Complete Guide to Capital Gains Tax in Korea
2025-01-15
1. What is Capital Gains Tax?
Capital gains tax is levied on the profit (capital gain) from selling assets such as real estate and stocks. Capital gain = Sale price - (Purchase price + Necessary expenses). The tax is calculated by applying tax rates to the taxable capital gain amount.
2. How to Calculate
โ Calculate capital gain: Sale price - Purchase price - Necessary expenses. โก Apply long-term holding deduction: Up to 80% deduction for holdings over 3 years. โข Subtract basic deduction of 2.5M KRW. โฃ Apply progressive tax rate (6-45%) to taxable base. โค Add 10% local income tax.
3. One-House Tax Exemption
If a household owns only one house in Korea and has held and resided in it for over 2 years, capital gains tax is exempted up to 1.2 billion KRW. Only the excess over 1.2 billion is taxed. Stronger residence requirements may apply in adjustment target areas.
4. Long-term Holding Deduction Rates
Deduction by holding period: 3+ years 24%, 4+ years 32%, 5+ years 40%, 6+ years 48%, 7+ years 56%, 8+ years 64%, 9+ years 72%, 10+ years 80%. One-house households can receive additional deductions based on residence period.
5. Tax-Saving Strategies
โ Meet tax exemption requirements by holding and residing for 2+ years. โก Maximize long-term holding deduction. โข Keep receipts for necessary expenses (acquisition tax, brokerage fees, capital expenditures). โฃ Control timing to manage progressive tax brackets. โค Utilize joint ownership with spouse. โฅ Consider sale vs inheritance/gift.
6. Filing and Payment
You must file preliminary return and pay within 2 months from the end of the month of transfer. Final return is also possible during the comprehensive income tax filing period in May of the following year. Penalties apply for non-filing or underreporting.