Taxes and the Magical 4%

[Owen` 2]

US holiday today and I'm doing chores and numbers.

 

I'll try to be a bit generic here so the UK folks can get some benefit from this, but they will have to do some translating.

 

We all probably know at this point that the non pension approach to retirement is accumulating a nest egg and not withdrawing more than 4% in year 1 from it. For a 50/50 stocks and fixed income mix, with an inflation boost each year, this will probably (95% historically) survive 30 yrs.

 

A question often arises as to whether or not taxes must be part of the 4%. The answer is yes, but the news is good and many are getting this wrong.

 

If you have a nest egg of $575K USD and you want to live a lifestyle in Pattaya equal to $23,000 USD (about 71,000 baht/mo), that is 4% and you might think all is well with the world. Well, you forgot taxes.

 

That's the bad news. The good news is that it's not as bad as you think.

 

Most who are doing this calculation are saying . . . suppose I made 5% on my nest egg last year. That is $28,750. Taxes on that will be about $6500 (differs for everyone, just pulling that number out of the air as reasonable) so you might think you're really extracting $23,000 + $6500 in year 1 and that's $29500 -- and that's 5.1% of the nestegg and you could be in trouble.

 

No. It's not that bad. The reason is this. That 575K nestegg is likely a mixture of different things. Some part of it will be IRA/401K (I think this is ISA for Brits? Something tax protected?). Some part of it will be stocks that you do not sell (selling is the taxable event) and some of the income will be dividends (which are taxed for long term holdings at no higher than 15%). Only the portion positioned in some investment vehicle whose proceeds are unadjusted for taxes will be hit at maximum tax liability and because you have a brain, you will optimize that.

 

Here's an example. Let's say $100K of the $575K is in an IRA. Now, you can't spend that, but it does grow and you won't withdraw it til you're . . . at least 60 yrs old. But it still grows at the 5% number we're using. This leaves 475K in the rest of the nestegg. Let's say that in the 50/50 mix we wisely put all of the IRA into fixed income bonds (which would be maximally taxed if not in the IRA) and so then we only need to have $187.5K in (heavily taxed) bonds outside the IRA to achieve 50/50. $187.5K at 5% is 9.3K in taxable income -- and your standard deduction and 1 personal exemption should erase that. (sorry, UK guys, that is US centric, you probably have a low end equivalent for the first 10K of income).

 

So understand what just happened. Fully 1/2 of your nest egg's income is configured to be tax free or deferred.

 

The 50/50 mix will put $287.5K in stocks, and let's say you have it all in an S&P500 index fund. These are yielding 1.5% dividends right now with the rest of the return in capital gains. Well, as you may know right now long term capital gains under certain income thresholds have a tax of zero. Above that threshold it's only 5%, then 10% and then 15%. Chances are you'll be under the 0% threshold for just that portion of your nestegg.

 

So the point here is -- you don't get taxed on everything the nest egg generates if you position it properly. You are only taxed on what you withdraw. Also, if you have a big booming year in the stock market -- you don't sell (this is not about market timing). If you don't sell, you have no tax liability other than that 1.5% dividend yield (and you may know that long term holdings have a maximum dividend tax of 15%). You only sell what you need to sell to pay for living expenses and that's independent of how big a rise the market did.

 

On the downside, you behave differently. If the market drops You Do Sell. I know, this looks like selling at the bottom, but it's not. You sell, and you immediately buy a different index. Maybe from S&P500 to Wilshire 5000. Both will reflect the market, but they are not the same thing. You sell at the bottom but that same day you buy at the bottom. You sell to establish the tax loss for the future. That tax loss can erase tax liability for withdraws you make in the future for living expenses.

 

After a few years of this configuration, chances are you will pay few or no taxes . . . pretty much forever (or until tax law changes attack you).

 

Hope this makes sense. In general I think a typical guy configured optimally is looking at maybe $500 of taxes for $23K of withdrawl. This is scarcely a blip on the 4% rule.

Edited October 9, 2006 by Owen`

[som nam na 0]

Owen, its an intersesting and informative post, but what is the position with regard to Thai income tax when the guy retires to Thailand?

