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Thailand: Regulatory Requirements for Sukuk Issuances and Tax Incentives

Siripen Kaodara, Senior Associate and Stephen Jaggs, Partner
Allen & Overy 
July 2011

Siripen Kaodara and Stephen Jaggs discuss the Thai laws that have brought advancement in the country’s Islamic finance industry.

Thailand has a Muslim population of approximately nine million and an Islamic banking system which dates back to 1998. However, it previously lacked the necessary legal infrastructure for high profile Islamic products such as sukuk. Today, Thailand has advanced a few further steps into the growing Islamic finance market by developing its laws.

Three years ago, Thailand passed the Act on Trusts for Capital Market Transactions (Trust Act) which introduced the concept of ‘trust’ into the Thai civil law system. This is a key piece of legislation that allows asset trustees to be established for the purpose of holding the assets on trust and issuing sukuk. The Securities and Exchange Commission (SEC) followed suit by issuing a set of regulations to accommodate the issuance of sukuk. The main regulation, which sets out the approval and filing requirements for sukuk, took effect on the 16th January 2011 (Sukuk Regulation).

In addition, last month the Cabinet approved a package of proposed tax changes for sukuk issuances (tax package). This proposed package is aimed at reducing the cost associated with sukuk issuances, which is the key impediment to the development of Islamic finance in Thailand. The tax package is currently being reviewed by the Council of State and will be submitted for vetting by parliament before being passed into law.

These two initiatives, the tax package and the sukuk regulation, are summarized below.

Tax package

The new legislation includes draft regulations to create the following tax exemptions:

  • The originator and trustee will be exempted from income tax, value added tax, special business tax and stamp duty in relation to sukuk issuances;
  • The trustee will be exempted from income tax on revenues derived from the trust assets;
  • The originator and trustee will be either exempted from or have to pay only a minimal amount of tax on the transfer of immovable property and lease of property;
  • An investor in sukuk will not be required to take into account the return on investment in sukuk or capital gain from selling the sukuk for the purpose of computing his/her annual income tax, provided that the payer (i.e. the issuer or buyer) has already withheld the 15% withholding tax.

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