- Trading system
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ETF corporative investors can realize profits through stock certificate transfer on the secondary market or through repurchase on the primary market. As individual investors cannot conduct repurchase according to the collective investment regulation, they can realize profits only through stock certificate transfer, or stock trading, on the secondary market. It may be thought that as an ETF is traded like stocks, the taxation for an ETF is also the same as that for stocks. However, as an ETF is issued only in the form of investment trust, it is not a stock but a fund. Therefore, the securities transaction tax (0.3%) is not charged to an ETF. In the meantime, as an ETF is a fund which tracks an index, if a gap occurs between the ETF and the index due to the occurrence of dividends and interest income, it is necessary to fit it to the changes of the index by paying the gap to the investors as a dividend. At this time, the dividend income tax is imposed on this dividend.
- Individual Investors
- The margin of an ETF had not been taxed until quite recently and all you had to pay was the tax on dividends (15.4% : income tax (14%) +residence tax (1.4%)). With the reform of the taxation system in July 2010, however, this benefit is maintained only for the domestic stock ETFs, which track the domestic stock indexes on a one-to-one basis. In the case of other ETFs, such as the ones relating to foreign indexes and commodities, the holding period tax has been imposed on them since July 2010. In other words, income taxes are collected at source based on the smaller one between the profit & loss from transfer resulting from a gap between selling and buying prices (hereinafter referred to as 'margin') and the profit from the investment trust resulting from an increase in the standard price of the standard of assessment (hereinafter referred to as 'increase in standard price'). For derivatives (leveraged and inverse ETFs), however, as such ETFs invest only in on-board derivative products relating to domestic stocks, income tax rarely occurs even under the holding period taxation system because an increase in standard price hardly occurs.
- Corporations
- As a corporation is taxed in the all-inclusive method, all the income of the corporation is taxed regardless of the income source unless the income excluded as a non-taxable income. Therefore, the margin resulting from the transfer of ETFs is taxed by being included in the gain of the corporation, while a trading loss is included in the loss of the corporation, and is deducted from the income of the corporation of each business year. For financial institutes among corporations, tax on dividends is not deducted at source.