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Korea Says Capital Gains Tax Plans Still Fluid

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

24 January 2018


The South Korean Government has said that it is considering whether to proceed with proposed changes to the nation's capital gains tax regime following concerns raised by the securities trading industry.

In August 2017 the Ministry of Strategy and Finance (MOSF) in South Korea announced a series of tax reform proposal, including to reduce the shareholding ownership threshold at which capital gains tax would be triggered for foreign investors on listed securities transactions, from 25 percent to five percent. It was understood that, more specifically, capital gains tax would be triggered if a foreign investor and its related parties collectively hold five percent or more of the listed company's outstanding shares at the time of the sale or at any point in time over the past five years prior to the sale. The proposal is the subject of a public consultation by the MOSF until January 29, 2018, and is expected to come into effect on July 1, 2018.

MSCI, the investment research and analytic tools provider, warned the Government this month that, "if implemented as presented, [the measure] could potentially have negative impacts on Korean equity market accessibility and hence, the replicability of the MSCI Korea Indexes and the MSCI Emerging Markets Index. Based on initial feedback from market participants, the introduction of the new rule may result, among other things, in delays related to potential tax reclaims which could affect the timing of fund redemptions as well as uncertainties related to practical implementation of the new rules."

In a January 22, 2018, statement, the Korean Ministry of Strategy and Finance confirmed that, "for non-residents and foreign corporations, the provision to lower the current threshold for capital gains taxes on stock sales from 25 percent to five percent is currently open for public comment. The proposed change will only apply to investors whose countries do not have tax treaties with Korea or non-residents who are subject to levy according to tax treaties. Thus, the effects of the changed measure will be limited, and the foreign investors whose countries have tax agreements with Korea will be exempted."

It said: "The Government is currently reviewing the securities firms' concern about withholding tax in close consultation with the industry."

TAGS: Finance | tax | investment | agreements | withholding tax | Korea, South | tax reform

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