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Trusts Transactions: Tax Exempt in Capital Market
In general, the concept of Trusts is not acceptable in the Thai legal system because Thailand uses the civil legal system which makes it different from other countries that use the common law system. However, trusts for transactions in the capital market were launched in Thailand in 2007 to increase the range of instruments available for trading on the stock market. Previously, there were debt, equity and derivative instruments in the stock exchange including common share, warrant, debenture, mutual fund and property fund. Real Estate Investment Trusts 'REITs' were not allowed to incorporate in Thailand due to the legal obstacles until 2007 when the property fund was introduced in the Thai stock market. Taxand Thailand analyses the introduction of tax exemption on Trusts in the capital market which is leading to the popularity of REITs among the real estate sectors in Thailand.
Legal Form of Trusts in the Capital Market
A trust is a form of legal relationship in terms of property between a trust incorporator, trustee and beneficiary. A trust in the capital market is not a legal entity and is different from mutual and property funds which are juristic under securities law.
Tax Exemption on Trusts
Although the Trusts law was enacted in 2007, no progress in incorporation has been made due to tax obstacles. In early 2012, the Thai government encouraged investors and markets to set up Trusts in the capital market by using tax incentives.
Trust incorporators and trustees will be exempt from corporate income tax, value added tax (VAT), specific business tax and stamp duty for the below transactions:
- Trust incorporator transfers property to the trustee to manage for the benefit of the beneficiary
- Trustee retransfers the property to the trust incorporator
When a trustee distributes the dividend to the beneficiary, the beneficiary has the option to have tax deducted by the trustee at a rate of 10% as final tax. In case the trustee derives dividend in the duration of property management and distributes this dividend to the trust incorporator, the incorporator may be exempt from corporate income tax on the dividend by meeting a set criteria.
It is foreseeable that tax incentives for Trusts in the capital market will encourage players from both local and international markets to be more involved in this transaction. In addition, the expansion of the financial instrument will increase the market capitalisation of the Thai stock market help it consolidate with the stock market in the region.