The New Gift Tax and Its Im­pli­ca­tions

Thai-American Business (T-AB) Magazine - - Contents - Writ­ten by: Ta­tiana Bes­palova

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.

IM­MOV­ABLE PROP­ERTY

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.

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