The concern "Should I sell my US stocks?" is surging. This is because new tax regulations are acting as a significant variable for investors planning overseas immigration. Previously, the foreign emigration tax, commonly referred to as the emigration tax, which applied only to major shareholders of domestic stocks, has now been expanded to include overseas stock holdings. This system will take effect for those emigrating after January 1 of next year, and the tax burden may be determined by how assets were structured before departure. Therefore, high-net-worth individuals with plans for overseas immigration have reached a point where they must thoroughly re-examine their asset structure.
The foreign emigration tax system is a unique system that taxes unrealized gains on stocks or equity holdings held by residents of the Republic of Korea who emigrate abroad, treating them as if they were sold at the time immediately before emigration. Even if no stock transactions actually occur, taxpayers must pay taxes based on Article 118, Paragraph 9 or below of the Income Tax Act, a system that has been in effect since 2018. In the past, it applied only to major shareholders who held a certain percentage of shares (1% for listed stocks and 4% for unlisted stocks) and had resided in Korea for more than five years within the ten years preceding the date of emigration. However, with recent amendments to the Income Tax Act and the Enforcement Decree, overseas stocks have been included in the taxable items, leading to a change where overseas investors, who were previously not subject to review, are now included in the new tax base.
Advanced countries such as the United States also operate similar systems; the US has established a substitute taxation system for US-sourced income for ten years after emigration through the Foreign Investment Tax Act of 1966 and the HEART Act of 2008. While the US taxes based on the assumption that all assets worldwide are transferred at market value, Korea limits taxation to stocks and equity holdings, but the scope is gradually expanding with the inclusion of overseas stocks. Additionally, while the US allows deferral of payment under conditions such as providing adequate collateral, Korea also operates a similar system based on the principle of providing tax collateral, allowing the tax amount calculated at the time of emigration to be deferred until the actual disposal date.
High-net-worth individuals managing assets through family offices or family offices view this regulatory change as an important occasion to redesign their asset structure beyond just a tax issue. They must accurately assess unrealized gains in their overseas stock portfolios and compare and review which strategy is more advantageous: tax diversification through partial sales before immigration or local disposal strategies. They must re-examine how family asset management corporations or trust structures are taxed upon emigration and carefully review post-emigration management plans such as resident status determination. With the implementation of January 1, 2027, approaching soon, if you are considering overseas immigration, it is best to immediately begin reviewing your asset structure and, together with tax and legal experts, comprehensively design the timing and structure of emigration.