ThaiAmerican

Business
Journal of The American Chamber Of Commerce In Thailand

Volume 4/2015

Digital Economy
14 AMCHAM Recommendations for the Digital Economy
20 Social Commerce: The Market is the Message
22 Thailands Data Protection Bill: Importance and Implications
35 ASEAN Business Outlook Survey Results

special updates

What the New Thai Inheritance

Tax Rules Mean to You
Written by: Jonathan Blaine

ecently, the Thai reformation

government enacted the long
awaited Thai Inheritance Tax Act
and changes to the Thai Revenue Code regarding the taxation of gifts
received by individuals. The enactment of
these laws was not without its controversy
and they went through various iterations
before finally being adopted and published
in the Royal Gazette. These new rules will
have effect from February 1, 2016 and will
impact Thais and non-Thais alike depending on the types of assets being received
and the status of the individual recipient.

This article will focus on discussing the Inheritance Tax (IHT) rules. These rules are
compared and contrasted with the U.S.
rules to show 1) the basic conceptual differences between U.S. estate taxes and
the Thai rules and 2) specific problematic
points of which U.S. citizens and tax residents need to be mindful, namely the potential for double taxation without relief.
This article is of course meant to be a general discussion of these rules and as always,
advice must be sought from your tax advisor regarding how these rules will impact
your individual situation.
Thai Inheritance Tax
The new IHT rules are meant to serve as a
means of deconcentrating wealth and promoting equality in Thai society. As a means
of taxing wealth upon the death of an individual, the rules are designed in a manner
whereby RECIPIENTS of certain categories
of assets through a bequest are subject to
tax on the receipt of the assets. This is in
sharp contrast to the U.S. estate tax system,
wherein the individual decedents estate is
subject to tax prior to assets being distributed to heirs. Under the Thai rules each recipient is liable for any taxes due and also
responsible for completing relevant tax
filings. As this tax is recipient focused, the
nationality of the decedent is NOT relevant.
What matters under the Thai rules is:
1. the types of assets being received;
2. the categorization of the recipient as either Thai or foreign for IHT purposes;

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Thai-American Business Volume 4/2015

3. the location of the assets being received;

and
4. the relationship of the recipient to the
decedent.
As each of these items is important, each
will be discussed in turn here.
Types of Taxable Assets
Due to the difficulty in being able to identify and track various types of assets, the
new IHT rules apply specifically to four categories of assets received from a bequest
as these types of properties are normally
subject to registration of some sort and
their transfer from a decedent to an heir is
subject to some sort of formal registration
of ownership transfer. The assets subject to
inheritance tax are:
1. Immovable property, including rights to
use property and the like;
2. Securities, such as company shares
whether listed or unlisted, bonds, etc.;
3. Money in bank accounts or similar types
of monies;
4. Registered vehicles.
Again, as these items normally require
some sort of formal transfer of ownership
process, they are fairly easy to track and
thus the IHT focuses on taxing these types
of assets from the outset. There is one additional category of assets that will become
taxable at some point in the future and
these are financial assets. This particular
category of assets is meant to be a sort of
catch-all and could include items such as
jewelry, artwork and the like. The items falling into this group will be identified according to ministerial regulations to be issued at
a future date but until such time as these
regulations are issued, only those assets
listed in categories 1 through 4 above are
subject to IHT when received by an heir.
Thais v. Non-Thai Persons under
the IHT
Once it is determined that an individual will
receive taxable assets, the next important issue to be determined is whether the recipi-

ent is considered Thai under the IHT rules.

This is important because a determination
as to Thainess has an impact on which
of these assets will be subject to tax in the
hands of the recipient. For IHT purposes
being Thai means being either 1) a Thai
national, 2) a Thai registered company, 3) a
foreign company that is majority owned or
controlled by Thais, or 4) a foreign national
having been formally granted Thai residency status under Thai immigration laws. All
other persons are considered non-Thai for
IHT purposes. Each group is subject to different rules regarding which taxable assets
are actually taxed depending on the location of the assets at the time such assets are
transferred to the recipients ownership.
Assets Located Inside and
Outside Thailand
Once a recipient has determined their particular status as either Thai or non-Thai, they
will next need to determine the location of
the taxable assets being received. This is
because Thais are subject to taxation on all
taxable assets received regardless of where
these assets are located. This is often referred to as world-wide asset basis taxation. Non-Thais by contrast are only subject
to IHT on those taxable assets located in
Thailand.
Where an individual having Thai nationality
inherits taxable assets located either inside
or outside Thailand, such individual will be
subject to IHT on those assets regardless of
where the Thai is living. Where an individual is
not considered a Thai for IHT purposes, that
individual is only subject to IHT on taxable assets considered as located in Thailand.
Personal Exemption
Having determined the scope and corresponding value of taxable assets subject to
IHT, a recipient then reduces the value of
taxable assets received by Baht 100 million
as each recipient is permitted to receive
Baht 100 million in taxable assets from a
decedent without having to pay tax on that
amount. This is known as a personal exemption. This is very different from the U.S.

