AyG
Crazy Mango Extraordinaire
Posts: 5,871 
Likes: 4,555
|
Post by AyG on Jul 31, 2015 9:11:08 GMT 7
From a tax point of view, am I better off buying a Thailand equity fund (not LTF or RMF) in Thailand or in the UK?
(I've tried to find the relevant information, but failed.)
Can anyone enlighten me, please?
|
|
|
|
Post by Fletchsmile on Jul 31, 2015 18:48:16 GMT 7
It's all going go go back to a combination of:
- Where you were born (relevant for some countries like US)
- Where you are tax resident - one or more countries possible
- Where you buy the funds (Thailand or UK or thru another country)
- Various taxes: capital gains, dividend, inheritance tax (IHT)
etc etc
So there's like a 1) level based on the country / fund. 2) personal level based on you and then 3) understanding of which taxes
1). 3)
Thai funds usually have no capital gains tax.
Thai funds then usually give you the choice of a) flat 10% withholding tax (WHT) on dividends; or b) taxed at your marginal rate of tax, which ranges from zero to 35%.
Thailand used to have no IHT. Now that's coming in. But if you're talking under THB 50mio ignore it (oversimplifying a lot there)
2) For a personal level:
As a Brit, (tax) resident in Thailand but not (tax) resident in UK, you are likely still captured by UK IHT, but won't be captured by UK div and UK capital gains tax if you keep money here
In Thailand taxes are as above. Thai IHT only if > THB 50mio; no CGT and div tax of WHT 10% max if you set it up right.'
Pick accumulation units with no dividends, and most Brits in this case will be no Thai IHT, no CGT and no div/WHT, i.e effectively tax free as regards Thailand
So for me, I buy Thai funds in Thailand and pay virtually no tax of any sort while alive. This is a massive advantage. Should I go back to the UK and live there Thailand is the same, but then UK taxes get me.
(BTW For LTFs if not working /earning you can buy like any other mutual fund and buy as much as you want - just that you don't get the extra tax relief an earner does. It just acts like any other Thai fund for you. So don't write them off, include them in the funds you consider. My wife doesn't work any more, but still invests in them)
(BTW2 RMFs you probably won't be able to access anyway unless earning in Thailand)
|
|
AyG
Crazy Mango Extraordinaire
Posts: 5,871
Likes: 4,555
|
Post by AyG on Aug 1, 2015 15:41:46 GMT 7
Thanks, Fletch, but it doesn't really help with what I want to understand. (IHT is also not a concern at the moment.) Primarily it's really how the funds themselves are taxed that concerns me. Does this detract from performance, Thai domiciled vs. UK domiciled.
As far as I can tell, if you buy a Thai fund you either pay a flat 10% tax or you pay tax on any income at your marginal rate of income tax (as you stated). But what taxes (if any) does the fund itself pay?
If a foreign entity buys Thai shares and there's a CGT tax treaty between the countries (as is in the case of the UK), there's no CGT to pay. However, is dividend income subject to tax? And if so, at what rate?
UK fund dividend income is paid without any explicit deduction of tax. Is the fund paying additional tax in the UK? Is any Thai tax offset?
And in the case of Investment Trusts, there's the usual 10% tax deducted and associated tax credit. Is any Thai tax offset? Or is the UK tax a "bonus" (for the blood-sucking leeches at the Treasury). (As a non-resident the higher rates of income tax are irrelevant.)
Any more wisdom, anyone?
|
|
|
|
Post by Fletchsmile on Aug 2, 2015 5:38:25 GMT 7
Like for like as above usually you as an individual will be no worse off and probably better off if you buy the Thai fund rather than the UK fund as tax treatment for individuals on mutual funds is more favourable in Thailand for investors than in the UK If you're looking at the taxes the underlying funds themselves pay before you are then taxed then as you say that's another dimension, and no there's no a lot of good info out there to answer questions quickly. UK tax can be complicated, Thai tax isn't so well documented. Comparisons between the two are therefore usually wishful thinking. As a general rule the Thai fund investing in Thai equities will also be probably better off than the UK fund investing in Thai equities as again Thai tax is generally more favourable. So I would say the Thai domiciled for Thai equities would usually pay less tax than the UK domiciled for Thai equities. As you can see though, it's all "usually" and "probably" as tax rules can involve so many factors and exceptions. Another way to approach it is to go through the annual reports of the funds you wish to compare and look at the tax. Look at the income statement, net asset statement, statement of reconciliation of funds, cashflow statement etc, + relevant notes and see what is mentioned for tax. This is basically an accounting exercise between the two. eg If you looked at say Aberdeen Growth Thailand's annual report: www.aberdeen-asset.co.th/doc.nsf/Lit/ReportThailandOpenAnnual20141231You see there's very little mention of tax, and the numbers just don't come up. Not on the income statement, cashflow or reconciliation of assets movement, or even the breakdown notes of expenses If you picked say an investment trust like Aberdeen New Thai which I know is one you are interested in, you will see tax charges cropping up in various places within those same key statements: eg www.trustnet.com/Tools/PDFViewer.aspx?url=http%3a%2f%2fdocuments.financialexpress.net%2fLiterature%2f11473117.pdf%3ffundCode%3dITANW%26univ%3dT- income statement page 35 - cashflow statement page 38 you see tax paid - note 6 (a) page 41 analyses the tax charge and you can see it as overseas tax (again intuitively Thailand domestic should be better here) - note 6 (b) describes the factors affecting tax For the primary statements of income, B/S, reconciliation funds, cashflow of any Thai entity, like UK entities, taxation under Thai Accounting standards (TAS) and Thai financial reportings standards (TFRS) is usually a separate disclosable line just like it is in the UK. TBH I haven't looked at this for years until now, because in the past when I've looked, Thai companies are usually at least as favourable if not more favourable for Thai equities. Now if we got outside Thai equities that's a different ball game. So cutting a long story short: 1) You as an individual will usually end up with more favourable tax treatment if choose the Thai company (or at least no worse off) 2) The underlying Thai vehicle will usually end up with more favourable tax treatment (or at least no worse off) Cheers Fletch  |
