QROPS Thailand – Tax Planning for Expats in Thailand
Pension Planning for British Citizens Resident in Thailand. There has historically been a large British expat contingent, but a rising Thai Baht, an emerging middle class in Thailand and an influx of Russians and Germans has meant less Brits coming here on holiday. For wealthy Brits, Thailand can still be a very cheap place to live, especially if you live up North or live in Bangkok and live Thai-style.
<a href=”http://qrops.tv/wp-content/uploads/2014/11/thailand_home.png”><img class=”alignnone wp-image-145 size-medium” src=”http://qrops.tv/wp-content/uploads/2014/11/thailand_home-300×225.png” alt=”thailand_home” width=”300″ height=”225″ /></a>
For British expats moving to retire in Thailand, you can make your pension last longer with a transfer to a QROPS in Gibraltar. Why Gibraltar, not Malta or New Zealand? Well, Malta does not have a Double Taxation Agreement with Thailand meaning that your pension income would be taxed at up to 35% in Malta.
New Zealand have a zero rated tax regime, so could be a good destination if you just want to park your pension somewhere and intend to pass your entire pension pot on free from inheritance tax, but NZ has a much more restrictive investment policy and it would have to be managed by a discretionary fund manager in New Zealand.
<h2>Thai Baht Currency Fluctuations</h2>
Most developed currencies have lost ground to the Thai Baht over the last 10 years. In particular, GBP has fallen the most against the Thai Baht losing nearly 40% of its value over the last 10 years. The US Dollar has tended to track the Thai Baht more closely and as you can see in the chart below, outperformed during the crisis in 2008 and has been steadily rising against the Thai Baht since 2011.
<a href=”http://qrops.tv/wp-content/uploads/2014/11/THB-USD-exchange-rate-10-year-chart.png”><img class=”size-full wp-image-144″ src=”http://qrops.tv/wp-content/uploads/2014/11/THB-USD-exchange-rate-10-year-chart.png” alt=”THB-USD-exchange-rate-10-year-chart” width=”689″ height=”444″ /></a> THB-USD Exchange Rate – 10 Year Chart
65% of world trade takes place in US Dollars and Thailand hold a significant amount of US treasuries as well as conducting trade in US Dollars. Rubber, rice, textiles, technology, agricultural and fishery products are priced in US Dollars. During the first nine months of 2007, for example, the US dollar accounted for over 80% of all export receipts.
The US Dollar surged against the Baht during the Asian financial crisis in 1997 and is a good hedge to hold. You can also buy mutual funds and ETF’s which track the Thai market to reduce fluctuations if the Thai Baht rises against the Dollar. When the Federal Reserve start to raise interest rates which may be as soon as the summer of 2015, an <a href=”http://www.qrops.tv/performance”>actively managed US Dollar account</a> would offer you some protection from a weakened Thai Baht.
<h2>Moving your UK Pension to Gibraltar When Moving to Thailand</h2>
So, it is often preferable to move your pension to Gibraltar when moving to Thailand. Even Thais working in the UK and returning to Thailand can move their pensions to Gibraltar to get out of the UK tax bracket.
<b>Taxation of a Gibraltar QROPS for British Citizens Resident in Thailand</b>
<li>Only 2.5% income tax on your pension pot when you draw it. This is taxed in Gibraltar</li>
<li>No tax on the growth of your pension pot and no tax on death</li>
<li>Your investment universe is now almost unlimited</li>
<li>You get to transfer the entire pension pot to your loved ones tax-free upon death</li>
<li>If you move back to the UK later in life, you can mitigate the tax on your pension and may even be able to pay no tax on death depending on your circumstances</li>
<b>Taxation of a UK Pension for British Citizens Resident in Thailand</b>
<li>There is a Double Taxation Agreement (DTA) between the UK and Thailand, however it does not provide any relief from UK tax on pensions received from UK sources. Therefore, payment of a UK pension to a Thai resident remains liable to UK income tax and it may also be subject to tax
in Thailand with no foreign tax credit relief available, so the income could be taxed twice, although in practice this doesn’t happen.</li>
<li>Non-UK residents, i.e. Brits in Thailand would have to pay full UK tax on their pension whether their pension is paid into the UK or into a Thai bank account.</li>
<li>You would have to pay the highest marginal rate of tax on your UK pension. This can be up to forty five percent.</li>
<li>You would also pay a tax on death on any lump sum provided to your family at a flat rate of 45%</li>
<h2>Best Advice for Tax Planning for British Expats in Thailand</h2>
For non-Thai nationals resident in Thailand, foreign pension payments are only subject to Thai personal income tax if the individual remits the pension income into Thailand in the same tax (i.e. calendar) year as the income arises.
An individual is considered tax resident in Thailand if he/she lives in Thailand for more than 180 days or more in any tax year.
Non-Thai residents are only subject to Thai personal income tax on Thai source income and therefore they are not liable to Thai tax on any foreign pension income, even if remitted to Thailand. However, if the foreign pension income is relevant to and/or in connection with employment in Thailand, such pension income may be taxed in Thailand.
In other words, if you have a business in Thailand and paying yourself an income in Thailand or are employed in Thailand, you could face Thai income tax on a UK pension or QROPS.
If you are retired and not working in Thailand, you will not face income tax on a QROPS.
<h2>Income Tax in Thailand on QROPS or UK Pension if Employed in Thailand</h2>
If the foreign pension income is subject to tax in Thailand, you will pay <a href=”http://www.rd.go.th/publish/6045.0.html”>progressive rates of income tax in Thailand </a>of 5% to 35% (possibly rising to 37% from 2015) and individuals are required to file an annual return of income.
No foreign tax credit would be available in Thailand for a QROPS or UK pension if you are working full time in Thailand.
Furthermore, even though there is a Double Taxation Treaty between the UK and Thailand, there are no pension income provisions in the DTA, so your pension income in the UK would be outside the scope of the DTA and, thus, no relief for double taxation applies to the income.
Therefore if UK pension income is remitted to Thailand in the year it arises whilst living in Thailand, the income would taxed in Thailand and the UK, so your income tax bill could be as high as 80%.
For the reasons above, we recommend to transfer UK pensions to a QROPS in Gibraltar.
This will not only get you outside the UK tax net, but allow much wider investment freedoms. If you are retired in Thailand or not working in Thailand, a UK SIPP may suffice for smaller pension, although there are many QROPS ‘lite’ schemes now for smaller pensions which can match SIPP charges.
The benefit is to avoid taxation on death for your partner and if your SIPP grows large enough, you can avoid UK taxation on it as well as target higher returns if your risk profile allows it.
For those that are working in Thailand, the QROPS avoids up to 80% in income tax and up to 45% tax on death.