 

There is a website with info http://www.rd.go.th/publish/6045.0.html on Thai income tax and of course the easy answer is to ignore the fact that income tax could be payable in Thailand, but it would be interesting to know the true position.

 

I say this because I recently moved some USD funds to HSBC in Bangkok (in a non resident account) and now find I am paying 15% withholding tax on the interest.

Edited October 10, 2006 by som nam na

[Owen` 2]

I say this because I recently moved some USD funds to HSBC in Bangkok (in a non resident account) and now find I am paying 15% withholding tax on the interest.

 

I know nothing of this.

 

This will need some study, but in the link you provided I see the following:

 

1) 30,000 baht personal exemption for a single person (that's $810)

 

2) Section 3.1 says zero taxes from 0-100,000 baht income. (that's up to $2702)

 

3) " Interest income may, at the taxpayer's selection, be excluded from the computation of PIT provided that a tax of 15 per cent is withheld at source."

 

The retirement visa I think requires $25ishK on site. At 4% (don't know what local yields are) that would be $1,000/yr interest. This looks to be erased by items 1 and 2.

 

I am certainly not expert at this but it looks to me like you should not be opting for the 15% withholding. You should opt instead to file a tax form that asserts the exemption and notes that your Thai interest income is under $2702 in that account. I think that will mean your tax is zero. haha . . . it may prove that it costs more to pay someone to do your Thai tax return than to just eat the 15% withholding.

 

Section 2.1 doesn't mention pension income or income from holdings outside Thailand. This document appears to say you should have zero Thai tax, but I have no idea, really. Maybe the Expats club gets into this.

[Hawkster 2]

Owen,

 

The tax consequences are something I am also concerned with, with respect to how much investment income I can shelter.

 

I am glad to see that a large portion of yearly income could be potentially sheltered, assuming you have relatively low levels of withdrawals from the investments in a year. This means a reasonably conservative spending lifestyle in LOS.

 

Being from the States, I have certain concerns that a combination of political conditions (Democrats coming into power and taking money from those who have saved) and many people retiring so that the government must find ways to finance retirement for the general populace and will result in high taxes on any retirement income investments may generate over the next 30 years. I see sensational, scary articles about how the future will change will the upcoming baby boom generation retiring - that generation must be taken care of and the people having the money to support that generation will ultimately have to pay somehow. Little Social Security, little Medicaid will be available for our retirement or else retirement funds will be handed out on need only basis - like College financial aid. Accordingly, I am never sure you can have too much savings for retirement/moving to Thailand.

 

A bigger concern, though, is waiting in the U.S. while accumulating more money and depleting the time I have available on this earth. I have an O.K. time in the U.S. but have a fantastic time whenever visiting Thailand. Early retirement would allow to do the things I would love to do, possible teach (English, engineering, law), read novels, newspapers, the articles on the internet, golf, talk with fellow BM's and watch sports on TV/Internet. Also, I would love to sitesee and just relax every day as opposed to the daily grind of my current job, which has me locked up with golden handcuffs - pay and benefits.

 

My theory on life is that he/she who dies with the most "fun points" wins. While I am rapidly accumulating money as I age, I am not generating "fun points" very well. I guess "fun points" would equate to quality of life points. I am looking to move to LOS as a way a rapidly increasing my quality of life points as far as doing things I enjoy are concerned while forfeiting accumulating more money.

 

Moving to LOS is a matter of weighing financial security versus quality of life. I can either work on increasing my quality of life here, and accumulate more money, or else, pull the trigger and move to LOS and try to live a lot less excessive lifestyle than I do now. Of course, the option of returning to the U.S. and working again is always available.

 

I am now 48 years old, not old, not young. However, I experience what I consider now as the "troll syndrome". While in America I may be considered an old troll to very attractive young women, when I make that magical transformation via a plane ride to LOS, I feel I am no longer an old troll. Women in Thailand do not seem to be so concerned about age, but rather just want someone who can take care of them/family. (I am sure looking like Brad Pitt would not hurt). Hanging out with women 20 years younger than myself seems natural in Thailand while here it seems to be considered as very age inappropriate - you would be dating the daughter (20-30) of someone who popular society says you really should be dating here, a 40-50 divorcee - you would be a dirty old man here.

