Recent changes to the Thai Revenue Code (TRC) will result in mutual funds being subject to income tax at 15% on their gross income from 20 August 2019 (i.e. 90 days from the date of publication of these changes in the Royal Gazette).The TRC Amendment Act No. 52 (Amendment Act), published in the Royal Gazette on 22 May 2019, introduces important amendments to the definition of “company or juristic partnership” as established under Section 39 of the TRC. The definition of “company or juristic partnership” have been extended to include mutual funds established under Thai laws or under foreign laws. As a consequence of this particular amendment, a mutual fund will start being subject to income tax in Thailand. According to the Amendment Act, mutual funds will be subject to income tax at 15% on gross income (i.e. before deduction of any expenses). Gross income shall include only income as established under Section 40 (4) (a) of the TRC, such as interest income and discounts derived by the mutual funds.
The income tax can be collected via withholding tax mechanism applicable on the payment of such income by the issuer of respective debt instruments, resulting in issuers of debt instruments (which previously had no withholding tax obligations on payments made to mutual funds), being required to deduct 15% withholding tax on such payments (similarly to their withholding tax obligations already applicable on payments to other investors). However, it is worth noting that any tax withheld can be credited against the mutual fund’s income tax payable and that it should not apply to income arising from deposits, bills or debt instruments held before the entry in force of the Amendment Act (i.e. before 20 August 2019).
In light of the above, our understanding is that this amendment intends to reduce existing tax discrepancies in the form of additional tax burdens currently imposed on direct investment in debt instruments when compared to the investment in debt instruments via mutual funds.
In addition to the above, we note that the Amendment Act has also extended the definition of income under Section 40 (4) (g) of the TRC to include income from sellback of investment units to mutual funds specifically valued in money exceeding the amount invested.
As a result, gains derived from the disposal of investment units by foreign corporate investors not carrying on business in Thailand should equally be subject to 15% withholding tax under Section 70 of the TRC. Importantly, the Thai Revenue Department has clarified that a provident fund shall be understood as a fund that is set up in accordance with a specific law and it is not a mutual fund. Therefore, a provident fund should not be subject to income tax as prescribed under the Amendment Act for mutual funds.
Finally, please note that secondary legislation is expected to be issued exempting income tax for the Retirement Mutual Funds (RMFs), but not for the Long-Term Equity Funds (LTFs).