As the clock ticks down on inheritance tax enforcement, the affluent are in a hurry to pass their taxable assets to their children, grandchildren, spouses and even parents to avoid large tax payments and keep their fortunes in the family.
In an unprecedented move, several major shareholders of listed companies have decided to transfer a portion of their holdings to their heirs starting this year.
For instance, Bangkok Dusit Medical Services group chief executive and president Prasert Prasarttong-Osoth transferred 100 million shares in the country's largest private hospital chain to his daughter, and RS chief executive Surachai Chetchotisak passed on 17 million shares in the entertainment company to his two sons.
Inheritance tax will take effect from February after the law was promulgated in the Royal Gazette on Aug 5.
Under the law, inheritors of a legacy exceeding 100 million baht from a will shall be taxed 10% for the amount exceeding 100 million baht, though the tax rate will be halved to 5% if beneficiaries are donors' direct ascendants and descendants.
If the person who created the will is still alive when a bequest worth over 20 million baht a year is made to heirs who have a direct blood relationship, recipients will be liable to a 5% tax for the amount exceeding 20 million. For inheritors who don't have a direct blood line to the donor, they are taxed a flat 5% for a legacy worth over 10 million baht a year.
Spouses are exempt from inheritance and gift taxes.
Taxable assets include real estate, securities such as Treasury bills, bonds, shares and debentures, as well as investment units, deposits, registered vehicles and financial assets to be described in royal decrees.
Suvarn Valaisathien, a tax planner and partner of International Legal Counselors Thailand, says the wealthy can employ legitimate tax planning practices to reduce the effect of inheritance tax on their heirs.
Setting up a holding company for the assets is one method. As assets under the holding company are not subject to the inheritance tax, donors who want to buy taxable assets can do so through holding firms.
Donors should appoint their heirs to the holding company's board or as executives, avoiding shareholders as a safeguard. These heirs would then receive a monthly salary, position allowances or other benefits from the holding company, preventing problems related to wealth redistribution.
As a general rule, the holding company should not invest in high-risk assets because its purpose is inheritance tax avoidance rather than investment returns, says Mr Suvarn.
Although a holding company can reduce the impact of an inheritance tax, there are two other points to consider. Any dividend payment is liable to a 10% withholding tax and additional asset transfers to a holding company are taxed.
Establishing a foundation is another tax-avoidance manoeuvre. A non-profit foundation offers more flexibility for donors in appointing managers compared with holding companies, and asset transfers via donation are tax-exempt.
However, any revenue generated from asset management under a foundation structure such as rental fees and dividends are still subject to a 10% tax.
Setting up trusts, donating to charity, or taking out whole life insurance policies can also be used to avoid inheritance tax. Buying whole life insurance policies provide a double windfall to the affluent and their heirs, as premiums are tax allowances for policyholders, while benefits from life insurance policies are tax-free.
Giving assets to a spouse and letting he or she bequeath the assets to heirs using a will also avoids the inheritance tax. For example, Mr A transfers 100 million baht worth of property to his wife Mrs B, leaving him only 150 million baht worth of assets. When Mr A and Mrs B die, they bequeath the property and all assets to their only son. In this case he is subject to only a 2.5-million-baht tax payment instead of 7.5 million because the total 250 million baht was passed down by two people instead of one.
Mr Suvarn says the key point is tax planning, as the rich should prudently study and prepare for the inheritance tax in order to avoid a large tax bill for their beneficiaries.
Taking advantage of the annual 20-million-baht gift tax exemption can prevent a large inheritance tax payment for children, he says. For beneficiaries without direct bloodlines, the maximum annual gift that can be made tax-free is 10 million baht per person.
Using Mr A as an example again, let's say he gives his only child 20 million baht a year for two years and another 10 million in the third year before passing away. That would leave Mr A 100 million baht, which he could bequeath to his direct heir free from the inheritance tax.
Orasri Thipayaboonthong, executive director at Siam Pan Group, says she has studied the new law, going to inheritance tax seminars and receiving advice from lawyers to prevent her heirs from paying large inheritance tax bills.
"A 10% inheritance tax is an acceptable level. However, I must scrutinise the new tax as much as possible to prepare for it, as bequesting my assets to my children is essential," she says.