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 Baht500,000 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.

Type of LTF

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?

HOW DO LTF HELP YOU LOWER YOUR TAX BILLS?

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.

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:

Investment in the LTF, 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 Baht13,500. Details are as follows: