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New tax plan feared to hit ELS, stock fund investors

All News 10:07 July 04, 2018

SEOUL, July 4 (Yonhap) -- South Korean investors in equity-linked securities (ELS) or overseas stock funds may have to fork up more taxes under a new proposal for taxation of financial income, analysts said Wednesday.

A presidential panel proposed Monday that the threshold for comprehensive financial income taxation be lowered to 10 million won (US$8,970) from the current 20 million as part of efforts to collect more tax from the country's rich. It also calls for higher taxes on the property-rich.

Under the so-called global taxation on financial income, people with an annual financial income (interest income plus dividend income) of 20 million won and lower pay taxes separately from their other income. The amount exceeding the threshold should be added to other income, which will be subject to a higher tax rate.

According to market watchers, the lowered threshold would force local investors in high-risk, high-return ELS or overseas equity investment funds to pay higher taxes. ELS refers to hybrid debt securities whose returns are determined by the performance of underlying equities.

New tax plan feared to hit ELS, stock fund investors - 1

Some investors can earn more than 10 million won if they redeem ELS products early during a stock market rally or overseas equity funds post hefty returns, they said.

"Investors may lose big from ELS or overseas equity investment funds, but those investment vehicles could generate stellar returns," a bank official said. "Should the threshold be reduced, more investors in ELS or foreign equity funds could be subject to global taxation on financial income."

According to data from the National Tax Service, slightly over 94,100 South Koreans were subject to the comprehensive financial income tax in 2016, with their interest and dividend income standing at 131 million won on average.

A total of 3,603 South Koreans recorded an annual financial income of 500 million won or more per year, with their total income averaging 2.41 billion won.

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