estate tax system whereby the exemption

from tax (USD 5.4 million in 2015) is specifically limited to the estate. Under the Thai
IHT system, each recipient is exempt from
tax on assets less than Baht 100 million.
Accordingly, IHT can easily be avoided by
simply increasing the number of recipients
receiving assets from an individual estate.
Tax Rates
Taxable assets received in excess of the individual exemption are then subject to taxation at one of two rates, 5 percent where
such assets are received from a lineal relative (i.e., a parent, grandparent, a legitimate
child, or other person up or down the family
chain) or 10 percent when received from
all others with the notable exception of
registered spouses, as there is an exemption from IHT for all assets received from
a spouse, as long as the spouse is a legally
recognized and registered spouse.
These rates are relatively small as compared to say the U.S. rate of approximately
40 percent. One important point to be
made here, due to the difference in taxable
person between the Thai IHT and the U.S.
estate tax system, double taxation can oc-

cur without relief. This would happen in the

following cases:
1) A U.S. individual owning a condominium
in Thailand leaves this condo to a Thai individual, say an unregistered spouse.
In this case the Thai individual would be
subject to IHT on the value of the property in excess of Baht 100 million, and
As the Thai is not legal spouse would be
subject to 10 percent tax on the excess
value.
Additionally, assuming the U.S. individual
has an estate in excess of USD 5.4 million, using the 2015 exemption, then the
U.S. individuals estate would pay taxes at
a rate of 40 percent on the value in excess of this exemption, as the heir is not
a legally recognized spouse.
As the Thai individual and the U.S. estate
are different tax payers, the IHT paid by
the Thai recipient would not be creditable against any U.S. taxes owed by the
estate, resulting in double taxation.
2) A Thai individual (not domiciled in the
U.S.) owning a condominium in the U.S.
leaves this condo to his or her legitimate
Thai child.

In this case the Thai child would be subject to IHT on the value of the property in
excess of Baht 100 million, and
As the Thai is a legitimate child would be
subject to 5 percent tax on the excess
value.
The Thai decedents estate would also
be subject to U.S. estate taxes on the
value of the U.S. condo in excess of USD
60,000.
Again, as the tax payers are not the same
people, double tax will arise on the value
of the condo in excess of Baht 100 million (USD 3 million).
As can be seen from these simple examples, the combination of IHT and U.S.
or other estate tax rules can yield unfortunate outcomes. Additionally, trust and
estate planning geared toward IHT may
also need to be tailored to accommodate
other potential estate taxes. Caution is advised and professional guidance should be
sought in undertaking any tax planning as
always.

Jonathan Blaine is a Tax Consultant at

Baker & McKenzie. He can be contacted at: Jonathan.Blaine@bakermckenzie.com.

Support For Amchams Scholarship Student

Orientation & Career Camps Needed
In 2015 the AMCHAM Thailand Charitable Foundation awarded 200 scholarships to deserving but disadvantaged Thai university students. We will bring
both the new entrants and the graduating students
to Bangkok for an Orientation Camp and a Career
Camp. The Orientation Camp will run November
6-8, with the Career Camp following from November
8-11. In order to make these events a success we are
seeking your support in providing:

Organization support;
Speakers for career workshops;
HR specialists to conduct mock job interviews;
Hosting a visit to your facilities or places of business
Items for goody bags (T-shirts, hats, pens, and other
products)

We are also looking for sponsorship for the Orientation

Camp with naming rights for the major sponsor.

Please donate your time or assign a team as part of

your CSR efforts to make these camps happen.

Please contact Sheree at 02-254-1041, ext. 212 or

email sheree@amchamthailand.com if you can assist.

Thank you to FedEx for sponsoring the Career Camp.

The American Chamber Of Commerce In Thailand

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