UK Pension Transfer to Thailand | QROPS Thailand
In this article, we will look at all the surrounding tax treaties and pension rules when considering how to transfer a UK pension to Thailand. When considering financial advice for pension transfers, it is imperative to understand both local tax rules and Double Taxation Agreements (DTA’s) to understand who has the taxation rights.
Transferring a pension to Thailand must be understood from a global tax perspective. Firstly, there are no Recognised Overseas Pension Schemes (ROPS) in Thailand. You cannot transfer your UK private pension or final salary scheme to Thai Baht, but you can transfer it to a tax efficient pension trust held in a tax neutral jurisdiction such as Hong Kong or New Zealand.
For those who wish to retire in Thailand, these tax rules are crucial in understanding how your pension monies are taxed in Thailand.
We will explore the various options British expats have when contemplating a UK pension transfer. We will argue that a UK pension transfer to a Recognised Overseas Pension Scheme in Hong Kong is the optimal tax solution for expats living in Thailand as the strong HK-Thailand DTA gives taxation rights to Hong Kong.
New Zealand is also a secure managed option and attracts zero income tax at source in NZ, but if you are a Thai tax payer, you may be taxed on your pension income in Thailand. A transfer to Malta means your pension would be taxed in Malta at up to 35% on income which would be deducted at source in Malta and you may also pay tax in Thailand as no DTA exists. But, if you want to access your entire pension, Malta is the only ROPS to allow this at present. A UK pension transfer to Gibraltar attracts 2.5% income tax in Gibraltar and may also be taxed in Thailand as no DTA exists.
Do I Pay UK or Thai Tax on My UK State Pension?
UK state pensions can be paid out in the UK, where you may avoid tax if your UK income is under the personal allowance of 10,000 GBP per year. UK state pensions can also be chosen to be paid directly into a Thai bank account where you pay Thai tax on it instead of UK tax.
QROPS Thailand | Transfer UK Pension to Thailand
Leaving a Pension in the UK
For UK private pension schemes and final salary pension transfers, if you leave your pension in the UK, you will be taxed on your pension in the UK. Even though the UK and Thailand have a Double Taxation Agreement, the taxation rights on a UK pension is given to the UK even if you are resident in Thailand.
There is no article covering “pensions” which most DTA’s tend to cover. Instead it is buried under:
Dependent Personal Services
“(1) Subject to the article provisions of (19) and (21), salaries, wages derived by a resident of a contracting state, in respect of an employment shall be taxed only in that state unless the employment is exercised in the other contracting state”
In other words, UK pensions which were derived from employment in the UK are taxed in the UK.
UK income tax is between 20% and 45%. UK tax on death can be up to 45% depending on the circumstances.
Transferring to a QROPS in Hong Kong for a Resident in Thailand
In the case of Hong Kong, the water tight Double Taxation Agreement between Thailand and Hong Kong gives the taxation rights on pensions to Hong Kong. Furthermore, the UK and Hong Kong also have a Double Taxation Agreement in existence, so if you ever return to the UK, any tax due should be minimised.
The Hong Kong – Thailand DTA that covers pensions is detailed under:
1. Subject to the provisions of paragraph 2 of Article 19, pensions (including a lump sum payment)
and other similar remuneration paid to a resident of a Contracting Party in consideration of past
employment shall be taxable only in that Contracting Party.
2. Notwithstanding the provisions of paragraph 1, pensions (including a lump sum payment) and
other payments made under a pension or retirement scheme which is:
(a) a public scheme which is part of the social security system of a Contracting Party or local
authorities thereof; or
(b) an arrangement in which individuals may participate to secure retirement benefits and
which is recognised for tax purposes in a Contracting Party,
shall be taxable only in that Contracting Party.
In other words, a ROPS in Hong Kong, as it is an arrangement to secure retirement benefits, is taxed in Hong Kong NOT in Thailand.
This DTA over-rules any local Thai taxation rules, so whilst it in existence, under current tax rules, your pension would face zero income tax, zero tax on growth and zero tax on death as long as you remain tax resident outside the UK. We therefore feel that a QROPS in Hong Kong provides your pension with the ultimate tax protection as far as current rules are concerned. Hong Kong is also geographically just a very short plane ride away as well and is in a similar time zone.
Transferring to a QROPS in New Zealand for a Resident in Thailand
The Double Taxation Agreement between New Zealand and Thailand gives the taxing rights to Thailand. However, your QROPS avoids any income tax at source in New Zealand, has zero tax on growth and no tax on death as long as you remain tax resident outside the UK.
The NZ-Thailand DTA for pensions is covered by:
1.Pensions (including government pensions) and annuities paid to a resident of a Contracting State shall be taxable only in that State.
2.The term “annuity” means a stated sum payable periodically at stated times, during life or during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or money’s worth.
In other words NZ pensions may be taxed in Thailand.
