November 29, 2024

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(Yonhap)

South Korea’s plan to launch fractional share trading this month is likely to be delayed, with authorities struggling to decide on which tax framework to adopt for the system, officials said Thursday.

The struggle comes as Asia’s fourth-largest economy braces for changes in tax systems tied to stock and cryptocurrency trading.

Financial authorities are currently in the process of figuring out whether to impose tax on fractional share trading as regular “stock trades” or “profit from collective investment funds,” according to officials from the National Tax Service and the Ministry of Economy and Finance.

Regular stock trading and collective investment – which is fundamentally a way of investing money alongside other investors – are imposed with different taxes.

“The Korea Financial Investment Association recently asked us whether to categorize profit from fractional investment as capital gains tax or dividend income from collective investment,” A NTS official said, requesting anonymity. KOFIA represents 460 local brokerages, asset managers and trust companies in Korea.

“This has led us to request the Finance Ministry to map out the framework for the tax system,” the official added.

The envisioned fractional trading system, which would allow investors to buy a portion of a share, could be legally categorized as “collective investment” as a single share would be divided among several fractional shareholders.

For stock trading, Korea currently levies a capital gains tax on major shareholders who own stocks worth more than 1 billion won ($7.3 million) in a single company. Also, their stake must exceed 1 percent of total shares listed on the main Kospi or 2 percent of total shares listed on the secondary Kosdaq market if they are subject to a capital gains tax.

From next year, the rule will be relaxed to levy capital gains tax on those who own stocks valued over a total 10 billion won in a single company. The tax law becomes further revised from 2025, with all stock investors required to pay a capital gain tax on profits that exceed 50 million won.

Those profiting from collective investment, meanwhile, pay a different type of tax called the “dividend income tax,” which levies some 15 percent on their gains.

Brokerages expect the launch of fractional share trading to be delayed to next year, with clear government approval required before finalizing and launching the new trading system.

“We are currently waiting for government interpretation on the matter,” a KOFIA official said.

“It is difficult for brokerages to launch the fractional trading system without any tax guidelines.”

By Jung Min-kyung (mkjung@heraldcorp.com)