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I'm living in Korea and already investing in global mutual funds with foreign income tax reduction benefits. But there is no investment with such benefit anymore. So I'm considering normal global mutual funds. But I'm not familiar with taxes and scared with the high rate of 15.4% foreign income tax.

Here are foreign income tax explanations about indirect investments from Korean IRS. I used Google Translation, but it seems fine to me.

  • If you invest in listed foreign stocks through investment funds (domestic funds) established by domestic law and receive profits*, the income is equivalent to dividend income under the taxation law (Article 4, Paragraph 2 of the 「Income Tax Act」 And Article 17 (1) 5)

*Dividends on stocks, capital gains on stocks, profit on bonds, interest income, etc.

  • The period of income of dividend income is the date when the investor receives the benefit from the fund (collective investment organization), and in the case of the distribution which has the special ration to transfer to the original, (Article 46 (7) of the 「Enforcement Decree of the Income Tax Act」)

    • However, gains or losses arising from transactions or valuations of securities or intangible assets acquired directly by investment funds established under domestic law are not included in dividend income subject to taxation (Article 26-2 (4) of the Income Tax Act Enforcement Decree term)

    • Tax exempt income

      1. Market trading of KOSDAQ listed stocks and venture company shares.
      2. Trading of derivatives in the KOSDAQ market

※ Dividends on stocks, capital gains on unlisted stocks, interest on capital gains and losses on bonds, trading on overseas listed stocks and valuation gains and losses are taxable.

  • When an individual receives dividend income from an investment fund, 15.4% (including local income tax) of taxable dividend income will be withheld.

    • If financial income including dividend income subject to taxation is less than 20 million won* per year, tax liability will be terminated by collecting withholding tax withholding tax at 15.4% (including local income tax)

    • If the annual financial income including taxable dividend income exceeds 20 million won*, it will be subject to comprehensive taxation. Therefore, the tax rate of 15.4% (including local income tax) will be applied for the portion below 20 million won*, and for the excess amount exceeding 20 million won* You must report and pay the comprehensive income tax by applying the progressive tax rate, which is the basic income tax rate of the comprehensive income tax, together with other income.

*Before 2012, the amount is 40 million won. Refer to Article 62 of 「Income Tax Law」 for specific application method.

My annual financial income is far less than 20 million won, so I think 15.4% will be applied to me. I'll find more required information if you request.

Does investing global mutual funds with 15.4% foreign income tax worth it? Maybe avoiding foreign income tax by investing local investment is better?

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    Just to clarify, you will only pay tax on realized gains resulting from the sale of an asset or income, like dividends, received from the asset. You don't pay 15% of your holdings each year. Unless, I'm really missing something and SK is very different... But the answer is yes, I pay a much higher than 15% tax on my investment income... – quid Nov 21 '18 at 2:43
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    Being worried about paying foreign taxes on dividends and capital gains is like being worried about paying taxes on a large employee raise. Would you say no to having more money each year, despite the taxes? – Bob Baerker Nov 21 '18 at 14:19
  • @BobBaerker I agree with you. I want to have global mutual funds to diversify my portfolio, but also want to compare with local investments since there is no tax on local stock incomes in SK AFAIK. Maybe I have to do some math. – user2652379 Nov 22 '18 at 0:13
  • @BobBaerker I have a question. You said Would you say no to having more money each year, despite the taxes?, but I thought having global mutual funds isn't necessarily means "having more money each year." Can you explain more about this? – user2652379 Nov 28 '18 at 0:36
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    I would suggest that you compare the performance of the local and foreign funds that interest you and then factor in the taxation issue. – Bob Baerker Nov 28 '18 at 15:58

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