Korean Government Offers Tax Incentives To Banks

by Mary Swire, Tax-News.com, Hong Kong

20 October 2008

The South Korean government has announced this week that it is to offer its banks greater tax incentives as part of a package of measures aimed at increasing financial stability.

The announcement was made on Monday, after the government revealed that it will be alleviating banks' foreign-currency debt by guaranteeing USD100bn of lenders' money, as well as injecting USD30bn into the banking system.

In addition to these measures, the government also announced that a set of tax incentives for investors will be implemented in order to enhance the benefits of the cash injection.

So far this year, South Korea's stockmarket has decreased by 38%, leaving the country struggling to support its currency.

A report released by accounting firm Standard & Poor's just a week prior to the government's announcement also revealed that the likelihood of South Korea's foreign currency funding being affected by the global credit crunch was over 50%.

Under the new regime, long-term equity investors (those of over three years) will be given an exemption from the current dividends tax, with the Bank of Korea also increasing liquidity by buying repurchasing agreements.

It is hoped that the introduction of the measures will help South Korea to overcome the current problems it has in attracting funds from overseas.

Of the new initiatives, the IMF's Managing Director, Dominique Strauss Kahn remarked that they "should support confidence in the Korean financial system and return attention to Korea's solid macroeconomic fundamentals, including sizeable foreign reserves."

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