Thailand: Recent Tax Developments

July 20, 2021, 7:01 AM

Exchange Control Law Updates

Effective from December 5, 2020, the Bank of Thailand (BOT) relaxed Thai exchange control regulations, as summarized below.

Investor Reclassification and Increase of Investment Limits for Retail Investors

The Thai exchange control law reclassified investors into two types: institutional investors and retail investors. “Qualified investors” or “high-net-worth investors” who have outstanding investments of at least 50 million Thai baht ($1.5 million) have been removed and reclassified as retail investors under the current regulation.

The investment limit for retail investors who directly invest in offshore permissible investments is increased from $200,000 per investor per year to $5 million (or equivalent) per investor per year (which is the same investment limit for qualified investors in the previous regulations). Excess amounts can be invested through a local licensed intermediary.

Allowance of Offshore Lombard Loan

Institutional investors and retail investors are now permitted to utilize loan proceeds obtained abroad to invest in permissible offshore investments (e.g. foreign currency-denominated securities), without being required to bring back loan proceeds into Thailand first, or to obtain BOT approval for relaxation of this requirement.

However, in utilizing loan proceeds, retail investors must make an investment through a local licensed intermediary. In addition, BOT approval is no longer required to make outward remittance to repay loans, as before.

First Inheritance Tax Case in Thailand

On December 23, 2020, the Central Tax Court of Thailand released its judgment on the first ever inheritance tax case in Thailand. One of the key issues is whether interest and dividends derived after the deceased’s lifetime are subject to inheritance tax.

In this case, the Court considered the undefined term “inheritance” under the Inheritance Tax Act, B.E. 2558 (2015) (the Act), and ruled that it does not include legal fruits or income or goods derived or produced from the deceased’s assets (i.e. interest and dividends in this case) after the deceased’s lifetime. Therefore, the legal fruits of the deceased’s assets are not subject to inheritance tax. The legal principles under the law of succession in the Civil and Commercial Code were applied in considering this issue.

Although this case is still under consideration by the Court of Appeal, the Thai Revenue Department tends to follow the judgments of the Central Tax Court in reviewing inheritance tax returns. However, whether this practice will continue depends on the final judgment.

Updates on International Exchange of Information

Following the signing of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC) last year, Thailand has been preparing to join the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information (CRS MCAA), to enable the automatic exchange of information regarding financial account information among participating jurisdictions.

On May 18, 2021, after a public hearing in August 2020 and April 2021, the Cabinet passed a resolution approving Thailand’s signing of the CRS MCAA, and participation in the reciprocal exchange of information with the signing jurisdictions, and approving, in principle, the draft Act on Exchange of Information for International Tax Compliance (the Draft CRS Act).

Draft CRS Act

The Draft CRS Act will be issued to implement the Common Reporting Standard (CRS), including imposing obligations on financial institutions in Thailand to collect and report financial account information. The Draft CRS Act is divided to four chapters:

  • Exchange of Information upon Request;
  • Automatic Exchange of Information;
  • Powers of the Competent Authorities; and
  • Penalties.

A key summary of the Draft CRS Act is set out below.

  • The competent officials will be empowered under the CRS Act to order relevant persons to collect and report their information or information of other persons in their possession at the request of the competent officials of Thailand’s partner jurisdictions. This is regardless of whether the information is requested for collecting tax under the Revenue Code.
  • The reporting financial institutions will be required to: (i) arrange for their customers or controlling persons of their customers, whose financial accounts are maintained with such reporting financial institutions, to identify themselves; (ii) collect information and conduct customer due diligence to identify reportable accounts of reportable persons; (iii) report the relevant information to the competent officials; and (iv) maintain relevant data and documents. The reporting financial institutions may appoint a representative to perform certain actions.
  • The competent officials will be empowered to exchange information and disclose information obtained under the Draft CRS Act to revenue officials.
  • The Draft CRS Act will impose penalties for non-compliance, and the competent officials will be empowered to settle the penalties.

The Draft CRS Act will be considered by the House of Representatives and the Senate. As Thailand commits to undertake the first exchanges by 2023, the Draft CRS Act is expected to become law and effective by 2022, and the financial institutions in Thailand are expected to collect and report information for CRS purposes in 2022.

Once the exchange relationships for the automatic exchange of information under the CRS MCAA come into effect, financial account information will be exchanged between Thailand and its partner jurisdictions for tax purposes. This will enable the Thai Revenue Department to have Thai taxpayers’ information about their financial accounts in the partner jurisdictions under the CRS MCAA.

However, according to the current interpretation of the Thai Revenue Code, foreign-sourced income will not be subject to Thai personal income tax if it is received overseas and is not repatriated to Thailand in the same calendar year in which it is received. It is uncertain whether the Revenue Department will change this interpretation when the CRS information is exchanged under the CRS MCAA.

On June 16, 2021, the House of Representatives passed a resolution approving draft amendments to the Revenue Code (the Draft Amendments) to allow the Revenue Department to disclose taxpayer information to tax authorities of other jurisdictions under international schemes, e.g. double tax agreements, and MAC.

The information exchanged under the Draft Amendments will be limited to that obtained by virtue of the Revenue Code. The Draft Amendments are now under the consideration of the Senate, and expected to become law and effective by 2022.

Property Tax: Another Year of Postponement and Reduction

Due to Covid-19, the relief periods for many tax measures have been extended to cover this year, including for property tax.

Postponement of Property Tax Collection

On January 21, 2021, the Ministry of Interior announced a two-month extension for payment of land and building tax (property tax). As a result, the payment deadline for 2021 tax is now the end of June 2021. The extension also applies to installment payments but the last installment must be paid by the end of August 2021. These deadlines can be further extended by the local administrative organizations as necessary.

Reduction of Property Tax for 2021

The Royal Decree Reducing Tax for Certain Types of Land and Buildings (No. 2), B.E. 2564 (2021) was published in the Government Gazette on January 31, 2021, and became effective on February 1, 2021. This Decree allows the same rate of reduction of land and building tax as last year, which is 90% of the total tax due for all four categories of land and buildings:

  • residential use;
  • agricultural use;
  • commercial use; and
  • vacant properties or those that are not properly being used.

Therefore, only 10% of the applicable property tax due for this year will be collected.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Panya Sittisakonsin is a Partner, Chanisara Thaisanguanvorakul, Nitikan Ramanat and Bhalarp Vallayapet are Associates with Baker McKenzie.

The authors may be contacted at: panya.sittisakonsin@bakermckenzie.com; chanisara.thaisanguanvorakul@bakermckenzie.com; nitikan.ramanat@bakermckenzie.com; bhalarp.vallayapet@bakermckenzie.com

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