The New Gift Tax and Its Implications
Until January 31, 2016, the gratuitous disposal of property was generally included as assessable income in the hands of the recipient and subject to personal income tax ( PIT) at the progressive rates, which currently range from 0%- 35%. In the context of gratuitous transfers of immovable property, the transferor was deemed to be the taxpayer and subject to PIT. Exemptions from PIT relating to gifts included maintenance income derived under a moral obligation, an inheritance or a gift received in a ceremony or other occasions in accordance with established customs.
On May 22, 2015, the National Assembly approved the Revenue Code Amendment Act ( No. 40) B. E. 2558 ( 2015) which included amendments to the taxation of gratuitous transfers and the introduction of Gift Tax. At the same time, Thailand introduced the Inheritance Tax ( you can read more about the Inheritance Tax in T- AB Vol. 4/ 2015). The amendments to PIT and the introduction of Gift Tax and Inheritance Tax are effective from February 1, 2016.
EXEMPTIONS UNDER THE NEW RULES
Pursuant to the new Gift Tax law, the following types of income or gifts are exempt from tax in the hands of the recipient:
1. Maintenance income or gifts received from ascendants, descendants or spouses, the value of which does not exceed Baht 20 million ( in aggregate) in a calendar year; 2. Maintenance income received under a moral obligation or gifts received from those who are not ascendants, descendants or spouses in a ceremony or other occasions in accordance with established customs, the value of which does not exceed Baht 10 million ( in aggregate) in a calendar year; 3. Inheritance income ( as it is dealt with
under the Inheritance Tax law); and 4. Gifts received for the benefit of religious, educational or public interest purposes according to the rules and conditions under a ministerial regulation yet to be issued.
GIFT TAX OR PIT PAYABLE BY THE RECIPIENT
Taxpayers receiving gratuitous income and gifts in a calendar year which are in excess of the capped monetary amounts listed in items 1 and 2 above, may be taxed at a special flat rate of 5%. This Gift Tax would constitute a final tax and thus the value of the income or gift would not be included in the computation of PIT of the recipient. This is not to say, however, that the progressive tax rates for PIT do not apply anymore. Rather, the recipient has the choice to either pay the final Gift Tax at the flat rate of 5% or to include the value of the gift in their assessable income subject to the progressive PIT. Depending on a taxpayer’s personal circumstances and the tax allowances available to him/ her, paying PIT at the progressive rates on a gift may be less than paying Gift Tax.
To illustrate, where a person receives a gift of Baht 10 million from his mother, Baht 10 million from his father and Baht 10 million from his grandfather in the same calendar year ( refer exemption listed under 1 above), the total value of the gifts will amount to Baht 30 million and the person will be subject to Gift Tax or PIT on the excess of Baht 10 million.
For any gifts falling outside of the above list of exemptions, the recipient will be required to include the value of the gift in his/ her computation of PIT at the progressive rates. In other words, the recipient will not be entitled to elect that the reduced Gift Tax rate of 5% will apply in those circumstances.
In the context of gifts involving movable property, the tax consequences would only arise for the recipient ( as discussed above), that is, the transferor is not subject to tax. This can be contrasted with the gifts of immovable property where the tax is levied on the transferor.
No tax will be imposed where a parent gratuitously disposes of immovable property to his/ her legitimate non- adopted child, provided the value of the immovable property disposed of is less than Baht 20 million per year. Where the value of the immovable property exceeds Baht 20 million, the excess portion will be subject to 5% tax which will be payable by the parent.
To illustrate, where a condominium with the value of Baht 30 million is donated by a parent to a qualifying child, Baht 10 million will be subject to 5% tax payable by the parent.
In any other circumstances, the transfer of immovable property without consideration will be taxed in the hands of the transferor at the progressive PIT rates, regardless of the value of the immovable property.
WHEN DO THE RULES APPLY?
The new rules apply to any income or the value of a gift which is sourced from Thailand. Therefore, generally, where the gift is movable property located in Thailand and gratuitously transferred to a Thai or foreign recipient, or where the movable property is located offshore but is brought into Thailand in the same calendar year, the Gift Tax ( or PIT) rules as discussed above will apply.
In the context of immovable property,
only immovable property located in Thailand will fall within the ambit of the Gift Tax ( or PIT) rules above. There may be other instances where the Gift Tax ( or PIT) rules may apply. We recommend that an analysis of the specific circumstances of each case be considered.
IMPACT ON U. S. INDIVIDUALS
In contrast to the Gift Tax ( or PIT) rules in Thailand, the United States generally im-
poses the federal gift tax on the transferor ( as opposed to the recipient). Consequently, gratuitous disposals of property falling in the ambit of both Thai and U. S. gift tax could result in double tax, albeit in the hands of different parties ( i. e., both the recipient and the transferor could be subject to tax on the same gift). The important point to be made is that no right of reduction or recourse exists under the Thai- U. S. double tax treaty to eliminate this double tax event. Accordingly, tax-
payers should undertake careful planning and obtain professional tax and legal advice before gratuitously disposing of property to ensure they understand the implications under Thai and U. S. tax law and limit their tax exposure as much as possible.
Tatiana Bespalova is Executive Director, Tax at KPMG Phoomchai Tax. She can be contacted at tbespalova1@ kpmg. co. th.