The Korean government is planning sign the agreement with the British Virgin Islands in order to exchange the information on financial transactions and tax records of foreign investors. South Korea aims at having agreement with not only the BVI, but also with other popular tax havens – the Cayman Islands, Bermuda and others.
It goes without saying that exchanging financial and tax-related information with the BVI and other tax havens will help the Korea government to levy taxes on gains made by foreign investors based the BVI or other tax havens, respectively.
Korean analysts expect that British Virgin Islands and other tax havens could be unwilling to cooperate, because they should protect data of offshore investors using their financial and legal system. Therefore, Korea is planning to obtain the information through offices located in the BVI that still do not have double taxation avoidance treaties with South Korea.
The Korean Ministry of Finance and Economy has recently made a proposal to the British Virgin Islands as well as to some other well-known offshore tax havens – it suggested forming an agreement on the mutual exchange of financial transaction and tax payment information. The Korean Ministry hopes to sign at least tax record disclosure agreements with the BVI and other tax havens on their list.
On July 1, the revised International Tax Law takes effect. Then, foreign investment funds that invest in South Korea through tax havens will have to pay tax on profits made in Korea in accordance with its corporate taxation rules.
A double taxation avoidance treaty is an agreement allowing taxation on capital gains from the sale of stocks by foreign investors a) by the state where an investor is headquartered or b) by the state where such capital gains are realized.
Just one of good examples of the closure of investment doors in Korea is Four Lone Star – a company that is facing criminal charges on tax evasion in Korea, and is suspected in alleged fraud and foreign-exchange violations. However, Korean officials claim that the government treats both overseas and domestic investors equally... Still, many Korean officials indirectly confirm that the government starts the movement against foreign investors.
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