Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Foreign financial firms urge Yoon to overhaul tax, regulatory schemes
President-elect Yoon Suk-yeol speaks during a meeting after the launch of the presidential transition team in Seoul, Friday. Joint Press Corps-Yonhap
By Lee Min-hyung
President-elect advised to create special financial zone, fintech complex
By Lee Min-hyung
Foreign financial firms have urged the incoming administration to be led by President-elect Yoon Suk-yeol to ease complex regulatory hurdles and reduce corporate taxes to make Korea become more attractive to overseas investors.
Such views reflect a years-long controversy that platform giants such as Naver and Kakao took advantage of regulatory blind spots when expanding their financial businesses here. Existing lenders have cried foul over the rapid rise of the platform operators, saying that they would not have been able to do so if they had had to abide by the same regulations that conventional financial firms are required to follow.
For some time now, major foreign-owned financial firms have conveyed their stance regarding these issues, but have made little progress, leading to the recent exodus of overseas banks and insurers.
In November 2021, Citibank Korea decided to wind down its consumer banking business in Korea, leaving Standard Chartered Bank Korea as the only foreign lender operating retail banking services here. Overseas insurers also consider Korea to be a less attractive venue due to sluggish growth, with major players such as Allianz and Prudential selling their Korean units in recent years.
Most of them have essentially failed to overcome the tight administrative procedures and stringent regulatory requirements compared to major markets. Even those who did abide by regulations here share similar complaints and said that they may have to follow in the same footsteps as others due to declining profitability.
However, with the launch of the Yoon administration in May, officials from the industry voiced the need for the President-elect to build a more market-friendly environment, so foreign companies can actively engage in businesses here.
Foreign financial businesses advised the incoming Yoon administration to let go of some outdated administrative procedures and build a more future-oriented financial environment here.
“It is important for the new administration to improve some financial policies and tax rules on overseas financial firms and foreign officials working for them here,” a ranking executive at an overseas lender said.
Last year, the Korean government imposed a corporate tax of up to 27.5 percent, which is higher than the OECD average of 22.9 percent. For this reason, many critics have long argued that it will be hard for the government to achieve its dream of building another Asian financial hub here without lowering the tax burden. In contrast, Singapore and Hong Kong levy just around a 17 percent corporate tax rate.
To drive the long-term growth of Korea's financial market, the official stressed the need for the government to map out policies with an international mindset, in order to attract more foreign capital and enhance its financial status across the globe.
“The government should adopt a strategy of building a special financial zone and fintech complex at the same time here, so both of them can generate synergies. Authorities should provide English-language documents and revise policies accordingly. This will not just help create more employment, but drive the overall growth of the fintech industry here.”
Nevertheless, it still remains to be seen whether the requests and observations will be accepted by the incoming administration, (financial authorities are currently cutting their budgets) to drive Korea's leap forward into becoming a global financial hub.
The Financial Services Commission submitted to the National Assembly a 1.09 billion won budget for 2022 related to the financial hub goal, down 19.4 percent from the previous year.
Another source at a foreign lender also underscored the importance of implementing policies focusing on ensuring fairness.
“We expect the incoming administration to introduce more fair financial policies between conventional financial firms and big tech firms,” the official said.
Many still pointed out that it will take much more time for the government to change its conservative approach with regards to the financial industry here, but they urged the incoming administration to take immediate steps to enhance Korea's global status in finance.
“Our recommendation for investors here is to diversify their asset portfolio not just for the national interest, but the overall development of the local capital market,” an official from a global asset management company operating in Korea said.
In the end, the government and financial authorities need to maintain fairness in tax benefits when investors buy and sell local or overseas assets, he added.