As the South Korean government has decided to strengthen capital gains taxes on foreign major shareholders, the Financial Supervisory Service (FSS) sent an official letter to domestic listed companies to disclose their foreign shareholding ownerships, causing a controversy.
According to investment banking industry and FSS sources on Jan. 28, the FSS sent out an official notice to South Korean listed firms on the 24th to ask them to report on their foreign investors’ stock acquisition at the time when they went public or were listed through merger based on detailed financial investment regulations of enforcement. The companies must hand in their report by mail only by the 31st. They cannot respond via e-mail or fax.
The Ministry of Strategy and Finance announced its follow-up revised enforcement ordinance after 2017 on the 7th to expand the range of capital gain taxation for in-country non-residents or foreign corporations to 5 percent of a South Korean company's stock ownership from the current 25 percent threshold.
After the revised law was announced, there has been a growing controversy over whether it is practically possible to levy fair taxes as well as concerns over shrinkage of foreign investment in domestic stocks. The FSS asked listed companies to submit their foreign stock ownership at the time when they went public or were listed through merger in order to set the standards to calculate capital gains taxes according to changes in foreign shareholders’ equity.
The securities industry argues that the authorities must know whether listed companies’ foreign ownership exceeds 5 percent and their acquisition costs in a bid to calculate transfer taxes according to foreigners’ share ownership but it is impossible to grasp such information.
The industry points out that there is no other countries that compete with South Korea, such as China, Taiwan, Hong Kong and Singapore, impose capital gains taxes on foreign investors. In addition, it can adversely affect the government’s policies to activate the KOSDAQ market.