Kingdom's new inheritance tax and gift tax explained

The inheritance tax is 5 per cent for ascendants or descendants and 10 per cent for others. It is levied on assets worth above Bt100 million, a loosening of the previously planned threshold of Bt50 million and tax of 10 per cent.

The tax is levied on heirs who are either individuals or Thai juristic persons. It is also applied to non-Thai nationals who are resident in Thailand according to the immigration law and non-Thais inheriting assets located in Thailand.

To counter possible avoidance of the new inheritance tax, the gift tax was also introduced by way of amending the types of tax-exempt income in the Thai Revenue Code and will be effective on the same date as the Inheritance Tax Act.

The definition of a “gift” under the TRC has been amended by Royal Decree No 40. Until January 31, 2016, the types of income exempt from personal income tax include income derived from maintenance income derived under moral obligation, inheritance or a gift received in a ceremony or on other occasions in accordance with established custom.

Starting on February 1, that section of the law will only exempt the following types of income from personal income tax:

l The portion of inheritance income not exceeding Bt100 million under Section 12 of the Inheritance Tax Act;

l Income derived from the transfer of ownership or possessory right in an immovable property without consideration by the parent to a legitimate, non-adopted child, only for the portion not exceeding Bt20 million per tax year;

l Income derived from maintenance or gift from ascendants, descendants or spouse, only for the portion not exceeding Bt20 million per tax year;

l Income derived from maintenance under moral purposes or gift received in a ceremony or on occasions in accordance with custom and tradition from persons who are not ascendants, descendants or spouse, only for the portion not exceeding Bt10 million per tax year; and

l Income from gift received for use for religious, educational or public purposes according to the rules and conditions under a ministerial regulation yet to be issued.

Royal Decree No 40 also provides an option for taxpayers receiving income exceeding the thresholds stated in the second to fourth items to pay tax at the rate of 5 per cent. Taxpayers who do so can exclude such income from taxable income in their computation of annual tax payable.

In Asean, the Philippines and Vietnam are the two countries that tax income from inheritances or gifts.

The Philippines imposes an inheritance tax with a tax-free threshold of the first 200,000 pesos (about Bt150,000) of the net estate. For the amount exceeding 200,000 pesos, tax is computed on a graduated scale from 5-20 per cent where the maximum rate is applied to the net estate in excess of 10 million pesos.

Vietnam imposes personal income tax at the rate of 10 per cent on income from inheritance or gifts in excess of 10 million dong (about Bt15,000) except for inheritances, or gifts of real property between specified family members or next-of-kin.

Many countries have revoked their inheritance taxes because of high administrative costs, tax revenue not covering the collection costs, or other reasons including tax avoidance.

In Thailand, the introduction of the inheritance tax and gift tax is one of the key tax reforms to serve the government’s attempt to increase fairness and boost government revenue from the wealthy.

At the 5-per-cent rate, the government expects to collect Bt3 billion per year. However, it seems doubtful whether this target will be achievable as long as avenues for tax planning remain.

Benjamas Kullakattimas is head of tax at KPMG Thailand.