South Korea's Financial Supervisory Service issued consumer guidance on May 26 regarding domestic market return accounts (RIA), integrated management accounts (IMA), and bank exchange-traded fund (ETF) trusts. The guidance addresses growing consumer complaints as RIA account holders increased from 83,035 accounts in March to 313,594 accounts in June, with total balances rising from 414 billion won to 2.656 trillion won. The FSS clarified that tax deduction rates for foreign stock capital gains decline from 80% through the end of July to 50% through the end of December, with settlement completion dates—not trade execution dates—determining which rate applies.
FSS Clarifies Settlement Date Determines Tax Deduction Rate
The FSS stated that RIA account holders must verify settlement completion dates with their securities firms to determine applicable tax deduction rates. One consumer sold foreign stocks on May 29 expecting a 100% deduction based on securities firm guidance that sales by May 31 qualified, but received only an 80% deduction because the settlement completed on June 2. Foreign stock trades typically have at least one day between execution and settlement. For example, a trade executed on July 27 with settlement on July 29 receives the 80% deduction rate, while a trade executed on July 31 with settlement on August 4 receives the 50% rate.
RIA Tax Deduction Rates Decline from 80% to 50% Through Year-End
Individual investors who acquired foreign stocks by December 23 last year can transfer them to RIA accounts, sell them, and invest the proceeds in domestic stocks for one year to receive capital gains tax deductions. The deduction rate is 80% through the end of July and 50% through the end of December. For capital gains of 20 million won, completing settlement by July 31 results in 330,000 won in capital gains tax after the 80% deduction, while completing settlement by December 31 results in 1.65 million won in tax after the 50% deduction. RIA accounts allow tax reductions on the standard 22% capital gains tax rate on foreign stock sales.
IMA Products Prohibit Early Withdrawal and Charge Performance Fees
IMA products managed by comprehensive financial investment firms typically prohibit early withdrawal and charge management fees, sales fees, and performance fees. One consumer requested cancellation one day after enrolling in a two-year IMA product following staff recommendation but was refused due to the no-early-withdrawal policy. IMA products are offered by comprehensive investment firms with equity capital exceeding 8 trillion won, which invest customer deposits in stocks, bonds, and corporate loans and pay returns based on performance. As of June, three firms—Korea Investment & Securities, Mirae Asset Securities, and NH Investment & Securities—operated 11 IMA products with total assets of 3.61 trillion won. Fee rates include sales fees of 0.100-0.500% annually, management fees of 0.085-0.100% annually, and administrative fees of 0.005-0.085% annually, with performance fees of 30-50% on returns exceeding benchmark rates of 4.0-5.0%.
Bank ETF Trusts Charge Trust Fees Up to 2.0% Plus Early Withdrawal Fees
Bank-specific money trusts for ETF investment charge trust fees of 0.03-2.0% and early withdrawal fees of 0.00-1.0% in addition to trading fees and taxes, which can reduce actual returns below target returns. One consumer enrolled in an ETF through a bank-specific money trust but was not informed at enrollment that trust fees would be charged in addition to ETF trading fees. According to the FSS, specific money trust ETFs typically charge upfront trust fees of approximately 1.0% at enrollment. Early withdrawal refunds a portion of the upfront trust fee for the unexpired trust period, but early withdrawal fees of approximately 1.0% are charged within the refund limit, resulting in high fee burdens even for short-term investments. Trust fees at five major banks range from 0.03-1.0% for upfront fees and 0.03-2.0% for deferred fees, with early withdrawal fees of 0.0-1.0%.
FAQ
What determines the tax deduction rate for RIA account foreign stock sales?
The settlement completion date determines the deduction rate, not the trade execution date. Sales with settlement completed by the end of July receive an 80% deduction, while sales with settlement completed by the end of December receive a 50% deduction.
What fees do IMA products charge?
IMA products charge sales fees of 0.100-0.500% annually, management fees of 0.085-0.100% annually, administrative fees of 0.005-0.085% annually, and performance fees of 30-50% on returns exceeding benchmark rates of 4.0-5.0%.
What fees apply to bank ETF trusts?
Bank-specific money trusts for ETF investment charge trust fees of 0.03-2.0% and early withdrawal fees of 0.00-1.0% in addition to trading fees and taxes, with upfront trust fees typically around 1.0% at enrollment.
