Taxation of Mutual Funds

[Oxx]

For income-providing equity mutual funds in Thailand the tax situation seems pretty straightforward:  either a withholding tax of 10% or include the income in one's annual tax return, at the taxpayer's choice.

 

What's the situation with mutual funds that don't pay out income? Is tax paid internally within the fund? Or is there some other way of the taxman taking his cut?

[bouph12]

Not sure if it's changed since 2015, but the Capital Gains section on page 2 suggests that the profit from selling mutual fund units is the same as shares sold on the SET, i.e. no tax to pay.

 

 www.pwc.com/th/en/publications/assets/thai-tax-2015-booklet-en.pdf

 

 

[Oxx]

29 minutes ago, bouph12 said:

Not sure if it's changed since 2015, but the Capital Gains section on page 2 suggests that the profit from selling mutual fund units is the same as shares sold on the SET, i.e. no tax to pay.

 

I know.  It seems ridiculously inconsistent.  As far as I can see, buy a SET-50 income fund and you pay income tax; buy a SET-50 accumulation fund and you pay no tax.  This seems wrong and illogical to me, hence the original question.

 

If right, why would anyone buy a fund which distributes income or, for that matter, a fund manager issue such a fund?

[bouph12]

Yes, it seems inconsistent. Perhaps it's simply down to ease of tax collection.

 

The Income fund declares a known amount per unit to all investors at a fixed time, which they deduct the tax from for the tax department, effectively doing the job for the government.

Individual investors buying and selling units over the course of a year is, as with share dealing,  harder to keep track of.

 

I also think it's likely that the sort of people who can keep hundreds of millions of baht in accumulation funds (i.e. the ones not needing a regular income from their investment) might have some influence in the way these regulations are set up. No convoluted tax avoidance schemes to get involved in, so it's a lot easier to protect your wealth here than in the West.

 

I know of someone who sold a condo a few years back and put the money in an income fund. He treats any income as a little bonus that shows up in his account without any effort on his part ( he's an idle layabout). He claims the tax back anyway. 

[fletchsmile]

Yes it's inconsistent. The funds themselves are taxed no differently, just you as an investor. Capital gains generally free, dividends your choice of 10% or tax at your marginal rate.

 

So what's the point of dividend paying funds?

- They're easy to just sit an collect the divs so convenience. Some people prefer the convenience vs 10% WHT

- If your marginal rate of tax is 0% /covered by personal allowances then again you pay no tax.

So they just appeal to certain segments of the market who like dividends

 

Ball park if a div  yield is 3% that's 0.3% lost on WHT if you go the 10% route

 

To put in perspective though:

 

For someone with a wife, 2 kids, 2 parents over 60, they'll have around 150k in allowances. The first 150k is then zero tax. So that's say 300k of divs a year tax free. 25k a month is a lot for most Thais.

 

As is the approx THB 10mio of investments you'd need to generate that sort of income. Most Thais on average would be nowhere close, so it's no big deal

 

Obviously though if someone is working as well that number gets reached much sooner.

 

What about the wealthier Thais?

 

Well either they've so much money they don't care, or they're savvy enough to buy accumulation units :)

 

Then you also have the funds that cater specifically to wealthier accredited investors. Like Krungsri Global Income. It craftily has an auto-redemption function. Every month it will auto-switch some units capital gains free into a cash management fund to generate a set level of "income". So it pays no divs but by auto-redeeming each month the gains are capital gains not income. You in turn sell the cash units whenever you want to get your "income". This is a fudge if ever I saw one LOL and why more sophisticate countries have rules around this type of thing  

 

Basically the tax rules aren't that sophisticated so no surprises at the inconsistencies

 

Cheers

Fletch :)

 

[fletchsmile]

On 4/4/2017 at 6:27 PM, Oxx said:

 

I know.  It seems ridiculously inconsistent.  As far as I can see, buy a SET-50 income fund and you pay income tax; buy a SET-50 accumulation fund and you pay no tax.  This seems wrong and illogical to me, hence the original question.

 

Or the short answer. Yes T.I.T

[scoutman360]

My friend recently sold a large number of mutual fund shares from a very well-known Investment company here. When they didn't deduct any money for Thailand tax, he emailed them about it. Instead of an email reply, they called him and said there is no tax for capital gains on mutual funds, unless it is an RMF or LTF fund. Really? So, why the phone call instead of an email?

[Langsuan Man]

10 hours ago, scoutman360 said:

So, why the phone call instead of an email?

Thai businesses are very reluctant to commit anything to email,  a phone call is just your word against theirs 

 

Like in the US where they make the announcement that phone calls are monitored for your protection,  just try and get a copy of that recorded phone call in the event of a problem, the recordings are for their protection not yours  

[fletchsmile]

13 hours ago, scoutman360 said:

My friend recently sold a large number of mutual fund shares from a very well-known Investment company here. When they didn't deduct any money for Thailand tax, he emailed them about it. Instead of an email reply, they called him and said there is no tax for capital gains on mutual funds, unless it is an RMF or LTF fund. Really? So, why the phone call instead of an email?

Yes LTFs and RMFS can attract tax and penalties if you don't fulfill the terms and conditions, particularly around holding periods.

 

Quicker from them to call people, and also provides the opportunity for further questions. Rather than write a long email trying to cover and anticipate which may not answer everything anyway -  I much prefer that. 

Thai institutions can be notoriously poor at replying to emails, particularly in English, so I'd say your friend has come off very well 

 

The SET website sets out the basic rules around mutual funds/ unit trust taxation that Oxx was looking at, and confirms (in writing) what your friend was told about no tax on capital gains (for him). You can get a flavour of the possibilities though and why an email may not be easiest to reply as it depends on his status etc

 

https://www.set.or.th/en/regulations/tax/tax_p1.html