Investors are advised to exercise caution as the capital gains tax deduction rate for Returning Investment Accounts (RIAs) featuring tax benefits for foreign stocks is applied based on the settlement date rather than the sale date.

The Financial Supervisory Service issued consumer warnings today (July 26) regarding financial investment products, including RIAs and Comprehensive Investment Management Accounts (IMAs).

The RIA account is a product that offers capital gains tax deductions if investors sell foreign stocks acquired by December 23 of last year and then invest in domestic stocks for one year.

The number of users has steadily increased, reaching 313,594 accounts (2.656 trillion won) as of the end of June this year.

This is about a fourfold increase compared to the end of March, which recorded 83,035 accounts (414 billion won).

Investor A sold foreign stocks on May 29 after seeing a notice that capital gains could be 100% deducted if foreign stocks were sold in an RIA account by May 31, but the settlement completion date rolled over to June 2, lowering the deduction rate to 80%.

The capital gains tax deduction rate for foreign stocks is being gradually reduced to 80% until the end of July and 50% until the end of December.

If the capital gains from foreign stock trading amount to 20 million won, the capital gains tax is 330,000 won until the end of July, but increases to 1.65 million won afterwards.

In addition, to receive the tax benefits, the proceeds from the sale of foreign stocks must be invested for one year or more in domestic stocks or domestic equity funds, including exchange-traded funds (ETFs), within the RIA account.

If foreign stocks are net purchased in accounts other than the RIA, the benefits may be reduced in proportion to that amount.

Along with this, financial authorities advised that in the case of Comprehensive Investment Management Account (IMA) products, early termination may be restricted, and sales and performance fees may be additionally charged in addition to management fees.

They added that investing in ETFs through bank specified money trusts may incur additional trust fees of 0.03% – 2.0% and early termination fees (0 – 1.0%), which could result in actual returns lower than the target returns.

(File Photo: Yonhap News)