You can read the full NZ-Thailand DTA from the NZ government here here or the Thailand-NZ DTA from the Thailand Revenue Department.
As far as whether a New Zealand ROPS is taxed on income in Thailand, it seems to be open to interpretation.
You can see from KPMG’s site that:
“Salaries receive from employment exercises outside of Thailand are exempt from Thai tax, if not paid in or remitted into Thailand within the same calendar year it is received and provided the cost is not recharged into Thailand. ”
In other words, as a QROPS is received from a pension built up outside Thailand and it will be remitted at a much later date (i.e. the pension was earned long ago, not in the last calendar year), it should be exempt from Thai tax.
However, where pensioners may run into an issue with the Thai Tax Authorities is where they own a business in Thailand and have acquired a Tax Identification Number (TIN) in Thailand. For the local authorities, this seems to be at odds with the above ruling and we have encountered issues with clients in such a predicament.
This all stems from the tax residency issue, i.e. you have a business here and you have been tax resident for over 180 days.
“A taxpayer who in the previous tax year derived assessable income under Section 40 from an employment, or from business carried on in Thailand, or from business of an employer residing in Thailand, or from a property situated in Thailand shall pay tax in accordance with the provisions of this Part, whether such income is paid within or outside Thailand.
A resident of Thailand who in the previous tax year derived assessable income under Section 40 from an employment or from business carried on abroad or from a property situated abroad shall, upon bringing such assessable income into Thailand, pay tax in accordance with the provisions of this Part.
Any person staying in Thailand for a period or periods aggregating 180 days or more in any tax year shall be deemed a resident of Thailand.”
This is because anybody who is tax resident in Thailand, needs to pay tax on their worldwide income.
2. Tax Liability for Pension Income in Thailand
2.1 Under Internal Regulations
In Thailand, pension income is regarded as assessable income under Section 40 (1) of the Revenue Code. A resident of Thailand must declare his worldwide income on the basis that the income received from abroad in a tax year must be brought into Thailand within the same year, based on Section 41 paragraph 2 of the Revenue Code. Therefore for an individual who has stayed in Thailand for more than 180 days in a tax year shall declare his worldwide income including pension income received from abroad and file tax return using the tax return form P.N.D. 90 or P.N.D. 91 (if the individual only receives pension income, P.N.D. 91 will be used). Tax calculation is on the net income where the foreign pensioners are entitled to certain deductions applied also to the Thai resident pensioners. The filing period lasts from 1 January to 31 March the year after the income is received.
Tax Allowances and Deductions for Income Tax in Thailand
You can find the various personal income tax deductions and allowances in Thailand here. But, there are no deductions for foreign pension income.
It is our opinion that a NZ QROPS will likely not be taxed in Thailand unless you have acquired a Tax Identification Number, but keep in mind that tax rules change and they could always start enforcing the income tax rule and start asking pensioners to pay income tax in Thailand.
Transferring to a QROPS in Malta for a Resident in Thailand
At the moment, Malta is not an appropriate tax optimal destination for retirees in Thailand, because at present there is no Double Taxation Agreement between Malta and Thailand. The lack of a DTA means that a ROPS in Malta is taxed locally in Malta. Income tax in Malta is up to 35%.
However, if you are unconcerned with taxation and just want to have full access to your pension at 55, Malta is still an option. 35% is less than the higher rate of tax of 40% in the UK or 45% at the top rate of tax.
You can read more about QROPS in Maltahere.
Transferring to a QROPS in Gibraltar for a Resident in Thailand
Gibraltar was a population option for British expats moving to Thailand. It provided a simple tax structure. Whilst Gibraltar has no DTA’s, it taxed pension income on a ROPS in Gibraltar at a flat rate of 2.5%. A Gibraltar QROPS may be taxed in Thailand if you are tax resident there. See the discussions above.
You can read more about QROPS in Gibraltarhere.
QROPS Thailand Summary
You cannot transfer a personal or final salary pension to Thailand, but there are tax and drawdown optimal solutions offered by the various ROPS jurisdictions.
If you are looking for the optimal tax solution, a ROPS in Hong Kong has the strongest DTA which clearly gives taxation rights to Hong Kong, which is currently zero per cent. So, no income tax, no tax on growth and no tax on death as long as you remain tax resident outside the UK.
If you are looking for a secure pension in a pooled investment scheme, a NZ ROPS is a secure choice. NZ is tax neutral and there is no tax at source in New Zealand.
If you want to “cash in” your pension at 55 by taking full flexibility, Malta offers an option. You could take your pension drawdown in smaller annual lump sums to optimise tax by keeping your drawdowns to a lower tax bracket.
Everyone’s financial situation is unique, you need to look at overall retirement planning to achieve the optimal slution, please contact us to talk to an expert.How to Transfer a UK Pension to Thailand | QROPS Thailand by Richard Malpass