[Enforcement Decree of the Tax Act] Financial Investment Income Deduction for Managing Two-Thirds or More of Assets in Domestic Listed Stocks

[Asia Economy Reporter Jang Sehee] From 2023, the basic deduction amount for financial investment income tax will be increased from 20 million KRW to 50 million KRW. However, the fund must operate with at least two-thirds of its total assets in domestic listed stocks.

The '2020 Tax Law Amendment Follow-up Enforcement Decree Amendment' announced by the Ministry of Economy and Finance on the 6th includes this content.

The government previously decided to apply a basic deduction of up to 50 million KRW by combining domestic listed stocks and public stock-type funds. Other financial investment incomes such as overseas stocks, unlisted stocks, bonds, and derivatives will have a deduction of 2.5 million KRW.

This was supplemented after criticism arose that there was no basic deduction for funds, unlike stocks, which was seen as reverse discrimination. The originally planned introduction in 2022 was postponed to 2023.

Additionally, to make it easier for investors to pay taxes, the withholding period was adjusted to be semi-annual instead of monthly. The income amount from domestic listed stocks and other financial investment income will be calculated separately for each account holder managed by financial companies.

After applying the basic deduction separately for income from domestic listed stocks and other financial investment income, a withholding tax rate of 20% will be applied. Accordingly, income through financial companies will be withheld semi-annually, and if the total withholding tax amount for the first and second half of the year exceeds the annual withholding tax amount, a refund will be issued during the second half withholding.

This enforcement decree amendment will be announced for legislative notice until the 21st of this month, followed by procedures such as the Vice Ministerial Meeting and Cabinet Meeting, and is scheduled to be promulgated and enforced next month.