 

I am highly educated having spent far too much time in college. However, I find I enjoy much more spending time with relatively uneducated young Thai women (20-35) than I do with the highly educated battleaxes here in the U.S. of my own age 40-50 - the typical women your friends would set you up with on a blind date. Blind dates are always such a disappointing, terrifying experience. While I love good conversations about world events, finances, politics, and culture, I would rather spend time time with a young Thai women who is not as educated or worldly but is simple and sweet - other than taking care of family, not many other things seem to be that important, including the age of the falang. The old battleaxes here gripe about everything.

 

So much for my ramblings. I guess many of us will just have to decide when we have enough financial security to justify pulling the plug and doing what we thing we really would rather do. Getting back to your topic, the tax implications do make an important impact on those decisions.

 

Good luck to everyone who makes the big move to LOS. As Owen professes, make sure you have done your financial homework so that will have great life in LOS.

[wacmedia 277]

However, I find I enjoy much more spending time with relatively uneducated young Thai women (20-35) than I do with the highly educated battleaxes here in the U.S. of my own age 40-50 - the typical women your friends would set you up with on a blind date

 

Hi,

 

I'm sure you are not the only one this happens to. There is no going back.

[Owen` 2]

I am glad to see that a large portion of yearly income could be potentially sheltered, assuming you have relatively low levels of withdrawals from the investments in a year. This means a reasonably conservative spending lifestyle in LOS.

 

Ordering thoughts. A good thing.

 

1) How much is enough? Historically, 25X expected spending (inverted 4%) would be enough for 30 yrs if you expect zero pension at age 62 or 65 or whatever. If you DO expect a pension that is inflation adjusted, the historical number becomes about 4.5% or savings of 22X your expected spending is required. If you want to spend 80,000 baht a month averaged over a year -- that rule would say you need to have $570ishK if you expect Social Security. This rule would achieve 95% confidence historically -- meaning 95% of 30 yr periods did not see that money run out. If you are comfortable at 85%, then you need less than $570K.

 

2) Uncertainty about the future of US tax law. It ain't just the US. But as for there being a skew of what happens if Democrats vs GOP are in power, I don't think it affects mathematics. Social Security being poorly funded has to be dealt with. The workers who will be funding pensions of the future are going to be minorities. The retirees will be white. I do not envision this being tolerated easily when increases in payroll taxes are requested to fund SS. I anticipate pension cuts -- but I think there is good news to be found in this. Folks like us that would like to retire early . . . will not have made that last 10 yrs of contributions to SS. That means our pension payout won't be large. And I think the cuts that will be made will be at the top end. So if you retire early, I suspect you won't be hit very hard at all. The average SS recipient gets 12K/yr. The top end is 20+K. It is they who will be cut. Not early retirees getting 10K.

 

3) Means testing. It's almost always done via income. Not assets. As shown above the configuration can be one of not having much reportable income at all. There is an advantage in this. In fact, this is the key contrast of retiring on a nestegg vs pure pension income. The pension has the potential advantage of being inflation adjusted. But it is also almost entirely taxable income. The nestegg endures risk from the stock market and varying interest rates, but it can be orchestrated to generate very small amounts of taxable, reportable income.

 

4) The absolutely inevitable truth is retirees in the US are not going to grow in number at the same rate as the number of people at retirement age. A lot of folks in their 60's are not going to have pensions beyond SS and simply won't be able to stop working. At least for Americans wanting Pattaya, they will soon become more nestegg retirees than pension retirees -- because pensions are going away and getting cut.

Edited October 15, 2006 by Owen`

[bob2005 0]

British who retire to Thailand and live off interest on capital don't need to pay tax. UK tax is not due on interest earned offshore, eg Jersey or Isle of Man, and Thai tax is not due on interest brought into thailand if it was earned more than two years ago. So you put the interest in a different account and transfer from the capital's account. After two years the interest can be put into the capital account.

[av8r 0]

Very informative and interesting as usual Owen.

 

Any ideas of the inflation rates in Thailand, and does it make much difference when planning retirement?

