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South Korean Parliament Endorses Foreign Investment Bill

South Korea's parliament has approved a bill which will allow the government to impose taxes on gains made by tax haven-based foreign funds, the finance ministry said May 3. The bill, approved on May 2, will help the ministry enact new rules under which investment income derived in South Korea will face a withholding tax, regardless of double taxation treaties.

Ministry officials say the new system is in line with international standards and is aimed at stopping foreign funds based in tax shelters from abusing the pacts to avoid tax payments.

Anti-foreign sentiment has been stirred in recent years by big profits realized by some foreign investors in tax-free operations such as U.S. fund Lone Star, which acquired a 51% stake in Korea Exchange Bank (KEB) in 2003. Lone Star in March picked Kookmin Bank as the preferred bidder to take over KEB for some six billion dollars. But its unrealized profit has sparked a protectionist clamor, as it will pay no tax in South Korea, using its double taxation treaty with Belgium. The company has been under investigation on allegations of tax evasion and illegal lobbying over its purchase of KEB.

Copyright Agence France-Presse, 2006

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