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Long-Term Equity Fund (LTF) |
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As you know, all assessable income equal to an amount paid
to purchase the investment units in a Retirement Mutual
Fund (RMF) qualifies for the tax breaks, on conditions that
the units can be redeemed when the five-year period is over
and unit-holders reach age 55. An individual investor can
now enjoy increased income tax deductions, in which such
other allowances as contributions paid to a provident fund,
a government pension fund or even investments in the RMF
are excluded. In other words, investments in the Long-Term
Equity Fund (LTF) are entitled to income-tax deduction for
investors up to limit of Baht300,000 in any particular tax
year. All the conditions qualifying for the tax breaks from
the LTF investment have also lightened up. Simply just hold
the investment units for at least five consecutive years
(If investors put money in the LTF
by the end of the first year, the units can be sold back
to the LTF in the fifth year of holding. That means the
real holding period is just three years plus a few more
days). Whether investors will put additional money
in every year is also not an issue to make investors lose
their tax exemption rights.
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Type of LTF |
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The Long-Term Equity Fund (LTF) are a family
of equity funds (which invest heavily in listed companies
in the Stock Exchange of Thailand) that have an investment
policy to put at least 65 percent of the fund's net asset
value (NAV) into stocks. There are two types of the LTF: LTF
with and without dividend payout policy. Each type of fund
has different characteristics. Simply put, LTF with dividend
policy enable fund-holders to receive a consistent stream
of income throughout the holding period (subject to fund performance),
but they are liable to pay a 10 per cent withholding tax on
dividends. On the other hand, LTF without dividend payment
policy, despite lack of consistent income stream from dividends,
offer investors the opportunity to reap the windfall of higher
capital gains, because investment return from this type of
fund will be re-invested to generate even higher returns (also,
subject to fund performance).
What are the key differences between a RMF and a LTF in terms
of income tax deduction?
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| Description |
LTF |
RMF |
| 1. Investment policy |
LTF invest only in equity funds (stock). |
Fund managers can put your money into equity funds,
debt instruments, mixed funds, flexible-portfolio mixed
funds and others, depending on each fund's policy. |
| 2. Yearly minimum investment |
Not required (but subject to requirements imposed by
the individual investment companies) |
At least 3 per cent of annual taxable income, but not
less than Baht5,000 per annum |
| 3. Maximum taxable income to be invested to qualify
for tax savings |
Up to 15% of annual taxable income with a maximum of
Baht300,000 (excluding amount invested in the RMF) |
Up to 15% of annual taxable income with a maximum of
Baht300,000, including contributions paid to provident
fund and government pension fund |
| 4. Subsequence purchase of investment units |
Not required to put money in every year. |
Purchase could be suspended every other year, except
in the case of no assessable income in that tax year,. |
| 5. Holding period to qualify for tax exemption |
Investors who plan to park money in LTF must keep their
investment in the funds for at least five years each time
they purchase, except in the case of incapacity or death;
otherwise they are subject to a severe penalty and tax
payback. |
RMF holders will not entitled to tax savings until they
reach age 55, and keep their investments in the fund for
at least five years to qualify for tax savings via a RMF.
If investors hold their investments for five years, but
the units are redeemed before they reach age 55, only
capital gains made from selling the units back to the
RMF are tax exempt. |
| 6. Maturity |
Not specified, but investors can enjoy tax incentives
during the first ten years after the establishment of
the fund. |
Not specified |
| 7. Dateline for establishing and registering a pool
of assets as a mutual fund |
Before June 2007 |
Not specified |
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HOW DO LTF HELP YOU LOWER YOUR TAX BILLS?
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Designed to help promote long-term savings,
investors can also claim a reduction in personal income tax
from investment in the LTF. This section will then discuss
about how to invest in a LTF to take advantage of income-tax
rebates at a maximum tax-deductible amount.
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Example
Mr. A is an employee of a private company. He earns a monthly
salary of Baht25,000 and contributes five per cent of his monthly
salary to the employees provident fund. He also earns a bonus
of Baht200,000 at the end of the year.
Based on the above information, the calculation of personal
income tax that A has to pay is as follows:
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Baht |
| Annual income from salary and bonus |
500,000 |
| Less Tax allowance for personal
expenses: standard deduction of 40% with a maximum of
Baht60,000 against income from employment |
(60,000) |
| Personal allowances for the taxpayers |
(30,000) |
| Allowances on contributions paid to a provident fund
(300,000*0.05) |
(15,000) |
| Total assessable income less deductions and allowances |
(105,000) |
| Taxable income |
395,000 |
Net
income is taxed at the following rates in each taxable
income bracket: |
| Taxable income |
Tax rate Tax amount |
| 100,000 zero income tax |
Baht 0 |
| 295,000 10% income tax |
Baht 29,500 |
| Total 395,000 Total tax |
Baht 29,500 |
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Investment in the RMF, which is eligible for
personal income tax deductions, enables Mr. A to trim his tax
bills of Baht29,500. If Mr. A takes advantage of two tax-saving
vehicles by putting money in both the RMF and the LTF, he then
can claim more reduction in personal income tax. Altogether,
both funds can save Mr. A up to Baht15,000. Details are as follows:
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RMF |
Both RMF & LTF |
| Taxable income |
395,000 |
395,000 |
| Tax allowance on investments in each option |
(75,000) |
(150,000) |
| Final taxable income |
320,000 |
245,000 |
| Personal income tax (new)(Mr. A originally pays Baht29,500
in personal income tax) |
22,000 |
14,500 |
| Tax savings |
7,500 |
15,000 |
| Percentage of tax savings |
25.42% |
50.85% |
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Last updated: 4th May 2005
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What is Investment Unit (IU) ?