Korean firms leave $90 bn income overseas due to heavy tax, govt proposes to axe levy

[Graphics by Song Ji-yoon]

The South Korean government has been trying to ease or lift taxes on dividends paid out by overseas enterprises South Korean companies hold equity stakes to bring some of $90.2 billion stockpile of reserves back home in efforts to stall the freefall in the Korean won.

According to an analysis on the Bank of Korea’s international balance of payments over the past 41 years from 1980 to 2021, the return from re-investment profit from Korean companies’ equity holdings in overseas entities reached $90.2 billion last year. The amount added $10.4 billion last year alone.

The sum is income Korean companies made from their holdings of 10 percent or more in overseas entities stashed away instead of reinvestment or return to home in dividends.

The government earlier this month submitted a revised corporate tax act to the National Assembly to facilitate the return of the sum by removing taxes on dividends sent by overseas corporations. The bill remains pending in the legislative, as the main opposition rejects any benefit to large companies.

Under current law, dividends from overseas corporations are counted as corporate income and taxed in Korea. Some of the foreign tax payment can be taken out from corporate tax as not to cause double taxation. The partial tax credit, however, is not enough to lessen the burden on heavy corporate taxes on corporations, which is why many of the companies leave the funds overseas instead of bringing them to their Korean headquarters.

“Bringing in the reserves held by overseas corporations home can increase dollar supply and stabilize the won and corporations’ earnings,” said Hong Ki-yong, professor at Incheon National University.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]