At a roundtable in Pyeongchang, the CEO of the Franco-American Alliance for Islamic Finance (FAAIF), Camille Paldi, noted that, while South Korea has taken many steps towards entering the global Islamic finance market, its tax code has yet to be amended to facilitate sukuk issuance.
She stressed that South Korea, which is one of the major exporters to Islamic nations, “is not only preparing to enter the Islamic financial market, [but also] strives to become a hub of Islamic finance in East Asia, in competition with Japan, Hong Kong, and Singapore.”
However, Paldi said a remaining problem for the domestic South Korean market is that an amendment to the Special Tax Treatment Control Act (STTCA) has not yet been approved. The amendment would provide tax relief to sukuk. Complex structures have to be established to set up sukuk (often using special purpose vehicles and multiple asset transfers), as Shariah law forbids the payment or receipt of interest. Without tax breaks for sukuk, these arrangements may attract a higher tax burden compared with conventional securities.
“Local supporters of the introduction of Islamic finance products are confident that the delay [to the STTCA] is a minor setback,” Paldi said, noting support from South Korea’s Financial Supervisory Service and the central bank. “The Government is committed to facilitating them in South Korea,” she said.
Originally published on www.tax-news.com