India rises as LG's cash cow under revised S.Korean tax laws

South Korea’s LG Electronics Inc. has received nearly 600 billion won ($470 million) in dividends from its overseas operations in the first quarter of this year, with India accounting for two-thirds of the total.

India is LG’s largest overseas market, generating 3 trillion to 4 trillion won in sales per year. It contributed 391.6 billion won to LG's first-quarter dividends, according to its regulatory filing.

That compares with 160.7 billion won repatriated by its Thai unit during the same period.

On top of hefty earnings in overseas markets, eased corporate tax laws on dividend income from abroad, which started this year, have encouraged Korean firms to transfer profits from foreign subsidiaries in dividends.

LG's dividend income from its overseas subsidiaries in the first quarter was more than three times the previous year's amount. In the first quarter of 2020, its overseas operations did not pay dividends to the parent company.

Its Indian subsidiary earned 84.5 billion won in operating profit in the first quarter of this year, up 5.2% from a year earlier. Sales rose 10.1% to 940.1 billion won over that period.

The largest home appliance brand in India, LG operates a sales subsidiary, R&D center and several factories in the country. It produces refrigerators and washing machines in Noida, in northern India, and TVs and monitors in Pune.

Two other household names in Korea — Samsung and Hyundai — are also collecting handsome dividend income from their overseas operations.

Hyundai Motor Group’s overseas subsidiaries will repatriate $5.9 billion in dividends to their parent company this year, the automotive group said on Monday.

The amount is up 4.6 times from the previous year thanks to the stellar performance of its foreign subsidiaries.

Samsung Electronics received 8.4 trillion won ($6.6 billion) in dividends from overseas operations in the first quarter of this year.

Under an amended Korean corporate tax law, only 5% of dividends from a Korean company’s foreign subsidiaries will be taxed at home if the dividends were taxed abroad. The remaining 95% is tax-free in Korea.

LG Electronics will likely spend part of its dividend income to support sister companies. Earlier this year, it lent 1 trillion won to LG Display Co. to fund the latter's investment in the organic light-emitting display sector.

This year, LG Electronics has earmarked 4 trillion won for domestic capital expenditures.

Write to Ik-Hwan Kim at lovepen@hankyung.com
Yeonhee Kim edited this article