South Korea lifts taxes on foreign bond investment to attract new capital

The South Korean government removed taxes on foreigners’ income from investments in treasury bonds and monetary stabilization bonds on October 17 to encourage foreign investment and stabilize the exchange rate.

Speaking to reporters in the United States on Saturday, October 15 following a meeting of G20 finance ministers and central bankers, Korean Finance Minister Kyung-ho said the government had decided to push back the planned tax repeal from 2023 to this week to encourage capital inflows into the local bond market.

Back in July, South Korea unveiled a tax reform plan containing such tax breaks for non-resident foreigners and corporations in the country. At first, the government wanted to put it into effect from January 2023 after the National Assembly passes the bill.

But in a situation where the South Korean currency is weakening, as well as against the backdrop of a slowdown in lending to the economy and large losses in the stock market in Seoul, as well as an increase in the rate for the eighth time in a row to 3% (+0.5%) to support the country’s currency, the government decided to revise the implementation ordinance in order to ensure tax benefits as soon as possible.

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Overall, the Korean Won has not performed well among Asian currencies over the past six months, losing 17% against the dollar over the period.

The ordinance introduced varying tax rates that differ depending on the amount of profits and income in respect of Korean treasury bonds of foreign investors. The government also included cash stabilization bonds and removed tax rates.

With financial markets around the world remaining volatile, Korea is keen to attract new foreign investment as quickly as possible.

Meanwhile, FTSE Russell, the global index provider, said on September 30 that it had added South Korea to the list for possible inclusion in its Worldwide Government Bond Index (WGBI).

Index provider FTSE Russell said earlier that the listing follows announcements of several initiative proposals by South Korean market authorities that aim to improve market structure and accessibility of South Korean capital markets.