How to Calculate After-Tax Return

After-Tax Return is the return that actually remains after subtracting taxes. The basic calculation is simple. After-tax return = pre-tax return × (1 − tax rate).

For example, if you received ₩1 million in dividends and the tax rate is 15.4%, the amount actually received is ₩846,000. The higher the tax rate, and the more income subject to tax, the wider the gap between pre-tax and after-tax.

The taxes domestic investors frequently encounter are as follows.

① Financial income such as dividends and interest: 15.4% withholding (14% income tax + 1.4% local income tax).

② Overseas stock capital gains: taxed at 22% (20% capital gains tax + 2% local tax) after subtracting the basic deduction of ₩2.5 million.

③ Domestic listed stocks are exempt from capital gains tax unless you meet requirements such as being a major shareholder, but a securities transaction tax applies when you sell. Tax rates and deductions change frequently, so you must check the standard as of your investment time.

The real reason taxes are fearsome is that 'they break compounding.' If taxes are taken out each time you receive a dividend, the principal available to reinvest shrinks accordingly, so the next year's compounding effect gets smaller too.

That's why tax-advantaged accounts like ISA, pension savings, and IRP are important. Deferring taxes (tax deferral) or lowering them keeps the money that would have gone to taxes working, growing long-term compounding. From an after-tax-return perspective, 'which asset you hold in which account' becomes as important as the return.