Foreigners' Investment in Korean Government Bonds Made Easier... National Tax Service Approves 'Euroclear' as Qualified Foreign Financial Institution

On the 26th, the National Tax Service (NTS) announced that on the 22nd it approved Euroclear, the world's largest International Central Securities Depository (ICSD), as a Qualified Foreign Financial Institution (QFI).

An NTS official explained, "Previously, foreign investors interested in investing in government bonds faced complicated investment procedures such as appointing a domestic custodian and opening individual accounts, which acted as a deterrent to interest in government bonds. However, when foreign investors use the government bond omnibus account, not only are these complicated procedures no longer necessary, but offshore over-the-counter transactions between foreign investors also become possible, making it easier and more convenient for foreigners to access government bonds. We expect this to significantly increase interest in Korean government bonds."

A QFI is a foreign financial institution approved by the Commissioner of the NTS that handles tax-exempt interest and capital gains related to government bonds and Monetary Stabilization Bonds for foreign investors. With Euroclear’s recent QFI approval, both of the world’s two major ICSDs, Euroclear and Clearstream (approved in March last year), have obtained QFI status.

Until now, the NTS and Korea Securities Depository (KSD) have supported the ICSDs in promptly acquiring QFI status. The NTS’s approval of QFI status is a prerequisite for foreign investment in government bonds through the government bond omnibus accounts opened by the ICSDs at KSD.

Since January last year, the government has introduced tax exemption on interest and capital gains not only for investments through foreign investors’ direct accounts but also for investments through government bond omnibus accounts. Accordingly, the KSD’s government bond omnibus account system will be launched in June, and tax exemption will apply to investments in government bonds made through this system.

The QFIs approved this time, including Euroclear and Clearstream, will perform necessary tasks on behalf of investors for the application of tax exemption on government bond investment income, such as verifying foreign investor status, storing tax exemption applications, and submitting related documents for investments made through the omnibus account method.

Going forward, the NTS and KSD plan to establish guidelines related to the operation of QFIs and activate investment channels through government bond omnibus accounts by launching the omnibus account system. They will also work to enhance foreign investors’ access to the government bond market and actively support Korea’s inclusion in the World Government Bond Index (WGBI).

This content was produced with the assistance of AI translation services.