Tax office sets sights on foreign PEFs’ eligibility

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Tax office sets sights on foreign PEFs’ eligibility

Starting next month, any foreign private equity funds operating in Seoul will fall under the strict oversight of the tax office.

Additionally, private equity funds that fail to prove they are foreign will be stripped of their tax benefits.

The National Tax Service said yesterday that a reduced withholding tax available under existing tax treaties will only be granted to nonresidents and foreign corporations that turn in applications to withholding agents. These must include a list of investors, it added.

Withholding agents are any individual, corporations and trusts that pay foreign investors or individuals’ income that is subject to the withholding tax.

Those who oppose the policy can request a reassessment, the tax office said.

The move is aimed at tracking down tax evaders or those attempting to unfairly exploit tax treaties signed with a third country. The agency believes the crackdown will minimize offshore tax evasion.

“There have been growing concerns of offshore tax evasion by parties living overseas who manipulate the tax treaties, or by local residents who disguise themselves as foreign investors through offshore capital,” said a tax agency official.

“This system, when enacted next month, will clarify where the foreign investment fund belongs. The correct tax rate will be applied according to the tax treaty signed with the country in which the investor resides.”

For countries that Korea has special treaties with, the reduced tax rates vary from 5 to 15 percent. This compares to a 22 percent withholding tax imposed on local residents.

By Lee Ho-jeong [ojlee82@joongang.co.kr]

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