By Yoon Ja-young
Staff Reporter
Islamic bonds will likely debut here next year, as the government plans to revise regulations to attract Islamic funds. They will get the same tax benefit as other foreign currency-denominated bonds.
The Ministry of Strategy and Finance announced Tuesday that it submitted a tax revision to the National Assembly. When approved, local businesses will start issuing Sukuk, or Islamic bonds.
As Islamic law bans interest-bearing bonds, it will take the form of tangible transactions instead of being purely financial. For example, the investor gets rent by leasing an asset bought with their money instead of interest.
But since it isn't clear whether Sukuk meets the definition of a bond in Korean law, it was not subject to the tax benefits provided to foreign currency-denominated bonds. Moreover, it incurred an additional tax burden, such as value added, acquisition tax and registration taxes.
Hence, Korea has had no Islamic bonds issued at all until now. The ministry pointed out that other countries are making efforts to develop the Islamic financial market.
The United Kingdom and Singapore, for example, refurbished law to attract Islamic finance, and Malaysia and the United Arab Emirates are competing to become Islamic financial hubs.
The government set up a task force in March to promote Islamic finance here.
With the approval of the tax revision, the bonds will get the same tax benefit as others.
"The measure is expected to attract Islamic funds, as well as minimize risk by diversifying lenders," the ministry said in a press release. Currently, Korean businesses are heavily relying on the United States and Europe for funding.
It added that it plans to hold investor relations sessions in Malaysia and the United Arab Emirates to promote the Korean economy and the revision of the law here, on hopes that it could attract Islamic funds.