1. US Stock Tax Structure at a Glance

When you make money from US stock investing, you generally owe two types of tax: capital gains tax on profits from rising share prices, and dividend tax on dividends paid by companies. Let's first take a look at the big picture.

2. Capital Gains Tax Master Guide

Tax Rate and Basic Deduction

The capital gains tax rate on foreign stocks is 22%. To be precise, it is the 20% national tax (income tax) plus a 2% local income tax. Fortunately, the government provides a basic deduction of KRW 2.5 million per year, so if your total profit from selling foreign stocks in a year is KRW 2.5 million or less, you owe no tax at all.

An important point here is that the KRW 2.5 million deduction is applied on an aggregate basis across all foreign stocks. You add up the capital gains from all foreign stocks — not just US stocks but also Japanese, Hong Kong, and other overseas stocks — and then subtract KRW 2.5 million.

Calculation Method — Step by Step

Calculating capital gains tax is simpler than you might think. Follow the formula below:

Let's work through a concrete example. Suppose you invest KRW 10 million and earn a 30% return.

Here's a table showing how the tax changes depending on the size of your profit.

As you can see in the table, the larger the profit, the closer the effective tax rate gets to 22%. This is because the impact of the KRW 2.5 million deduction becomes relatively smaller. Conversely, the smaller the profit, the more the deduction lowers the effective rate.

Exchange Rate Gains Are Also Included in Capital Gains

A point many people overlook: gains arising from exchange rate fluctuations are also included in capital gains. US stocks are traded in US dollars. If the exchange rate differs between the time of purchase and the time of sale, that difference is also treated as a gain (or loss).

For tax purposes, the standard exchange rate (Seoul Foreign Exchange Brokerage base rate) at the time of purchase and sale is applied. This rate is automatically reflected in the capital gains tax statement issued by your brokerage, so please refer to that.

3. Understanding Dividend Tax

15% US Withholding at Source

When a US company pays dividends, the US government first withholds 15% as tax before depositing the remainder. This is called "withholding at source." Thanks to the tax treaty between Korea and the US, the rate is 15% instead of the standard US rate of 30%.

For example, if you receive $100 in dividends from a US stock, only $85 actually lands in your account. The $15 has already been taken as tax by the US. For most investors, that completes the tax treatment — there is no need to file separately in Korea.

Comprehensive Income Tax Threshold — When Financial Income Exceeds KRW 20 Million per Year

Here's something to watch out for. If your total financial income (interest + dividends) exceeds KRW 20 million in a year, the excess must be aggregated with your other income and taxed under comprehensive income tax. This is called "comprehensive taxation of financial income."

Financial income here includes not only dividends from US stocks but all financial income such as domestic deposit interest, domestic stock dividends, and bond interest. If your total is KRW 20 million or less, withholding completes the process; if it exceeds that, you must file comprehensive income tax in May.

Once you fall into the comprehensive taxation bracket, your dividends are aggregated with other employment or business income and a progressive tax rate of 6%–45% may apply. Investors with large amounts in high-dividend ETFs (e.g., SCHD) should keep this threshold firmly in mind.

4. Reduce Taxes Through Gain-Loss Netting

What Is Gain-Loss Netting?

Gain-loss netting is a system that offsets the gains and losses from foreign stocks realized in the same year to compute the tax. Put simply, even if you made KRW 5 million on Stock A, if you lost KRW 2 million on Stock B, the actual taxable amount becomes KRW 3 million (5 million − 2 million).

Thanks to this system, losing positions can also be used for "tax savings." Note, however, that netting is only allowed between foreign stocks sold in the same year; domestic stocks cannot be netted with them.

In the example above, using gain-loss netting reduces your tax from KRW 550,000 to KRW 110,000 — a savings of KRW 440,000. If you have losing positions at year-end, deliberately selling them to crystallize the loss is also a legitimate tax-saving strategy.

5. 5 Tax-Saving Strategies

There are several legal ways to reduce your taxes. Using the five strategies below well can yield significant savings.

① Use the KRW 2.5 Million Annual Deduction (Staggered Selling)

The most fundamental yet powerful strategy. For example, if the unrealized gain on a stock you hold is KRW 8 million, don't sell all of it at once — split it as KRW 2.5 million worth this year, KRW 2.5 million next year, and KRW 3 million the year after.

② Sell Losing Positions at Year-End

This strategy actively leverages the gain-loss netting described above. Review your portfolio at year-end, and if any position is at a loss, sell it in December to crystallize the loss. That loss can then be deducted from your gains on other positions realized in the same year. Of course, if you want to repurchase the position, you can do so after the sale — but keep in mind that exchange rates and prices may move between the sale and the repurchase.

③ Gift to Family Members, Then Sell

Gift the stocks to your spouse or children, and have the recipient (donee) sell them. If the gift is made within the gift tax exemption limit, no gift tax is owed, and the recipient's acquisition cost is reset to the market value at the time of the gift, which had the effect of reducing the capital gain.

The gift tax exemption, on a 10-year cumulative basis, is KRW 600 million for a spouse and KRW 50 million for an adult child. Gifting within these limits triggers no gift tax. However, don't forget that the gift must be reported to the competent tax office.

④ Use ISA and Pension Savings Accounts

Investing in foreign stock ETFs through an ISA (Individual Savings Account) or pension savings account can provide tax benefits. In an ISA, net gains up to KRW 2 million (KRW 4 million for the basic type) at maturity are tax-free, and any excess is subject to a separate tax rate of just 9.9%. Pension savings offers a tax credit benefit, and withdrawals at retirement are taxed at a low rate of 3.3%–5.5%, making it advantageous for long-term investing.

Note, however, that within these accounts you cannot directly trade individual US stocks; you must invest indirectly through domestic-listed foreign stock ETFs (e.g., TIGER US S&P500, KODEX US Nasdaq100).

⑤ Spread Out the Sale Timing (Late December / Early January)

The tax period runs from January 1 to December 31. Therefore, selling some at the end of December and the rest at the beginning of January splits the capital gain across two years, allowing you to claim the KRW 2.5 million basic deduction twice. This approach is especially effective when realizing large gains.

6. How to File Your Taxes

Filing Period and Required Documents

The filing period for foreign stock capital gains tax is May 1 to May 31 every year. If you sold foreign stocks and realized a profit in the previous year (January 1 – December 31), you must file the following May. Failure to file within the deadline results in surcharges, so be sure to comply.

Step-by-Step Filing Procedure (5 Steps)

Here's how to file directly through the National Tax Service Hometax system. It may look complicated at first, but once you try it, it isn't difficult.

Separate Local Income Tax Payment — Don't Forget!

Of the 22% capital gains tax, the 20% national tax is paid through Hometax, but the remaining 2% local income tax must be paid separately through WETAX (wetax.go.kr). In some cases, the local income tax payment screen automatically appears in WETAX once Hometax filing is complete, but please verify this directly. Failure to pay the local income tax can result in additional surcharges.

7. Tax Support Comparison by Brokerage

Let's compare the foreign stock tax-related services offered by major brokerages. Most brokerages provide capital gains tax calculation and filing agency services either free of charge or for a small fee.

To use the filing agency service, you typically need to apply between March and April. Look for the "Foreign Stock Capital Gains Tax Filing Agency" menu in your brokerage's app or website. Once you apply, the brokerage will file on your behalf in May, making it very convenient. However, if you use multiple brokerages, you must aggregate all transaction records and file yourself, or submit statements from other brokerages to your primary brokerage.

Annual Tax Management Checklist

To avoid missing tax obligations, it's best to manage them on an annual basis. Follow the timeline below.

Frequently Asked Questions