[Owen` 2]

British who retire to Thailand and live off interest on capital don't need to pay tax. UK tax is not due on interest earned offshore, eg Jersey or Isle of Man, and Thai tax is not due on interest brought into thailand if it was earned more than two years ago. So you put the interest in a different account and transfer from the capital's account. After two years the interest can be put into the capital account.

 

I like to have these comments have some value to the UK cousins too. This tidbit from Bob . . . I guess I was vaguely aware the Brits have a mechanism available to them to collect "bank interest" from some source that is not taxable and Bob is making it more clear. Good! That's about 1/3 of the problem and for the US it is the hardest 1/3. It looks easy for the Brits. The other 2/3 is your equity or shares position. The US has some maneuvers for minimizing taxes from that segment of nestegg. The UK guys may want to step up with something on this.

 

Any ideas of the inflation rates in Thailand, and does it make much difference when planning retirement?

 

It's a solid and important issue. Your dollar (or pounds) cost of living in Pattaya will experience change from 3 sources:

 

1) Your own discretion.

 

2) Currency conversion changes

 

3) Thai inflation

 

The third item kicks in seriously when it varies a great deal from your home country inflation. Pension guys get their annual "payraises" based on what their pension indexes to at home. It if is higher than Thai inflation in some year, they are going to be doing A LOT of soi 6 STs in comparison to the previous year. If their home inflation rate is lower than Thai inflation, then they are taking a pay cut and will have less fun that year.

 

For nestegg guys, the 4% rule (for the US) presumes you give yourself approximately a 3% "payraise" each year. If item 2 is constant and Thai inflation is 3%/yr, then you are spot on target and need do nothing. Do the drinking and BFing you budgeted for. You are entitled to it and can afford it. If Thai inflation goes crazy and explodes well above 3%, don't panic. Take a look at what that means to you. If the source of the inflation is that they are boosting taxes on car ownership and you don't own a car, then you are immune. If it's in healthcare insurance then you are not immune and you'll have to either throttle down other spending or endure a higher risk of running out of money.

 

One last tidbit of value. There are studies out saying that people in their 70's spend less than in previous years and therefore the equations and models that mandate a 3% payraise per year are way too demanding and you can really extract more money each year from nestegg than those models say (which is babble for "you can take out more than 4% safely"). Well, no. I claim those studies do not apply to the typical BM. Those 70+ yr old folks who spent less when they got older spent less not because of health or being old and frail. I claim that they spent less because they didn't manage their money well and didn't have it to spend. Simply that. They were running out of money and stretched it.

 

That's not preferable to planning well and addressing the situation sooner with part time work. Don't wind up 70+ yrs old in a trailer park with no money to even go to a movie.

[som nam na 0]

British who retire to Thailand and live off interest on capital don't need to pay tax. UK tax is not due on interest earned offshore, eg Jersey or Isle of Man, and Thai tax is not due on interest brought into thailand if it was earned more than two years ago. So you put the interest in a different account and transfer from the capital's account. After two years the interest can be put into the capital account.

 

Bob2005 you are correct when you say the interest would be free from UK tax (provided you become non-resident or ordinarily non-resident from the UK) but if the interest is brought into Thailand it could be taxable as income from a foreign source. If you are resident in Thailand there is also an obligation to file a tax return. http://www.rd.go.th/publish/6045.0.html

 

Personal Income Tax (PIT) is a direct tax levied on income of a person. A person means an individual, an ordinary partnership, a non-juristic body of person, a deceased person and an undivided estate. In general, a person liable to PIT has to compute his tax liability, file tax return and pay tax, if any, accordingly on a calendar year basis.

 

Taxpayers are classified into "resident" and "non-resident". "Resident" means any person residing in Thailand for a period or periods aggregating more than 180 days in any tax (calendar) year. A resident of Thailand is liable to pay tax on income from sources in Thailand on a cash basis, regardless where the money is paid, as well as on the portion of income from foreign sources that is brought into Thailand. A non-resident is, however, subject to tax only on income from sources in Thailand.

 

This is a fairly common principle in tax law around the world, and is meant to stop people getting away with avoiding paying tax on income be it salary, interest or otherwise. The big question for me is that even if the Thais are not applying the obligation to submit tax returns for farang retireees will the Thais do so at some point in the future and therefore is it something we should be fctoring in our retirement calculations?

