I got to admit, I don’t like to talk about taxes. Depending on where you live it is either a complicated, or very complicated topic with lots of things to know, to consider, and plenty of pitfalls. But of course, this is only the case because taxes are so important. Taxes can make all the difference when it comes to building wealth, and like it or not, it’s worth spending some time to learn about the challenges and opportunities that come with the tax code in your country.
I am living in Thailand and the tax code here is rather simple. For investors, it is a paradise. There is no capital gains tax, meaning that no matter when and how much I profit from trading equities, there are no taxes due at any point. Not today, nor tomorrow. There is a withholding tax on dividends in the acceptable amount of 10%. There are no loopholes or exceptions to avoid it, so the bank will deduct it automatically upon pay-out. There is no need to declare or report anything when you do your tax declaration. Simple and fast.
But there are hidden opportunities
I am mostly trading regular equities and ETFs and since the regulations are so easy, the tax part was never really on my radar. But I certainly should have invested more time to learn about it much earlier on.
I have learned by now that the government is actually actively supporting investors in building wealth through retirement funds. As an employee with regular income in Thailand, I can invest in mutual funds designated for my retirement, and receive significant tax benefits for doing that.
The so-called RMFs (Retirement Mutual Funds) can invest in either foreign or domestic equities or funds, and need to be hold for a minimum of 5 years before withdrawal. From your total annual investment, up to THB 500.000 per year can be deducted from your total taxable income. The tax code for personal income in Thailand in 2021 looks like this:
|more than 150,000 but less than 300,000||5|
|more than 300,000 but less than 500,000||10|
|more than 500,000 but less than 750,000||15|
|more than 750,000 but less than 1,000,000||20|
|more than 1,000,000 but less than 2,000,000||25|
|more than 2,000,000 but less than 4,000,000||30|
Now here is how this works. Let’s say you have an income of THB 2,600,000 per year.
You will then pay:
THB 0 – on the first THB 150,000 (total 150,000)
THB 7,500 (5%) – on the next THB 150,000 (total 300,000)
THB 20,000 (10%) – on the next THB 200,000 (total 500,000)
THB 37,500 (15%) – on the next THB 250,000 (total 750,000)
THB 50,000 (20%) – on the next THB 250,000 (total 1,000,000)
THB 250,000 (25%) – on the next THB 1,000,000 (total 2,000,000) and finally
THB 180,000 (30%) – on the last THB 600,000 (total 2,600,000).
Your total tax will be therefore: THB 545,000 or 20,96%.
If you now max out your RMF contribution up to THB 500,000, you can deduct this investment from your total taxable income. This would reduce the total amount from THB 2,600,000 to only THB 2,100,000. Therefore your tax obligations for the last 30% bracket would also shrink, from THB 180,000 down to only THB 30,000. After your tax declaration you will get a refund of THB 150,000.
So on the one hand you get a tax benefit. But as an investor, I look at it another way: I receive effectively a guaranteed 30% annual return on my investment.
Do some reading
Every country has its own rules and regulations, but since we are all part of the same system, there are similar opportunities everywhere. Whether it’s the 401k in the US, the RMF in Thailand, or the “Arbeitnehmersparzulage” in Germany. Chances are that the tax code in your country offers you opportunities to boost your savings and investments. These can be quite significant and strongly support you in reaching your financial goals. So don’t be lazy. Do some reading, educate yourself, and grab the opportunities which have been designed for you to get the most out of the system.