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South Korea to tax foreign investors

South Korea has announced that it will impose a withholding tax on interest received by overseas investors in foreign currency bonds.

This step, introduced by the Ministry of Strategy and Finance, has been adopted to ease capital inflows and to curb increases in short-term debt.

This is the second such step the ministry has taken this year to ease market volatility.

Earlier this year, the ministry re-introduced a 14% withholding tax on interest paid to foreign investors in government bonds. The ministry also lowered the ceiling on bank foreign exchange positions and imposed a levy on bank foreign currency liabilities.

This latest measure concentrates on Kimchi bonds – foreign currency-denominated bonds issues in South Korea.

Foreign investors will be required to pay a 14% tax on interest income on such bonds.

The changes, which are subject to parliamentary approval, will take effect next year.

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