The South Korean Ministry of Finance and the Economy (MOFE) revealed yesterday that tax will be imposed on gains made by investors based in the Malaysian offshore centre of Labuan from next month, in the country's latest effort to cut down on tax avoidance by foreign investors.
As a result of a revision to South Korea's international tax legislation, approved in May by its Parliament, a withholding tax will be imposed on the South Korean gains made by investors based offshore, under certain conditions, for example when the entity has owned shares in a domestic firm for more than six months.
The new measure is designed to prevent offshore-based foreign firms from avoiding taxes on income made in the country.
Foreign investors may be able to apply for refunds, if eligible under South Korean law.
According to a report by the Korean Economic Daily, the government has decided to initially apply the revision only to investors based in Labuan.
The move comes amid a national outcry at the huge tax-free profits being made by certain foreign companies which snapped up distressed assets on the cheap in the aftermath of the Asian financial crisis in the late 1990s.
The fact that Belgium has thus far been left off of the list of 'tax havens' could allow US investment fund Lone Star to make a tax-free profit from the sale of its 50.5% stake in Korean Exchange Bank, reportedly worth US$5 billion.
This stake, acquired in 2003 for about $1.2 billion, is currently owned by Lone Star's Belgian subsidiary.
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