LTF

Violation of terms and conditions from sale of LTF

An investor will violate the terms and conditions of LTF if units are prematurely sold before the required 7 year holding period.  The investor will be liable for all back taxes even though one may have never utilized any of the tax benefits.
 
Note: if the unit holder redeems the units held more than 7 years but never utilized tax benefits since the beginning of the investment, the unit holder will be considered to have violated the terms and conditions and liable for all back taxes from the beginning of the investment period.
  • Ask yourself if you are willing to accept high risks since LTF invests in equity securities.
  • Allocate part of your wealth in LTF based on proper asset allocation decisions, rather than diverting all your savings into LTF.
  • Remember this is a long-term investment; a minimum of 7 calendar years.
LTF is an abbreviation for Long-Term Equity Fund, a type of investment fund that focuses primarily on stocks. Its establishment was encouraged by government initiative to increase institutional investors in the market with a view that long-term investments could help increase market stability. LTF investors are also eligible for tax benefits as an incentive for investment.
To be eligible for tax benefits, investors are required to buy unit trusts and hold them for at least 7 calendar years (for instance, an investment made in 2017 would meet the 7 year requirement in January of 2023. Similarly, an investment made in 2018 would meet the requirement in January of 2024). However, to receive tax benefits from LTF, investments must be made before 2019.
The investor must take the following actions:
  • Pay back the exempted taxes immediately as there is a ”penalty fee” at the monthly rate of 1.5% on the exempted tax amount starting from April of the year the exemption is applied until the month the tax return is filed. For partial sale of LTF holdings, the investor must pay back the exempted taxes based on the sale plus the “penalty fee.”
  • Capital gain taxes must be paid within March of the following year. Profits from the sale must be calculated for taxation. In practice, when the investor sells unit trusts, the asset management company would automatically withhold 3% of the capital gains.
  • There are tax benefits on investments when terms and conditions are met.
  • If the investment period is shorter than 7 years, the capital gains must be calculated into personal income taxes.
There is only one policy which is to invest in common stocks listed on the stock exchange at the minimum of 65% of the fund’s net asset value. Each LTF may differ in detail, for instance, some LTFs may focus investment on SET50 stocks or according to what the manager considers appropriate for that particular LTF policy. Some LTFs may also have a policy to pay out dividends.
When terms and conditions are met, investors will receive tax benefits in two ways:
  • Money invested in LTF can be deducted from taxable personal income, up to 15% of one’s annual income but not exceeding 500,000 Baht.  Investment amounts exceeding 15% or 500,000 Baht, when redeemed, shall be subjected to capital gains tax for the excess portion if there is a profit.  The capital gains shall be included with the income tax filing.
  • Capital gains from trading are exempted from personal income taxes.
Those interested in long-term investments but are inexperienced in equity investments or simply have no time, may consider investing through a mutual fund. However, investors must understand and accept the risks associated with the investment and conditions regarding the investment time frame which will be at least 5 calendar years.
Redeeming the unit trusts before 7 calendar years have lapsed is considered to be a violation of investment conditions, with exception of death or disabilities.
A Long-Term Equity Fund or LTF is a type of mutual fund that invests in common stocks listed on the stock exchange as core holdings accounting for at least 65% of the fund’s net asset value in a fiscal year.  Other holdings may include fixed income securities, cash deposits, hybrid instruments, other assets or means of generating returns as allowed by the Securities and Exchange Commission. Investors interested in this fund must accept the risks associated with a long-term investment and cope with market fluctuations. Long-Term equity funds have special characteristics as follows:
 
1. Investment in Long-Term Equity funds are tax exempted to the end of 2019.
 
2. Securities regulations stipulate that new capital invested by unitholders from 1 January 2016 to 31 December 2019 up to 15% of one’s taxable income in the corresponding year, not exceeding 500,000 Baht, must be held for at least 7 consecutive calendar years, except for early redemption due to disabilities or death.
 
(Please refer to the Commissioner of Internal Revenue’s announcement regarding income taxes (vol. 276).
Mutual funds which are tax exempted are Long-Term Equity Funds (LTF) and Retirement Mutual Funds (RMF). Both mutual funds are suitable for investors with personal income eligible for tax benefits (“personal income” in this case refers to personal income of individuals, not ordinary partnerships, excluding corporates, non-juristic persons and unallocated estates).