital gains not transferred to Korea are still subject to tax reporting.
• There are few countries which can levy taxes for selling domestic stocks in their country by a tax treaty with South Korea. I recommend you to consult with a tax accountant, so you can avoid paying any unnecessary extra tax.

Proper tax filing and making tax payment in time is the easiest way of saving tax.

Written by Ara Jung (CTA)

All information provided is of limited scope and not exhaustive or comprehensive of any subject. It is not intended to be legal advice, and should not be used in place of consultation with appropriate professionals.