Edited October 20, 2006 by som nam na

[JohnnyK 28]

Don't bring the interest into Thailand if you don't have to.

Get an offshore interest-paying account that pays monthly or quarterly interest into a second offshore chequing account that is accessible with their credit/debit card.

Stick 800K baht (US$20K or 12K sterling) into a Thai bank.

W/D funds as needed from the offshore bank via your debit card avoiding your 800K as much as you can.

At the beginning of the next year top up to 800K again.

I did this for years while living in France and its dead easy.

[Owen` 2]

Get an offshore interest-paying account that pays monthly or quarterly interest into a second offshore chequing account that is accessible with their credit/debit card.

Stick 800K baht (US$20K or 12K sterling) into a Thai bank.

W/D funds as needed from the offshore bank via your debit card avoiding your 800K as much as you can.

At the beginning of the next year top up to 800K again.

 

This is a fairly common principle in tax law around the world, and is meant to stop people getting away with avoiding paying tax on income be it salary, interest or otherwise. The big question for me is that even if the Thais are not applying the obligation to submit tax returns for farang retireees will the Thais do so at some point in the future and therefore is it something we should be fctoring in our retirement calculations?

 

 

Interesting maneuver, and it's not altogether UK centric.

 

I think what is being suggested here is the 800K is moved to Thailand to satisfy retirement visa requirements. Its Thai bank account interest is taxable, but if I read Thai law correctly, the amount of that interest will be under the threshold for paying taxes.

 

The issue is then bringing more money into Thailand to live on -- without touching the 800K. The use of CCs or Debit cards to do this is the suggested mechanism and this would appear to be invisible to the Thai tax authorities.

 

Well, I don't know, but it looks dangerous to me. Surely the Thai tax authorities could -- as the very first thing they would look at -- notice there have been no significant withdrawls from the 800K account. Obviously they then must ask . . . what are you living on, and that's when they trigger the investigation because they will think you are working illegally. The real answer to that question would be . . . savings from the account the CC and Debit are tied to -- which is non interest bearing. But . . . I don't like it. They can demand records from that account and the influx from the underlying interest paying account would be revealed.

 

I think maybe it is better camouflaged by drawing down the 800K and NOT avoiding it as much as you can before topping it off next year. This would look all right and proper and not trigger an investigation. You can always claim the top off is from savings elsewhere and not interest on savings. Hmmm, meaning, and I think this does work . . . the money you are bringing in is principal out of other accounts, not interest. I suspect that can hold up to scrutiny for 10+ years.

[Gary 4,119]

If you make money in Thailand you WILL pay taxes in Thailand. It's really that simple. I am retired here but would never consider investing in Thailand. I cautioned those setting up bogus companies to own property that it WAS against the law and that someday the whole scheme could turn to shit. Even now things are still pretty good here in the Kingdom, BUT, if something were to happen to the King the little tin pot wannabe dictators are all lined up like vultures. Thailand is my home but things could turn to shit VERY quickly and I will certainly keep the bulk of my money in the USA. I also plan to start the process of getting my Thai wife a visa so that we can move out in a hurry if it ever comes to that. Am I an alarmist? I hope not but it is always good to have an escape route.

[Owen` 2]

Thailand is my home but things could turn to shit VERY quickly and I will certainly keep the bulk of my money in the USA. I also plan to start the process of getting my Thai wife a visa so that we can move out in a hurry if it ever comes to that. Am I an alarmist? I hope not but it is always good to have an escape route.

 

Gary, I too never understood this tendency of guys to move somewhere and take their money with them until a few years ago when it all became clear.

 

It's about lawyers. Guys get sued. They have to get their money out of the country or it will be confiscated. If it's something relatively minor, the creditor will not bother with trying to freeze passport renewal. So someone with a few hundred thousand dollars in US banks may need to get out and get out fast -- and once out the money needs to get out too before the lawyers arrive.

 

If you can get out of the country without being sued, then you're not there anymore to be the target of some manufactured slight. You can leave your money home in that case. But the guys who DO move money out sometimes, maybe often, have good reason.

[tko 219]

Just to clarify. If your savings interest, dividends and your company pension are paid in the US and you file US tax returns on the income, non of that is taxable in Thailand - correct?

