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South Korea To Put Transaction Tax On Financial Derivatives

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

10 August 2012


In order to bring the taxation of derivatives in line with other earned income and introduce another revenue source, the government has announced plans to impose a transaction tax on index options and futures in South Korea.

Within its recently-announced fiscal package, which also looked to increase the minimum corporate tax rate payable by the largest companies from 14% to 15%, and lower the threshold for the taxation of financial income to KRW30m (USD26,500) from KRW40m, the government has proposed a small transaction tax on financial derivatives.

South Korea, which currently has a stamp duty of up to 5% on equities, has encouraged an active derivatives market in the past so as to see a significant financial centre grow in Seoul, but has now decided to introduce the new transaction tax, which could have the effect of reducing liquidity in the market as well as deal volume.

In addition to its attraction as a revenue-raising measure, the new tax may also have been considered in order to reduce speculation and, in particular, high-frequency trading.

However, the government is also providing a three-year grace period, to January 1, 2016, before it is imposed, in the light of the current difficult market conditions.

According to the revised tax bill from the Ministry of Strategy and Finance, a 0.001% levy will then be placed on Korean Composite Stock Price Index (KOSPI) 200 index futures trades, and a 0.01% levy will be charged on KOSPI200 index options transactions. Index futures and options are said to represent some 96% of derivative trades on the South Korean stock exchange.

A comprehensive report in our Intelligence Report series giving a country-by-country analysis of offshore investment funds, stock exchanges and trusts, with an analysis of the US QI regime, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp
TAGS: tax | investment | capital markets | equity investment | tobin tax | ministry of finance | stock exchanges | stamp duty | Korea, South | alternative investment

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