22% transfer tax will be applied when selling overseas stocks in the future, 0% in Korea
If the stock price falls for two months after the donation, you can cancel and re-give it.
The underage children of Hyosung Group Chairman Cho Hyun-joon and Hyosung Group President Cho Hyun-sang bought a total of 4 billion won worth of company shares in December last year. According to Hyosung (68,000 won ▼ 1,800 -2.58 percent), Cho’s eldest daughter (born 2002) bought 8,500 shares and her second daughter (born 2006) and son (born 2012) bought 8,250 shares, respectively. It is worth about 580 million won and 570 million won, respectively, at the current market price. In addition, Cho’s eldest daughter (born in 2010, 8,508 shares) and second daughter (born in 2012, 8,401 shares) and son (born in 2015 and 8,259 shares) also bought shares. Hyosung said it was a stock purchase made in terms of donation.
Giving stocks to family members of conglomerate owners makes headlines, but giving stocks to their children is not just for the wealthy. According to the data submitted by Yoo Eui-dong (Future United Party), a member of the National Policy Committee of the National Assembly, from the Korea Securities Depository and others, the number of minors holding shares of listed companies reached 266,62 as of 2018. It was up 76,032 or 41.3 percent from 184,000 in 2015.
When giving stocks to children, it is better to check such details before giving them because the amount of taxes they have to pay as gifts varies greatly depending on whether they are overseas or domestic stocks and the recent fluctuations in stock prices.
◇If the transfer tax is not lowered, domestic stocks rather than overseas stocks
First of all, capital gains taxes should be taken into account when giving stocks to children. A transfer tax is a tax that must be paid for this profit if future stock prices rise and profits occur. A transfer tax is not imposed at all when a local stock is given, but a 22 percent tax rate is applied when a foreign stock is given. Up to 2.5 million won will be deducted.
For example, if Tesla (U.S. electric car company) shares given to its children had a profit of 5 million won and a loss of 1.5 million won in Amazon shares, the transfer tax is 220,000 won, or 22 percent of the tax base of 1 million won deducted from 3.5 million won, the sum of profits and losses. When stocks traded on the domestic exchange (oil securities market + KOSDAQ) are donated, the transfer tax will not be paid even if they are profitable in the future.
Overseas stocks pay transfer taxes, but if stock prices rise larger than domestic ones, they will still benefit from the transfer tax. Tesla shares, which stood at 255.34 dollars per share in May last year, more than doubled to 701.32 dollars on the 1st. If he bought 10 Tesla shares a year ago to his children, he made 5.5 million won in investment profits, and if he sold them, he would have to pay a transfer tax of 660,000 won (22 percent of 3 million won). Even after paying the transfer tax, the company earned 4.84 million won in profits. If the same amount of money was used to buy Samsung Electronics shares (48,500 won 1,500 1,500 -3.00 percent), the transfer tax will be exempted, but the investment profit will be around 3 million won.
Although local stocks are exempt from transfer taxes to boost trading, it may not be bad to give away small amounts of stocks or give overseas stocks that are expected to rise a lot in the future as overseas stocks are also offered a deduction of up to 2.5 million won a year, said Ho Ji-young, a tax official at Woori Bank’s PB Customer Department.
◇Including gift tax up to 20 million won every 10 years
Reducing gift taxes as well as transfer taxes is another consideration when giving stocks to children. Gift taxes are levied on both domestic and foreign stocks. Share gift tax for underage children will be deducted up to 20 million won in 10 years. For example, if you give 20 million won worth of stocks to your five-year-old son and then give him 20 million won worth of stocks when he turns 15 10 years later, he won’t have to pay a penny of gift taxes for 40 million won.
However, reports of giving gifts should be made to the competent tax office or the National Tax Service’s home tax office. The deadline for reporting gifts is within three months from the end of the month when the donation took place. For example, if the donation was made on May 5, it would be from May 31 to Aug. 31, within three months.
The gift tax rate will vary depending on the size of the shares given (excluding the 10-year limit of 20 million won). A 10 percent gift tax rate will be applied if the amount is less than 100 million won. Tax rates ranging from 100 million won to 500 million won will be 20 percent, those between 500 million won and 1 billion won will be 30 percent, those under 1 billion won to 3 billion won will be 40 percent, and those over 3 billion won will be 50 percent.
In order to set the gift tax rate, the actual property value of the donated stock must be calculated by the amount. Calculating the amount of shares given by parents is called a “gift property value” decision, and the lower the value of the gift property, the better it is to donate it at a time when the value of the gift property is low.
The value of the gift property is not determined simply based on the closing price of the gift date. For example, even if 100 shares of Samsung Electronics, which cost 49,000 won on gift day, are given to children, the value of the gift property is not 4.9 million won. The value of the gift property will be set as the average of the final market value of the Korea Exchange, which was announced two months before the donation date and two months after the donation date. The average closing price multiplied by the number of gift shares for four months is the value of gift property. For this reason, giving away stocks that have fallen in the past two months has the effect of reducing the value of gift property.
Lee Ho-yong, a tax accountant at KB Kookmin Bank’s WM Investment Advisory Division, said, “Because stocks are highly volatile, the value of the gift property is average for two months before and after the donation, and the total end price for four months.
It is decided,” he said. “Giving gifts at a time when the stock price is considered to be the lowest point is the way to reduce taxes.” “If the stock price has fallen further for two months after the donation, the donation will be canceled if the donated stock is transferred back to the parents’ account within the deadline to report it to the tax office,” the tax official said. “It is also worth considering ways to reduce taxes by re-giving it to low stock prices after canceling the donation.”