[Owen` 2]

Just to clarify. If your savings interest, dividends and your company pension are paid in the US and you file US tax returns on the income, non of that is taxable in Thailand - correct?

 

No shortcuts, guy. I don't think any of us are Thai tax lawyers.

Here's the link again from above. It's in English and it seems to make sense,

but interpret it as you will.

 

http://www.rd.go.th/publish/6045.0.html

[som nam na 0]

Bob2005 you are correct when you say the interest would be free from UK tax (provided you become non-resident or ordinarily non-resident from the UK) but if the interest is brought into Thailand it could be taxable as income from a foreign source. If you are resident in Thailand there is also an obligation to file a tax return. http://www.rd.go.th/publish/6045.0.html

 

Personal Income Tax (PIT) is a direct tax levied on income of a person. A person means an individual, an ordinary partnership, a non-juristic body of person, a deceased person and an undivided estate. In general, a person liable to PIT has to compute his tax liability, file tax return and pay tax, if any, accordingly on a calendar year basis.

 

Taxpayers are classified into "resident" and "non-resident". "Resident" means any person residing in Thailand for a period or periods aggregating more than 180 days in any tax (calendar) year. A resident of Thailand is liable to pay tax on income from sources in Thailand on a cash basis, regardless where the money is paid, as well as on the portion of income from foreign sources that is brought into Thailand. A non-resident is, however, subject to tax only on income from sources in Thailand.

 

This is a fairly common principle in tax law around the world, and is meant to stop people getting away with avoiding paying tax on income be it salary, interest or otherwise.

Been some good posts but no one has come forward to dispute the above. Some ideas to evade but not legally avoid paying Thai Tax. We will all probably take the risk but for those guys who stay in Thailand for more than 180 days per year and therefore classed as resident for tax purposes the risk is the Thai Authorites will apply the obligation to submit tax returns and to pay tax on money brought in to Thailand.

 

The Thai Authorities could also follow up to see tax is actually paid. Something similar just happened to a colleage with whom I am working with in Japan, the Japanese authorites would not renew his residence visa unless he could show he had settled his tax bill for the previous year.

 

Its not all bad news, because double taxation relief is applicable which means if there is a double taxation treaty in place between Thailand and your country (yes for Uk) then if you have already paid tax on the source of funds then you won't have to pay it again in Thailand http://www.rd.go.th/publish/1642.0.html

 

But when drawing up long term plans best to look at all the angles and as other BM's have said don't move any funds to Thailand that you cannot afford to lose.

Edited October 26, 2006 by som nam na

[Gary 4,119]

I have my pensions and dividends direct deposited into my US bank account. I wire transfer funds to my Thai bank as needed. I have NEVER paid any Thai taxes on those funds. I'm not 100 percent sure but I think if you have a substantial amount in a Thai bank and are collecting interest on that money, the Thai taxes will be deducted by the bank.

 

 

Just to clarify. If your savings interest, dividends and your company pension are paid in the US and you file US tax returns on the income, non of that is taxable in Thailand - correct?

[JohnnyK 28]

Interesting maneuver, and it's not altogether UK centric.

 

I think what is being suggested here is the 800K is moved to Thailand to satisfy retirement visa requirements. Its Thai bank account interest is taxable, but if I read Thai law correctly, the amount of that interest will be under the threshold for paying taxes.

 

The issue is then bringing more money into Thailand to live on -- without touching the 800K. The use of CCs or Debit cards to do this is the suggested mechanism and this would appear to be invisible to the Thai tax authorities.

 

Well, I don't know, but it looks dangerous to me. Surely the Thai tax authorities could -- as the very first thing they would look at -- notice there have been no significant withdrawls from the 800K account. Obviously they then must ask . . . what are you living on, and that's when they trigger the investigation because they will think you are working illegally. The real answer to that question would be . . . savings from the account the CC and Debit are tied to -- which is non interest bearing. But . . . I don't like it. They can demand records from that account and the influx from the underlying interest paying account would be revealed.

