Tag Archives: rules
[Invest Korea] New Tax Rules Beneficial for Foreign Investors
Friday, June 14th, 2013 KOREA IT TIMES (INFO@KOREAITTIMES.COM) This month we present Part II of our two-part series on Korea’s amended Presidential Decree under the Law for Coordination of International Tax Affairs and other relevant tax laws. Below we look at important tax regulation changes providing foreign investors with advantageous effects. Background In order to provide better conditions for investing in Korea, the Korean government amended some provisions of the Enforcement Decree of Corporate Income Tax Act and the Enforcement Decree of Special Tax Treatment Control Law early this year. Related tax incentives encompass those relating to not only foreign direct investment but also investments through domestic funds or foreign funds, considering that the portion of foreign investment through an investment fund or a private equity fund is ever growing. 1. An Exception to the General Tax Treatment Toward a Limited Partner’s Income of a Domestic Private Equity Fund Prior to the amendment, if foreign investors invested in Korean shares through a Korean private equity fund (PEF), all income allocated to limited partners (including the foreign pension fund) by the Korean PEF was classified as dividends; therefore, regardless of the character of the underlying income, all distributed income by the Korean PEF was subject to withholding at 22 percent for dividends (or a reduced rate under an applicable tax treaty). Because foreign private equity investors, including foreign pension funds, usually realized investment profits in the form of capital gains, rather than dividends, such taxation had the effect of depriving investors investing through a Korean PEF of the opportunity to claim a capital gains tax exemption under an applicable treaty. Effective 2013, however, the amended tax law allows look-through treatment to determine the character of income of a Korean PEF allocated to certain foreign pension funds, thereby affording them the opportunity to claim tax treaty exemptions. As a result of the amended rule, such income allocated to eligible foreign pension funds will be classified as interest, dividends or capital gains from alienation of shares depending on the character of the underlying income recognized by the PEF. 2. Special Tax Treatment for Foreign Investment Entities Under the past tax regulation, certain domestic joint investment entities such as domestic private equity funds can elect to be treated as a partnership, which is a quasi pass-through entity subject to no entitylevel tax. On the other hand, the permanent establishment of foreign corporations is not entitled to this partnership election and was subject to corporate income tax of maximum 24.2 percent at the entity level. To eliminate this tax inequity and attract foreign investments, the lawmakers expanded the special partnership taxation election regime to include foreign eligible entities carrying on a business in Korea through a permanent establishment. According to the new rule, there is no partnership-level tax if the eligible foreign entity with a Korean permanent establishment elects to be treated as the partnership. Instead, limited partners, as passive investors in such foreign entity, are subject to Korean withholding tax with respect to their share of Korean income as dividend at the rate of 22 percent. However, a reduced treaty rate ranging from 5 percent to 16.5 percent should be available depending on the residency of the limited partner. After a one-year grace period, the proposed change will be applicable to taxable years commencing on or after January 1, 2014. 3. Amendments to Foreign Direct Investment Incentive Regime The foreign investment zone regime’s prescription of eligible businesses was expanded to include information technology services from February 15. Until the end of last year, the following businesses were eligible for the incentives: (i) manufacturing with a minimum investment amount of USD 30 million; (ii) tourism with USD 20 million; (iii) logistics services with USD 10 million; and (iv) research and development with USD 2 million. However, the amended rules include computer programming, system integration and management services, data processing/ hosting services and other related information services with a minimum investment amount of USD 30 million. Source : Invest Korea Continue reading
EU Announces New Rules On Disclosure Requirements For Extractive And Forestry Industries
Paul Hastings LLP Bruno Cova , Francesca Petronio , Anteo Picello and Roberto Peroni European Union April 11 2013 Author page » Author page » Author page » I. New EU Disclosure Requirements On Tuesday, April 9, 2013, EU Commissioner Mr. Barnier issued a statement announcing a proposed directive on disclosure requirements for the extractive and forestry industries filed as IP/11/1238 and MEMO/11/734 (the “ Directive ”). At this stage, it is expected that the final text should be approved by June 2013 and become binding by July 2014. From a formal standpoint, the new disclosure requirements will be incorporated in the proposals to revise the accounting directives (78/660/EEC and 83/349/EEC) and the transparency directive (2004/109/EC). The key features of the Directive are the following: Listed and large non-listed companies with activities in the extractive industry (oil, gas and mining) and loggers of primary forests shall disclose all payments and contributions to governments above Euro 100,000; The disclosure should be made through an annual report, outlining the information on any payment and contribution made by the relevant companies to governments; Declarations are to be published on a country and project basis (the so-called country by country reporting). After months of discussions on a number of issues, such as the applicable thresholds and the degree of information to be disclosed, the EU Parliament and Council reached a common position which, in the words of the Commissioner: “will bring in a new era of transparency to an industry which is far too often shrouded in secrecy and help fight tax evasion and corruption as well as create the framework so both companies and governments can be held to account on the use of revenues from natural resources.” The EU law innovations follow the introduction of similar statutes in other jurisdictions and advocated by the Extractive Industries Transparency Initiative (known as EITI) since 2002 and then introduced in the USA by the Dodd-Frank Act and the Securities Exchange Act. Whilst the materiality threshold is similar to the one enacted in the U.S., the proposed Directive defines as “large company” one which exceeds two of the three following criteria: turnover €40 million; total assets €20 million; and 250 employees. In addition, whilst US provisions apply only to companies active in the extractive industry, EU proposals will also apply to the forestry sector. II. Background On October 25, 2011, the EU Commission presented to the EU Parliament and the EU Council the proposed legislation as a directive, which is a piece of legislation binding the EU Member States to issue implementing legislation. The EU Parliament shall debate and approve the proposed Directive in plenary meeting. It is expected that the matter will go to the plenary meeting for final approval in June 2013. If the Council will not approve the text resolved upon by the Parliament, the Directive will then be forwarded to the EU Parliament for a second reading, along with the Council’s comments. If the EU Parliament accepts the position of the Council, the Directive becomes final; in case of rejection, the procedure for adoption the Directive will be closed. However, if in the second reading the EU Parliament proposes further changes to the Directive, the Council will have to consider them. In case of rejection by the Council, a conciliation proceeding would be triggered, and the matter would be submitted to a special committee composed of selected members of the EU Parliament and of the Council in order to resolve it within 6 months. The Directive, in its current language, sets forth that Member States shall implement it by July 1, 2014 at the latest. III. Conclusion Companies in the extractive industry (oil, gas and mining) and loggers of primary forests should already take the possibility of the adoption of the proposed Directive into account, in order to assess its impact on, inter alia , their accounting and internal control procedures and begin to consider appropriate measures to comply with the new disclosure requirements. Continue reading
