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South Korea targets tax exemptions to spur overseas investment

A woman and a child wearing face masks wait to cross a road before the Bank of Korea headquarters in Seoul on June 11, 2015.

[SEOUL] South Korea plans to offer up to 10 years of tax exemptions for overseas stock investment funds as part of measures to boost its capital outflow to tackle a record current account surplus, the finance ministry said on Monday.

Taxes will be exempted on investment and evaluation gains and currency valuation income from investment in newly established funds that put more than 60 per cent of assets in overseas stocks, the finance ministry said in a statement.

The current account surplus in Asia's fourth-largest economy has been surged in recent years, fuelled in part by depressed domestic demand and weaker global energy prices.

Last year, South Korea posted a record US$89.2 billion of current account surplus but capital outflows amounted to a net US$72.5 billion, official data shows, putting upward pressure on the won and forcing the central bank to absorb the surplus.

The current account surplus is projected to rise further this year to US$96 billion, which would set another high and account for about 7 per cent of the annual gross domestic product, up from 6.3 per cent in 2014.

The ministry said in the statement it would also encourage local institutional investors, such as insurance firms, to reduce currency hedging on overseas securities investment and provide financial support for overseas direct investment.

It said the government expected these measures to help spur overseas securities investment and direct investment by South Koreans by some US$15 billion per year.

The ministry said in another statement it would ease regulations on cross-border capital movements, such as reporting requirements for money transfers, a move also seen as aimed at spurring capital outflow.