 

I think maybe it is better camouflaged by drawing down the 800K and NOT avoiding it as much as you can before topping it off next year. This would look all right and proper and not trigger an investigation. You can always claim the top off is from savings elsewhere and not interest on savings. Hmmm, meaning, and I think this does work . . . the money you are bringing in is principal out of other accounts, not interest. I suspect that can hold up to scrutiny for 10+ years.

 

Yes, probably the safer way to do it, let them be happy thinking you are living on the 800K. Let the money earn interest offshore and use it to top up the 800K. I expect they don't care where the 800K comes from. You could use the offshore funds for exceptional purchases via visa card or for when you travel abroad.

Its pretty tight if the principal is held in a good reputable tax haven and the interest is paid into a second chequing account (with debit card) also in a tax haven. If you choose your haven carefully the authorities will meet with a blank wall if they come asking questions, but it is highly unlikely they would even know where to start asking if you are reasonably careful.

[som nam na 0]

I'm not 100 percent sure but I think if you have a substantial amount in a Thai bank and are collecting interest on that money, the Thai taxes will be deducted by the bank.

Withholding tax is 15% on interest, http://www.rd.go.th/publish/6045.0.html there are some exemptions but they probably won't apply

 

Interest

 

Interest income may, at the taxpayer's selection, be excluded from the computation of Personal Income Tax provided that a tax of 15 per cent is withheld at source. However, the following forms of individual's interest income are exempt from 15 per cent withholding tax;

(1) interest on bonds or debentures issued by a government organization,

(2) interest on saving deposits in commercial banks if the aggregate amount of interest received is not more than 20,000 Baht during a taxable year,

(3) interest on loans paid by a finance company,

(4) interest received from any financial institutions organized by a specific law of Thailand for the purpose of lending money to promote agriculture, commerce or industry.

Edited October 26, 2006 by som nam na

[bob2005 0]

I'm a week late with this, sorry. This is from an accounting firm in Bangkok which I presume is top-notch because they were the firm asked to clarify the Thai income tax situation by one of the top and biggest accounting firms in London, Eversheds, which I was using. These were three years ago, don't know if Thai law has changed since. Second answer first as it puts the whole thing in a nutshell, ie bring capital in, not recent interest.

 

 

Please be advised that if Mr xxxxxx [me] merely remits the capital sum from his capital account into Thailand, he will have no Thai tax liability whatsoever.

 

 

First answer, which covers the detail:

 

 

Thank you for your instructions yesterday. In response to your queries, please be advised as follows:-

 

Under Thai tax law, a person will be subject to Thai personal income tax under two circumstances:

 

1. That person gains assessable income from:

 

(i) His post or office held or business carried out in Thailand; or

 

(ii) His business of his employer in Thailand; or

 

(iii) His property in Thailand.

 

This is regardless of an income is paid in or outside of Thailand; and

 

2. A person who is deemed a resident of Thailand (i.e., a person residing in Thailand for a period of 180 days or more in any one calendar year regardless of such 180 days are consecutive) and gains assessable

income in the preceding year from his business in other countries or from his property in other countries, and brings such income into Thailand.

 

Based on the fact given and the relevant laws:

 

1. If Mr. xxxxxx has no assets in Thailand other than the two bank accounts and he does not gain any income locally, he will not be required to pay personal income tax in Thailand. For your information, interest incurred from monies in bank accounts are normally subject to tax withheld by the bank and the owner of the account will not need to file a tax return on such interest.

 

2. Assuming that this year Mr. xxxxxx has been staying in Thailand more than 180 days, he will not be subject to pay personal income tax in Thailand provided that he does not bring income derived in the preceding year from other country into Thailand. As a matter of practice, however, it is unlikely for the Thai tax authority to conduct an investigation on individual persons who may bring income generated overseas into the country, particularly a foreigner.

 

In summary, if Mr. xxxxxx does not gain income in Thailand, and does not bring his income generated abroad in the preceding year into the country this year, and even though he is deemed a resident in Thailand, he will not be subject to pay personal income tax in Thailand.

 

I hope this is of assistance. Should you have any further queries, please feel free to let me know.

 

Kind regards,

 

Utain xxxxxxxxxxx

Senior Associate

[Owen` 2]

Excellent data, Bob, and thanks for being kind enough to provide it. It appears that all folks on retirement visas are not liable for Thai income tax on pension income or interest income brought into Thailand derived from a nestegg invested external to Thailand.

