Posted inRegulationRest of APAC

Tax changes may boost Korea’s mutual fund industry

The government intends to temporarily waive a 15.4% capital gains tax on overseas equities funds, according to a Cerulli report.

According to the research firm, Korea’s Ministry of Strategy and Finance announced in June that it would temporarily waive the capital gains tax on newly-launched fund products that invest more than 60% of their assets in overseas stocks with a 10-year fixed tenure.

In August, it said it would extend the tax waiver to existing funds if the investment is done through a special investment account.

“The tax burden has long been argued as one of the biggest deterrents to the sales of overseas-invested funds in Korea, and such funds are likely to interest investors if tax incentives are put in place,” says Shu Mei Chua, an associate director.

The report added that from 2007 – 2008, a similar tax exemption was introduced and foreign managers experienced strong capital flows. When the waiver was removed, the flows reversed.

“Once implemented, this could be one of the key drivers of retail-driven AUM growth in 2016 and beyond. The Korean mutual fund industry could make a comeback, but the caveat is that the proposed tax waiver has to happen,” Chua said.

Part of the Mark Allen Group.