Seoul delays capital gains tax plan
SEOUL: South Korea has postponed a proposed widening of capital gains tax on foreign buyers of stocks in the country, said the finance ministry yesterday, after strong opposition from some foreign investors.
The ministry said in a statement it would reconsider the capital gains matter in this year’s tax review.
Yesterday’s postponement comes after Finance Minister Kim Dong-yeon said last week the government might delay the proposed widening of its capital gains tax on foreign investors, a measure strongly opposed by some investors.
After its annual tax code review in August, South Korea said it was seeking to extend the tax base to take in more foreign investors and larger shareholders.
The August draft law proposed lowering the foreign ownership threshold at which the capital gains tax on listed securities transactions took effect to five per cent from the current 25 per cent of outstanding shares in the issuer.
South Korea’s Parliament approved the ministry’s revised tax regulations last month, with the amended measures due to take effect in July.
A foreign investment banker, who declined to be identified, called the tax “totally unworkable” as a large amount of foreign share investments were made by mutual funds, making it difficult to trace the owners of shares.
The statement said the ministry delayed implementation because it wished to ensure necessary technical measures were in place before implementing the new law.
Such measures could include developing methods to calculate the taxpayers’ shareholding ratio and original cost of the stocks so that withholding agents (who collect the taxes) would be less burdened by the tax.
“The decision itself is very unlikely to have big impact on the stock market as just a small number of investors would be affected by the revised regulations,” said Cho Byung-hyun, a stock analyst at Yuanta Securities.
The finance ministry said the current regulations asked foreign investors to choose the cheaper option of these two rates as a capital gains tax: 10 per cent of the transfer price or 20 per cent of the transfer gain.