 

I am intrigued by talk of "the preceding year". It would be pretty easy, even in a Thai crackdown of some kind, to show that money brought into Thailand was from income earned external to Thailand perhaps 2 or 3 yrs ago.

 

But no matter. No point in muddying the waters. Your text is clear and is good news for the BMs on site in Thailand.

[bob2005 0]

It appears that all folks on retirement visas are not liable for Thai income tax on pension income or interest income brought into Thailand derived from a nestegg invested external to Thailand.

 

Please note the important bit at the bottom: "does not bring his income generated abroad in the preceding year into the country" - so the income must be older than last year (calender year I think).

 

Unfortunately pension income arising in the UK is taxed in the UK (but may escape Thai tax due to the Double Taxation treaty between Thailand and the UK). Another unfortunate thing is that British who are resident in Thailand do not receive inflation increases on their UK government pensions.

Edited November 2, 2006 by bob2005

[Owen` 2]

Please note the important bit at the bottom: "does not bring his income generated abroad in the preceding year into the country" - so the income must be older than last year (calender year I think).

 

Good emphasis. I can't see any problem mechanizing this. A cash, non-interest bearing account can be fed with the interest from some other account the previous year and then only sent to Thailand next year. Or you can simply declare that the money you are bringing in is purely principal and not interest.

 

I cannot see any way any Thai investigation could penetrate this. If they want to nail you, they will, regardless of truth or reality or documentation -- but if they are pretending to some semblance of legitimate adherence to their own law I do not think anyone can be touched by taxes on money brought in.

 

Unfortunately pension income arising in the UK is taxed in the UK (but may escape Thai tax due to the Double Taxation treaty between Thailand and the UK). Another unfortunate thing is that British who are resident in Thailand do not receive inflation increases on their UK government pensions.

 

Hmmm, being American I'm not up to speed on this, but it was my impression from comments by other BMs that the concern is their UK pensions are indexed to UK inflation -- which is lower than Thai inflation.

 

Therefore, they must be getting some sort of . . . in the US it is called a COLA (Cost Of Living Adjustment). Maybe they retain a UK address? No, if that was taking place then they would be taxed on interest.

 

Okay, I'll shut up and let UK guys talk about UK issues.

 

As a general heads up and focus of awareness -- this comment goes to the heart of the reality that will steadily unfold over the next 10 years. Guys retiring on pensions have different advantages and disadvantages than guys retiring on a nest egg.

 

Pensions in the US are getting very rare, and those that exist are being de-COLAed. Pensions are also subject to taxation to at least some extent, just as if they were salary income. Nestegg income can be positioned to get tax advantages.

 

It can also provide some other subtle advantages -- for example -- if you're on a pension and you want to buy a car you will likely make a down payment and then make monthly payments on the loan that paid the rest of the car. That means interest on that loan is a new cost in your monthly budget (beyond the monthly depreciation of the car). A nestegg guy would pay cash for the car and just divide depreciation by 12 to determine the monthly cost -- and has no interest expense in his budget.

 

Anyway, so it goes.

Edited November 2, 2006 by Owen`

[Eneukman 1]

I cannot see any way any Thai investigation could penetrate this. If they want to nail you, they will, regardless of truth or reality or documentation -- but if they are pretending to some semblance of legitimate adherence to their own law I do not think anyone can be touched by taxes on money brought in.

Hmmm, being American I'm not up to speed on this, but it was my impression from comments by other BMs that the concern is their UK pensions are indexed to UK inflation -- which is lower than Thai inflation.

 

Therefore, they must be getting some sort of . . . in the US it is called a COLA (Cost Of Living Adjustment). Maybe they retain a UK address? No, if that was taking place then they would be taxed on interest.

 

If you live in Thailand, your UK state pension will not be increased each year, which is a major annoyance for those affected by this rule.

 

I don't get my state pension for the best part of 14 years so it doesn't affect me at the moment. My works pension is increased in line with inflation. This year's increase was all of 2.3% or less than half the rate of inflation in Thailand. Fortunately, my works pension only makes up around a third of my total income.

 

Alan