Investors in India Gain Access to International Markets: Navigating Stock Investment Rules and Regulations in Japan, Korea, and Taiwan

Global Investing Trends: Indian Investors Shift Focus to Japan, South Korea, and Taiwan

As the global interest in investing continues to rise, many Indian investors are expanding their focus beyond US stocks to include markets like Japan, South Korea, and Taiwan. The shift underscores the sharp divergence in the performance of Asian equity markets this year, with South Korea's benchmark KOSPI surging more than 110 percent and Taiwan's market gaining over 65 percent.

Market Performance and Capitalization

As of June 1, South Korea's stock market capitalization had risen to $5.04 trillion, overtaking India's $4.84 trillion and pushing it to sixth place globally. Taiwan stood at $5.15 trillion, making it the world's fifth-largest equity market.

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The sharp divergence in market performance can be attributed to significant corporate reforms in Japan, the AI-driven semiconductor surge in Taiwan, and the presence of leading tech giants in South Korea. Although Indian residents are permitted to invest in these markets through the RBI's Liberalised Remittance Scheme, gaining direct access remains complex.

Investing Restrictions and Regulations

The RBI's Liberalised Remittance Scheme allows resident individuals to send up to $250,000 abroad each financial year, and buying foreign shares is a permitted use. However, the problem lies in the platforms available to Indian investors, with most platforms being built around US stocks and limited Asia exposure.

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Investing Options for Indians

For real direct ownership, Indian investors need to open accounts with international brokers that accept Indian residents. Interactive Brokers (IBKR) is one such popular option, offering access to over 150 global markets, including major exchanges in Japan, South Korea, and Taiwan.

Investing via Exchange Traded Funds (ETFs) offers precise control over entry and exit points. Popular ETF options for Indian investors include the iShares MSCI Japan ETF, iShares MSCI South Korea ETF, and iShares MSCI Taiwan ETF, managed by BlackRock or similar ETFs by Vanguard.

Charges and Taxation

Investing in foreign markets comes with various charges, including transfer fees, GST on those fees, mark-ups on mid-market exchange rates, Tax Collected at Source, and currency conversion spreads. Local trading costs also vary sharply by market, with Japan not levying a securities transaction tax, while South Korea charges a 0.20 percent tax on KOSPI and KOSDAQ shares, and Taiwan imposes a 0.3 percent tax on gross proceeds from domestic share sales.

Taxation also plays a crucial role, with Japan and Taiwan exempting non-resident portfolio investors from capital gains tax on listed shares. However, Indian investors are subject to taxation in India, with foreign shares being treated like unlisted assets.

Taxation in India

Hold foreign shares for more than 24 months and the gain is long-term, taxed at 12.5 percent without indexation. Hold for 24 months or less and it is short-term, added to your income and taxed at your slab rate, which can reach 30 percent plus surcharge and cess.