Arya News - Share swap may trigger 22% tax on top foreign stock for Koreans.
SEOUL – South Korean investors holding a stake in Tesla — the most widely owned US stock in the country — could face a 22 percent capital gains tax if Elon Musk proceeds with a potential merger between Tesla and SpaceX.
Speculation has intensified after SpaceX merged with artificial intelligence startup xAI earlier this month, fueling talk that Musk may integrate the combined entity with Tesla to accelerate his AI ambitions.
For Korean shareholders, however, the issue is not strategy, but taxation.
If Tesla and SpaceX merge under a newly established holding company, existing Tesla shares would likely be exchanged for shares in the new entity. While investors would retain the same economic ownership, Korean tax law treats such share swaps involving overseas stocks as a deemed sale and repurchase.
That classification could trigger an immediate 22 percent capital gains tax on profits exceeding 2.5 million won ($1,730), even if investors do not sell their holdings.
Although the remaining gains would only be taxed upon actual sale, investors would effectively be required to prepay part of their capital gains tax — creating a potential liquidity burden.
Korea allows tax deferral for similar corporate restructurings involving domestic stocks, but those provisions do not apply to overseas investments.
“As a result, investors who have not sold their shares could face immediate tax bills equivalent to 22 percent of their unrealized gains,” an online petition filed at the National Assembly stated, calling for a tax deferral system for overseas stock investments. “This could distort the market, as long-term holders may be forced to sell shares to cover the tax liability.”
Tesla accounts for $26.07 billion in custody holdings by Korean investors as of Friday, according to the Korea Securities Depository, making it the most owned overseas stock locally. Nvidia, Alphabet, Palantir and Apple follow.
Yim Eun-young, a researcher at Samsung Securities, said the current tax framework could create unintended volatility.
“Even if investors do not sell their shares, the law treats the transaction as a sale and repurchase, potentially triggering a 22 percent capital gains tax,” she said. “If the tax is applied, some investors may sell shares to cover the cost, leading to price fluctuations.”
Korean investors collectively hold about 1.7 percent of Tesla, whose market capitalization stands at roughly $1.5 trillion.
A similar precedent occurred in May when Rocket Lab USA was reorganized under Rocket Lab Corp. After initial confusion among brokerages, the Finance Ministry and the National Tax Service ruled the transaction constituted a taxable disposition with no deferral option.
With no official confirmation of a Tesla-SpaceX merger, local brokerages say it is premature to determine how the transaction would be processed.
“It is difficult to comment at this stage since nothing has been finalized,” a brokerage official said. “But it is true that tax treatment differs for overseas stocks.”