FSS warns investors: settlement date, not trade date, governs RIA tax benefits

Investors selling foreign shares held in a domestic equity return account (RIA) should be aware that capital gains deduction rates are calculated based on the settlement date, not the trade execution date.

The Financial Supervisory Service (FSS) issued the warning Sunday as part of a broader consumer advisory covering RIA accounts, integrated management accounts (IMA) and other financial investment products.

An RIA account offers a capital gains deduction to investors who sell foreign shares acquired on or before Dec. 23 last year and then invest the proceeds in domestic equities for at least one year. The deduction rate steps down over time: 100 percent for foreign shares sold by the end of May, 80 percent through the end of July, and 50 percent through the end of December. On a capital gain of 20 million won ($13,600), the capital gains tax amounts to 330,000 won through the end of July but rises to 1.65 million won after that.

To qualify for the tax benefit, investors must keep the proceeds from selling foreign shares invested in domestic equities — including listed shares, ETFs and domestic equity funds — within the RIA account for at least one year. Net purchases of foreign shares in accounts outside the RIA may reduce the benefit proportionally.

The FSS also said early termination of IMA products may be restricted, and that fees beyond the base management charge — including sales and performance fees — may apply. Investors who access ETFs through a bank's discretionary money trust should also note that trust fees of 0.03 to 2.0 percent and early termination fees of 0 to 1.0 percent may apply, potentially pushing actual returns below the target rate.