Six Ac­tions to Take Be­fore the In­her­i­tance and Gift Taxes Come into Force

Thai-American Business (T-AB) Magazine - - Contents - Writ­ten by: Ki­tipong Urapeep­atanapong and Jonathan Blaine

The In­her­i­tance Tax Act B. E. 2558 ( 2015) and the Rev­enue Code Amend­ment Act ( No. 40) B. E. 2558 ( 2015), which amends the Thai Rev­enue Code’s treat­ment of per­sonal in­come tax on 1) gifts re­ceived ei­ther as main­te­nance or sup­port based on a moral obli­ga­tion or re­ceived as part of a cer­e­mony or upon a tra­di­tional oc­ca­sion, and 2) in­come de­rived from gra­tu­itous trans­fers of im­mov­able property to le­git­i­mate chil­dren (“Gift Tax”), were pub­lished in the Thai Royal Gov­ern­ment Gazette on Au­gust 5, 2015.

The Acts will come into force on Fe­bru­ary 1, 2016, rep­re­sent­ing 180 days from the pub­li­ca­tion date.

There­fore, dur­ing the pe­riod from now un­til Fe­bru­ary 1, 2016, in­come de­rived from the re­ceipt of as­sets via in­her­i­tance or be­quest re­mains ex­empt from per­sonal in­come tax and is not sub­ject to in­her­i­tance tax.

Fur­ther­more, sub­ject to pre­scribed con­di­tions un­der cur­rent law, in­come de­rived from cer­tain types of gra­tu­itous trans­fers and gifts re­ceived from now un­til Fe­bru­ary 1, 2016 also still re­mains ex­empt from per­sonal in­come tax.

As such, this pe­riod pro­vides a win­dow of op­por­tu­nity for those con­tem­plat­ing es­tate and wealth man­age­ment plan­ning to ex­e­cute their plans in a man­ner which con­sid­ers the im­pli­ca­tions of th­ese new regimes.

As the In­her­i­tance Tax Act and the Amend­ment Act will shortly come into ef­fect, clients may want to con­sider tak­ing the fol­low­ing six ac­tions when making ar­range­ments for the man­age­ment of their as­sets.

1. BE­COME FA­MIL­IAR WITH THE NEW IN­HER­I­TANCE AND GIFT TAXES CON­CEPTS AND RULES

Clients should understand the gen­eral frame­works and rules for both the in­her­i­tance tax and Gift Tax so that they are bet­ter able to man­age as­set hold­ings and understand the po­ten­tial tax im­pli­ca­tions of as­set dis­po­si­tions or wealth trans­fers. With re­gard to the in­her­i­tance tax, clients should gain a gen­eral un­der­stand­ing of which types of as­sets will be sub­ject to in­her­i­tance tax­a­tion, when a re­cip­i­ent of such as­sets ( ei­ther by in­her­i­tance or be­quest) will be li­able for in­her­i­tance tax, and if any ap­pli­ca­ble ex­emp­tions may ap­ply ( such as the spousal ex­cep­tion). With re­gard to the Gift Tax, clients should ob­tain a gen­eral un­der­stand­ing of who is con­sid­ered the tax­payer un­der the Gift Tax rules, what kinds of gifts re­ceived may be ex­empt from per­sonal in­come tax, and the amounts of the in­come re­ceived which are ex­empted from Gift Tax.

Please re­fer to T- AB Mag­a­zine Vol. 4/ 2015, page 30, pub­lished in mid- Septem­ber of this year, for de­tailed in­for­ma­tion on the In­her­i­tance Tax and Gift Tax.

2. PRE­PARE A LIST OF AS­SETS THAT WOULD BE SUB­JECT TO IN­HER­I­TANCE TAX AND PRE­PARE A WILL AC­CORD­INGLY

Prepa­ra­tion of a list of as­sets that would be sub­ject to in­her­i­tance tax will help clients cal­cu­late the ag­gre­gate value of tax­able as­sets, as well as in­her­i­tance tax im­pli­ca­tions for their heirs or other peo­ple who will re­ceive th­ese as­sets. If clients dis­cover through the list prepa­ra­tion process that they have or are likely to have as­sets with an ag­gre­gate value ex­ceed­ing Baht 100 mil­lion in the fu­ture, then they may want to con­sider trans­fer­ring por­tions of th­ese as­sets to oth­ers dur­ing their life­time so as to take ad­van­tage of Gift Tax ex­emp­tions val­ued up to Baht 20 mil­lion for as­cen­dants, de­scen­dants, and spouse, or up to Baht 10 mil­lion for other cases, each year un­der cer­tain pre­scribed cri­te­ria.

In ad­di­tion, clients should also con­sider preparing a will in or­der to man­age the dis­po­si­tion of their as­sets upon death tak­ing into con­sid­er­a­tion the in­her­i­tance tax that may be payable by heirs upon re­ceipt of such as­sets.

For ex­am­ple, an in­di­vid­ual may con­sider al­lo­cat­ing cer­tain tax­able as­sets not ex­ceed­ing Baht 100 mil­lion to cer­tain heirs and then al­lo­cat­ing any re­main­ing tax­able as­sets to his or her spouse, which would not be tax­able in the hands of the spouse. In ad­di­tion, where an in­di­vid­ual would like to do­nate part of his or her es­tate to char­ity, the will should clearly state this in­ten­tion to do­nate such as­sets to the par­tic­u­lar char­ity, as such do­na­tions are not sub­ject to in­her­i­tance tax in the hands of the re­cip­i­ent.

