TAKE IT ON TRUST

Aim to keep wealth from going offshore

The Fiscal Policy Office pushes a draft bill on private trusts as it seeks to keep accumulated wealth in Thailand.

The Fiscal Policy Office (FPO) is pushing a draft bill on using private trusts as a tool for the affluent to manage their wealth and prevent them from transferring assets overseas, says a source at the Finance Ministry.

The draft, which is undergoing a public hearing to comply with Section 77 of the constitution, will allow financial institutions, securities companies or specific juristic persons to be trustees.

According to the Civil and Commercial Code, a trust can only be established based on specific laws. For example, trusts for transactions in the capital market are supervised by the Securities and Exchange Commission.

The government has long required trusts be set up under specific laws for fear that some people might use them to deceive others, such as people who are not knowledgeable about capital markets, the source said. But people nowadays better understand capital markets, and some wealthy people have transferred their assets to private trusts overseas, including Singapore, which has related laws governing incorporation.

Wealth accumulated in Thailand and sent abroad is not creating benefits for the country, the source said, adding that the wave of such outflows has only accelerated since the inheritance tax went into force several years ago.

If donors don’t want to pass wealth on to their heirs, they can opt to set up trusts to manage their assets.

The inheritance tax, which went into effect in 2016, requires inheritors of a legacy exceeding 100 million baht from a will to be taxed 10% of the amount exceeding 100 million baht, though the tax rate is halved to 5% if the beneficiaries are the donors’ direct descendants.

If the person who created the will is still alive when a bequest worth over 20 million baht a year is made to heirs who have a direct blood relationship, recipients are liable for a 5% tax for the amount exceeding 20 million. For inheritors who don’t have a direct blood line to the donor, they are taxed a flat 5% for a legacy worth over 10 million baht a year. Spouses are exempt from inheritance and gift taxes.

Taxable assets include real estate and securities such as bonds, shares and debentures, as well as investment units, deposits, registered vehicles and financial assets described in royal decrees.

The source said trusts in Thailand could be restricted for money management purposes in the early stage, but the scope of service could be extended to other assets such as amulets in the future.

Trusts have long been established abroad to manage a variety of assets, including antique cars and wine.