April 24, 2024

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[THE INVESTOR] Local securities firms are protesting recent tax revisions that levy heavier capital gains taxes on foreign stock investors, financial sector sources said on Jan. 15.

The Finance Ministry announced tax code changes Jan. 7, effective from July, to collect capital gains tax from foreign investors who own more than 5 percent stake in locally listed companies. The previous threshold was 25 percent. Non-resident foreign investors and overseas companies are subject to the taxes.

Securities firms are raising issues with the move, as it requires them to check the shares owned by foreigners, track changes in their portfolios and confirm gained profits from each transaction to levy the capital gains tax as withholding tax. Such firms are contending that they currently do not possess the information needed to support the new tax system.

“It’s difficult for us to keep track of every stock trading by foreigners and the resulting changes in their proportion of owned shares. In many of the cases, we can’t confirm the original purchasing price, so we cannot calculate the amount of capital gains tax,” an official at a local securities company said on condition of anonymity.

An official at another securities firm said that the necessary technical infrastructure is not in place to enforce the withholding tax. “There aren‘t that many foreign investors who own more than 25 percent of shares in a company, but there are large numbers who own more than 5 percent,” he said.

Officials also point out that 47 percent of shares registered with foreign owners are in the form of investments through stock funds, making it nearly impossible to trace the owners.

“The new tax code is technically difficult to implement because we do not have a system,” said Kim Young-whan, a researcher with KB Securities. “However, the new measure does not affect people from countries that South Korea has tax agreements with. It applies to only a handful of economies, like Hong Kong.”

By Alex Lee and newswires (alexlee@heraldcorp.com)