3. CON­VERT AS­SETS THAT WOULD BE SUB­JECT TO IN­HER­I­TANCE TAX INTO NON- TAX­ABLE AS­SETS

Where clients have as­sets that would be sub­ject to in­her­i­tance tax, th­ese in­di­vid­u­als may want to con­sider con­vert­ing such as­sets into other types of as­sets which would not be sub­ject to in­her­i­tance tax. For ex­am­ple, the in­di­vid­u­als may con­sider buy­ing gold with cash held in a de­posit ac­count be­cause gold is not cat­e­go­rized as an as­set that would be

sub­ject to in­her­i­tance tax. In ad­di­tion, as in­come re­ceived by in­her­i­tance or be­quest is ex­empt from per­sonal in­come tax, the heirs who in­herit or be­queath the gold will also be ex­empt from per­sonal in­come tax. Care should be taken when un­der­tak­ing such plan­ning to en­sure that any other po­ten­tial tax im­pli­ca­tions that may arise from such trans­ac­tions are con­sid­ered, along with the im­pact of de­pre­ci­a­tion of cer­tain types of as­sets.

4. TRANS­FER IN­HER­I­TA­BLE TAX­ABLE AS­SETS TO CHIL­DREN DUR­ING ONE’S LIFE­TIME

Gra­tu­itous trans­fers of im­mov­able property, in­clud­ing land, from a par­ent to le­git­i­mate chil­dren be­fore Fe­bru­ary 1, 2016 are ex­empt from per­sonal in­come tax­a­tion with­out lim­i­ta­tion. How­ever, from Fe­bru­ary 1 on­wards, the trans­feror par­ent will be­come tax­able on such trans­fers to the ex­tent that the ag­gre­gate value of the property trans­ferred ex­ceeds Baht 20 mil­lion and will be sub­ject to per­sonal in­come tax at the rate of 5 per­cent on this ex­cess por­tion.

In cases where clients do de­cide to trans­fer land to their le­git­i­mate chil­dren, the chil­dren should con­sider reg­is­ter­ing a right of usufruct on the land in fa­vor of the trans­feror par­ent, and may also des­ig­nate through the will to be­queath the land to par­ents.

With ref­er­ence to as­sets other than im­mov­able property, com­plete and valid le­gal trans­fers of such as­sets to chil­dren be­fore Fe­bru­ary 1, 2016 may be con­sid­ered gifts re­ceived as main­te­nance or sup­port pur­suant to a moral obli­ga­tion and re­cip­i­ent chil­dren should there­fore be ex­empt from per­sonal in­come tax­a­tion on re­ceipt of the gift with­out lim­i­ta­tion. The trans­feror par­ent will have re­moved th­ese gifted as­sets from their own­er­ship and, cor­re­spond­ingly, their es­tate. In this case, the tax­able as­sets to be in­her­ited by the chil­dren will re­duce, and the in­her­i­tance tax should re­duce ac­cord­ingly.

5. SET UP A FAM­ILY HOLD­ING COM­PANY AND TRANS­FER SHARES TO CHIL­DREN

Set­ting up a fam­ily hold­ing com­pany has many ad­van­tages, in­clud­ing the abil­ity to main­tain the own­er­ship of op­er­at­ing com­pany shares within a client’s fam­ily. This may be of par­tic­u­lar con­cern, how­ever, where shares are listed on the Stock Ex­change of Thai­land ( SET), as clients may be con­cerned that their chil­dren will later sell the shares on the SET.

In ad­di­tion, be­fore Fe­bru­ary 1, gra­tu­itous trans­fers of shares in a fam­ily hold­ing com­pany to chil­dren may qual­ify as gifts given as main­te­nance or sup­port pur­suant to a moral obli­ga­tion, which should be ex­empt from per­sonal in­come tax li­a­bil­ity for the re­cip­i­ent chil­dren. By con­trast, if such shares are trans­ferred from Fe­bru­ary 1 on­wards, the re­cip­i­ent chil­dren will be sub­ject to per­sonal in­come tax on the por­tion of the value of the shares trans­ferred which ex­ceeds Baht 20 mil­lion.

6. SET UP AN OFF­SHORE IN­VEST­MENT OR HOLD­ING COM­PANY UN­DER A TRUST STRUC­TURE

The Bank of Thai­land ( BOT) has set out re­laxed cri­te­ria to pro­mote Thai direct in­vest­ment abroad, whereby a Thai- based in­di­vid­ual is per­mit­ted to re­mit un­lim­ited sums of money out­side Thai­land for the pur­poses of set­ting up an off­shore com­pany or pur­chas­ing at least 10 per­cent of the shares thereof with­out be­ing re­quired to ob­tain prior ap­proval from the BOT. Thus, clients may want to con­sider set­ting up an in­vest­ment or hold­ing com­pany in a for­eign coun­try. Note that shares of such an in­vest­ment or hold­ing com­pany are still con­sid­ered in­her­i­ta­ble tax­able as­sets and may be sub­ject to in­her­i­tance tax. As such, clients may want to con­sider set­ting up an off­shore ( i. e., non- Thai) trust to hold such shares.

In set­ting up the off­shore trust, own­er­ship of ( i. e. ti­tle to) as­sets is trans­ferred to a trus­tee for the pur­poses of man­age­ment and dis­tri­bu­tion of in­ter­ests or in­come de­rived from such as­sets to the ben­e­fi­cia­ries. The as­sets, hav­ing been trans­ferred to the trus­tee, are no longer con­sid­ered as part of the par­ent’s es­tate upon their pass­ing, and should not be sub­ject to in­her­i­tance tax ac­cord­ingly.

Ki­tipong Urapeep­atanapong is Part­ner and Jonathan Blaine is Tax Con­sul­tant at Baker & Mcken­zie. They can be con­tacted at Ki­tipong. Urapeep­atanapong@ bak­erm­cken­zie. com and Jonathan. Blaine@ bak­erm­cken­zie. com.

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