Effective as of October 01, 2006, earnings derived from Mutual Funds have been brought within the scope of the withholding tax under the Law to Amend the Income Tax Code. As of 01.10.2006, 10% withholding tax will be assessed over the trading gains of mutual funds on transaction basis, introducing a taxation procedure on investor basis.
For customers having mutual funds in their portfolios prior to 01.10.2006, the buying cost to be taken as basis will be the closing price on the final transaction day of September.
The tax base for customers mutual fund selling transactions will be calculated on First in First out (FIFO) basis, and a Withholding Tax of 10% will be collected at the time of transaction over the transaction amount.
Compared to the taxation procedure that applied prior to 01.10.2006, the discontinuation of the practice of taxing over the mutual fund portfolio and introduction of taxation on customer basis will not result in a change in the amount paid in taxes, and will only defer the tax collection until the sell-back date of the mutual fund shares.
Under the new practice, customers who carry:
INGBANK Type A Equity Mutual Fund
INGBANK Type A ISE-30 Index Mutual Fund
i.e. mutual funds that at all times maintain a portfolio of at least 51% equities, in their portfolio for at least one year will not be subject to withholding tax over their earnings generated on the sale of these mutual funds. The buying date will be the basis for calculating the one-year holding time.
For corporate customers, however, the 10% withholding tax collected is deductible from their corporate income tax base. Withholding tax will not be applied to earnings generated on the sell-back of shares after holding them for more than one year in the case of mutual funds that carry at all times a portfolio of at least 51% equities traded on the ISE. As corporations value these fund participation shares over the buying price for the duration they hold these shares, they are able to defer the tax on the gains derived from mutual funds.