|
AyG
Crazy Mango Extraordinaire
Posts: 5,871
Likes: 4,555
|
Post by AyG on Aug 2, 2015 14:10:11 GMT 7
Thanks for that, Fletch. However, after a bit of digging I come to a slightly different conclusion. From what I can see, for the a Thai fund the dividend income it receives has not been taxed. “Juristic Entity: Tax-exempt if the taxpayer is a listed company and holds the related shares or investment units for three or more months before and after the date of dividend payment.” The company itself won't pay capital gains tax, but pays corporate income tax which won't appear in the fund's account. Source: www.set.or.th/en/regulations/tax/tax_p1.html(I can't tell, however, what the tax rate is if the fund purchases or sells shares within the six month window. It does imply, however, that there may be tax consequences if the fund does so.) So, as far as I can see the only tax on the investment is the 10% or marginal income tax rate on income. As for the UK investment trust, there'll be a 10% withholding tax on dividend income. (Same source.) In the case of Aberdeen New Thai this was £322,000 on £3,546,000 of income. On top of this there's UK corporation tax at 21.17% on both income and capital gains. However, according to www.hmrc.gov.uk/manuals/ctmanual/ctm02060.htm “Most distributions, including those from overseas companies, as well as those from UK companies which were exempt under the previous rule outlined below, are now exempt.” According to note 6 of documents.financialexpress.net/Literature/11473117.pdf?fundCode=ITANW&univ=T it would appear that the trust's management expenses are sufficient to wipe out the effect of corporation tax, and no corporation tax was actually paid. Looking at a few other investment trusts' annual reports, this appears generally (but not universally) to be the case. So, in conclusion, if you don't pay income tax in Thailand you're better off with the Thai fund since there will be no tax at all. For tax payers if your top rate is more than 10% (i.e. annual taxable income after allowances of 500,000 baht and above) then you'd be better off going with the offshore investment trust; there's no additional income tax or capital gains tax for non-residents. |
|
|
|
Post by Fletchsmile on Aug 2, 2015 18:28:29 GMT 7
A couple of key points on what you say AYG
When you say the company itself will pay corporate tax which wont appear.
Thai accounting standards require tax to be shown separately as an item in financial reporting on the primary statements. So if there is any it should appear
There's largely no capital gains tax.
For tax payers with a rate of more than 10% then they can simply elect the flat rate of 10%. so thats the max. This is anway WHT related to income not capital.
Foreign juristic investors will pay 0% if individuals but 15% if juristic persons for CGT like a fund.They also have the 10% on WHT on divs.
|
|
AyG
Crazy Mango Extraordinaire
Posts: 5,871
Likes: 4,555
|
Post by AyG on Aug 2, 2015 19:31:47 GMT 7
A couple of key points on what you say AYG When you say the company itself will pay corporate tax which wont appear. Thai accounting standards require tax to be shown separately as an item in financial reporting on the primary statements. So if there is any it should appear There's largely no capital gains tax. For tax payers with a rate of more than 10% then they can simply elect the flat rate of 10%. so thats the max. This is anway WHT related to income not capital. Foreign juristic investors will pay 0% if individuals but 15% if juristic persons for CGT like a fund.They also have the 10% on WHT on divs. I'm probably a bit out of my depth here, but for Thai funds, surely the fund manager (which will pay corporation tax) is a separate entity from the fund. I'm presuming that each fund isn't a separate juristic entity. My thesis is that one of the reasons that fund management charges here are higher than, say, in the UK, is because they are "hiding" the company's corporation tax. Please correct me if I'm wrong. For CGT there are a lot of countries (50 or so from memory) where foreign juristic entities are exempt from Thai CGT. The UK is one of them. |
|
|
|
Post by Fletchsmile on Aug 2, 2015 19:45:49 GMT 7
A couple of key points on what you say AYG When you say the company itself will pay corporate tax which wont appear. Thai accounting standards require tax to be shown separately as an item in financial reporting on the primary statements. So if there is any it should appear There's largely no capital gains tax. For tax payers with a rate of more than 10% then they can simply elect the flat rate of 10%. so thats the max. This is anway WHT related to income not capital. Foreign juristic investors will pay 0% if individuals but 15% if juristic persons for CGT like a fund.They also have the 10% on WHT on divs. I'm probably a bit out of my depth here, but for Thai funds, surely the fund manager (which will pay corporation tax) is a separate entity from the fund. I'm presuming that each fund isn't a separate juristic entity. My thesis is that one of the reasons that fund management charges here are higher than, say, in the UK, is because they are "hiding" the company's corporation tax. Please correct me if I'm wrong. For CGT there are a lot of countries (50 or so from memory) where foreign juristic entities are exempt from Thai CGT. The UK is one of them. Each fund is a separate (juristic) entity and when issued they all have different prospectuses and different (equivalent of) memo and articles as to what they can do. They also each file separate financial statements, tax and other returns. eg Aberdeen Growth different entity from Aberdeen Global Emerging Markets. The asset management company, Aberdeen, is a separate company. It will charge the funds a management fee to the individual funds. This management fee is a deductible expense (main one BTW) in a funds primary income statement. |
|
