Seoul studying tax incentives for return of individual dollar assets to home

The South Korean government is studying tax incentives to bring home funds invested in overseas assets by Korean nationals in desperate measures to slow the Korean currency’s depreciation versus the greenback.

According to related ministries on Monday, the Ministry of Economy and Finance has been internally reviewing a slew of tax breaks on capital gains when funds are cashed out of overseas assets and brought home.

Under the country’s income tax law, gains from the withdrawal from foreign securities held for a year or longer by Korean nationals are taxed by 20 percent. When counting in the residence tax, the income is levied at 22 percent after basic deduction of 2.5 million won ($1,744).

Seoul is considering to temporarily raise the basic deduction from 2.5 million and cut the capital tax rate of 20 percent when overseas assets are sold and exchanged in the Korean won. The benefit won’t apply to redeemed funds if they stay in U.S. dollar.

If tax incentives can persuade investors to take their money out of overseas stocks and convert them into Korean won, the fall in the currency could be slowed. Korean mom and pop investors could be tempted to sell their U.S. stocks amid expectations for further losses.

The U.S. dollar last finished at 1,430 won and is expected to go as high as 1,500 won.

The finance ministry admitted it internally looked into the possibility, but it declined to confirm if the measures could go through “due to doubts in the policy effect.”

According to Bank of Korea, local investors’ external financial assets reached $2.1 trillion as of end of June. Korean companies also have kept $90.2 billion earned in dividends from their investment of more than 10 percent in overseas companies in U.S. dollar reserves as of December due to tax and other barriers.

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