S.Korea exempts foreign investors from treasury bond tax

South Korea on Oct. 17 started exempting foreign investors from two types of taxes on Korean treasury bonds and monetary stabilization bonds investment — the capital gains tax on transfers and the interest income tax — in a bid to boost foreign investment and stabilize the exchange rate.

In July, the Korean government announced a tax reform plan containing such tax exemptions for non-resident foreigners and corporates in the country. The government initially planned to implement it starting in January 2023 after the National Assembly passes the bill. 

But the government has instead chosen to revise the implementation ordinance first to enforce the tax exemptions as soon as possible, as the Korean currency weakened against the US dollar above 1,440 early this month.

The won was the worst performer among emerging Asian currencies during the first nine months of this year, marking a 17% loss against the dollar during the period.  

The implementation ordinance applied flexible tax rates that vary by the amount of gains and income, to foreign investors’ Korean treasury bonds. The government added monetary stabilization bonds to the ordinance and revised the tax rates down to zero, which will take effect from Monday.    

Korea needs to act fast to attract foreign investment as the global financial and foreign exchange markets continue to fluctuate, said Finance Minister Choo Kyung-ho at an Oct. 14 press conference in Washington D.C.

He also noted that Korea should take such measures given that global index provider FTSE Russell in September added the country to the watch list for potential inclusion in its FTSE World Government Bond Index (WGBI) and a potential upgrade to Market Accessibility Level ‘2’.  

The index provider stipulates that only countries with bond markets of the highest grade and with bond market accessibility from Level 0 to Level 2 qualify for inclusion in the WGBI, one of the world’s top three bond indices.

The government expects that revision of the implementation ordinance will beef up foreign investment, attract US dollars, help stabilize its currency and lower treasury yields.

Write to Jin-Gyu Kang at josep@hankyung.com
Jihyun Kim edited this article.