In a report to the National Assembly, the National Tax Service (NTS) said about $6.6 billion of the investments came from Labuan, a small East Malaysian island declared a tax haven in 1990 as the first step toward developing it into Malaysia’s own offshore financial center.
According to the NTS, a total of 35 countries or regions are now declared as having tax havens, but only Labuan formed a tax treaty with South Korea, which is designed to avoid double taxation for people who would otherwise pay tax on the same income in two countries.
Foreign investors are increasing such “bypass” investments in Asia’s third-largest economy by establishing a paper company in such tax havens, according to the Finance Ministry.
The ministry is moving to strengthen measures to curb so-called treaty shopping by foreign and local investors.
Treaty shopping refers to when a resident of a third country takes unfair advantage of the beneficial provisions of a tax treaty between two other countries.
The ministry said it will study ways of levying taxes on a resident of a third country if he or she enjoys passive income here, but avoids fair taxation by setting up a paper company in a country with which South Korea signs a tax treaty.
As of May, South Korea had tax treaties with the United States, Britain and 60 other countries.
Source: Yahoo News Australia & NZ
(Yonhap)
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