South Korea Blocks Foreign Fund Managers From Tax Exemption

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

13 February 2007

The government of South Korea has announced that foreign asset managers' offshore funds will not be exempt from capital gains taxes, because it is unable to collect the necessary data from the foreign asset managers to assess their level of taxes.

The announcement follows the decision by the Ministry of Finance and Economy (MOFE) in January to give only investments in domestic asset managers' overseas equity funds an exemption regarding the 15.4% capital gains taxes for three years.

The decision has been criticised by a number of foreign asset managers, many of whom have asked the government to review the idea.

"We have reviewed the relevant data in foreign nations and saw if we could collect necessary information from the asset management firms, but concluded it is difficult to exempt them from taxes," explained Lee Hee-su, a director general at the Finance Ministry's taxation policy bureau.

"For an appropriate taxation, the ministry asked the foreign asset management firms if they could submit necessary data, but most of them said it was difficult," he added.

The ministry asked 12 asset management firms if they could submit four basic pieces of data to review the idea, including the funds' transaction records, but 10 of the companies said they could not provide them, while two others did not respond.

As of the end of December last year, there were 15.8 trillion won ($16.9 billion) in overseas equity funds run by domestic asset managers, while there were 12.9 trillion won worth in offshore funds.

Recommended