×

UPDATE 1-S.Korea scraps plan to impose tougher capital gains taxes on foreigners

foreigners@

* Foreign investors have strongly opposed the tax measure

* Tuesday's decision will have little impact on stock markets -analyst (Adds detail, background, analyst comment)

SEOUL, Feb 6 (Reuters) - South Korea has scrapped the implementation of a proposed widening of capital gains tax on foreign buyers of Seoul stocks, the finance ministry said in a statement on Tuesday.

"(Capital gains tax regulations on foreigners) will be reviewed again this year with revisions in South Korea's withholding tax system," the statement said.

Tuesday's decision comes after Finance Minister Kim Dong-yeon said last week that the government may delay the implementation of a proposed widening of its capital gains tax on foreign investors, a measure strongly opposed by some investors.

In its annual tax code revision in August 2017, South Korea said it was seeking to extend the tax base to take in more foreign investors and larger shareholders.

The August 2017 draft proposed to lower the ownership threshold at which the capital gains tax on listed securities transactions took effect to 5 percent from the current 25 percent of outstanding shares in the issuer.

The parliament approved the ministry's revised tax regulations in December, with the revised measures due to take effect in July.

The statement said the ministry delayed implementation because it wished to ensure the necessary technical infrastructure was in place before implementing the new law.

"The decision itself is very unlikely to have big impact on local stock markets as just small number of investors would have been affected by the revised regulations," said Cho Byung-hyun, a stock analyst at Yuanta Securities.

Cho said that despite limited effect on foreign investors, they have objected strongly to the revised law believing it could affect them adversely.

A foreign investment banker who declined to be identified called the idea "totally unworkable" as a large amount of foreign share investments were in the form of mutual funds, making it difficult to trace the owners of shares.

In January, international equity index compiler MSCI said the proposal could potentially harm South Korea's market accessibility if implemented. (Reporting by Dahee Kim and Cynthia Kim; Editing by Eric Meijer)