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South Korea Specifies Its Tax Policies for 2nd Half 2015

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

01 July 2015


The South Korean Ministry of Strategy and Finance has announced its economic policies for the second half of this year, including tax breaks and incentives to increase support to small- and medium-sized enterprises (SMEs), encourage a rise in young adult employment, and boost outgoing overseas investment.

The Ministry is hoping that a focus on stimulating the country's economy will halt the current fall in its growth rate, having had to reduce its initial forecast of a 3.8 percent rise in gross domestic product to 3.1 percent. The recovery in the economy, which was already weak, has suffered further from the recent outbreak of Middle East Respiratory Syndrome.

To promote young adult employment, the Government will offer tax incentives to companies, particularly SMEs, that increase the number of young adults they employ, and give businesses tax credits for changing temporary positions to permanent ones, in addition to the existing tax credits they receive for increasing employee wages.

Gift and inheritance tax incentives given to startup SMEs will also be given to existing SMEs, and the ceiling for low tax rates provided to SMEs will be raised. The 50 percent tax cut provided to certain startup businesses for the first five years after making a profit will be extended.

There will be additional support for sole traders. The Government will encourage "trying again after failure" by providing financial support for starting new businesses and extending tax deferral until 2018.

In addition, tax incentives will encourage savings and investment. A tax-exempt individual savings account will be introduced, and fund investors will in the future pay taxes only once when they sell their investments (thereby avoiding the payment of taxes even when they lose money). Tax incentives will be added for high-yield bond investments, while those intended to encourage venture capital investment will be revisited.

Finally, the Ministry announced that it intends to help individual investors to diversify their assets into foreign holdings to improve their returns. It is hoped that when profits from such investments are repatriated, it will also help the local economy.

Taxes on foreign investments and foreign exchange-related regulations will therefore be improved. For example, there will be tax exemptions for funds investing in foreign stocks, not only on their earnings but also on any foreign exchange profits.

TAGS: individuals | tax | investment | economics | business | tax incentives | fiscal policy | investment funds | equity investment | tax credits | small and medium-sized enterprises (SME) | self-employment | venture capital | gift tax | Korea, South | tax breaks | Tax

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