CONSTRUCTION PROJECT RISK MANAGEMENT 2014

Transcription

1 CONSTRUCTION PROJECT RISK MANAGEMENT 2014 Managing Tax Risk in Construction Projects Ruji Aphiworakitphan BDO Advisory Limited Tax & Legal Services 14 November 2014

2 Presentation Outline Tax considerations: Project Owner & Contractor Tax planning: Pre-construction Tax monitoring: During and Post-construction Page 2

3 Tax Considerations on Construction Contract Project Owner & Contractor Page 3

4 Tax Considerations on Construction Contract Project Owner Depreciation Deductible & nondeductible expenses VAT creditable Withholding tax liabilities Contractor Offshore & onshore contractors Income recognition Sale of goods & hire of work Stamp duty Page 4

5 Tax considerations: Project Owner Depreciation of construction project: the project is ready to use when? Installation Commissioning Test run Completion and deliverable Page 5

6 Tax considerations: Project Owner Deductible and non-deductible expenses What? During the construction: capital expenditures e.g. transport fees, interest, taxes, government fees, cost of equipment and services, etc. After completion of construction: non-capital expenditures (but not include renovation or refurbishment) e.g. interest, service fees: technical support, supervisory and maintenance Page 6

7 Tax considerations: Project Owner VAT Creditable Input VAT on sale of goods and import of goods Input VAT on provision of services No VAT on hire of service (employment of its employees) Page 7

8 Tax considerations: Project Owner VAT Non-creditable Input VAT incurred from the construction of building for usage in the non-vat business Sale or lease out or use of the building in non-vat business within 3 years from the tax month of completion of construction but not include certain transactions e.g. business rehabilitation, partial and entire business transfer, privatization Page 8

9 Tax considerations: Project Owner Withholding Tax Liabilities Offshore constructor: non-dta tax resident and DTA tax resident (business profit and PE, royalties) and tax rates Onshore constructor: hire of work (service, transport) Page 9

10 Tax considerations: Contractor Joint Venture or Consortium Offshore & Onshore Contractor Offshore contractor: PE, Alien Business License, work permit Onshore contractor: subcontract Page 10

11 Tax considerations: Contractor Income Recognition: Accrual basis Percentage of completion contract method: cost to cost and engineering survey/report (Thai Accounting Standard No. 11 (amended 2009)) (Departmental Instruction No.Tor.Por.1/2528, Clause 3.6) Supreme Court Judgment No. 2744/2544 ruled to support the percentage of completion method Page 11

12 Tax considerations: Contractor Stamp Duty Construction contract is a hire of work contract subject to stamp duty Liable person: contractor (unless agreed otherwise to be borne by the customer) Stamp duty: every Baht 1 for service fee of Baht 1,000 without maximum How to reduce stamp duty: split of contract sale of goods contract is not subject to stamp duty Page 12

13 Tax planning Pre-construction Page 13

14 Tax planning: Pre-construction Onshore Contractor Split of contracts: sale of goods and services to reduce withholding tax and stamp duty Elements of sale contract and service contract should be absolutely separated: purpose of contract, contract price etc. Seller and service provider is not necessary to be separated Page 14

15 Tax planning: Pre-construction Onshore Contractor: Precedent Cases of Split of Contracts Revenue Department Ruling No. GorKor. 0702/2301 dated 24 March 2009 Objective of the Company is to provide construction services Split contract for sale of materials and construction The price per sale contract and service fee per construction contract are both income from hire of work Page 15

16 Tax planning: Pre-construction Onshore Contractor: Precedent Cases of Split of Contracts (cont.) Supreme Court Judgment No. 2091/2553 Construction of Electricity, Communication, Sanitation and Air Condition System Split contract for sale and service separately, separate scope of work/objectives, goods price/ service fee, payment term Contractor and seller of construction materials are the same entity Page 16

17 Tax planning: Pre-construction Offshore Contractor Split of contracts: sale of goods and services Subcontract of onshore construction works to local contractor to avoid PE and Alien Business License Page 17

18 Tax planning: Pre-construction Offshore Contractor: Split of contracts Sale of goods is not subject to withholding tax and stamp duty Offshore supply contract shall be executed outside Thailand (no employee, agent or go-between in Thailand dealing with the customer for the sale) Ownership of offshore goods shall be transferred to the customer outside Thailand Page 18

19 Tax planning: Pre-construction Offshore Contractor: Split of contracts (cont.) Provision of offshore services may be exempt from withholding tax under the double tax agreement depending on nature of services. Self-assessed VAT for the project owner would not be a cost and would be creditable for VAT business. Stamp duty only applies to service contract. Page 19

20 Tax planning: Pre-construction Offshore Contractor: Avoiding PE under the Double Tax Agreement No fixed place: office, building site, etc (Asset test) No qualified activity: construction, installation, assembly or supervision (Activity test); and No qualified period of time: 3, 6 months or 183 days in any calendar year or accounting period (Time-test) Count by project (being connected) Consider on the period under the contract Include suspension period, holiday Page 20

21 Tax planning: Pre-construction Offshore Contractor: Secondment Secondment of foreign employees to the subcontractor and not be reimbursed their remuneration to the offshore contractor Foreign employees obtain work permit under the employment of subcontractor Page 21

22 Tax Monitoring During and Post-construction Page 22

23 Tax monitoring: During & Post-construction Implementation of Tax Planning period of services performed in Thailand, invoicing, reimbursement Contract Monitoring party who bears the tax payment, gross up price and tax on tax calculation Withholding Tax double tax agreement, due date, tax rates and filing Page 23

24 Tax monitoring: During & Post-construction (cont.) Self-assessed VAT service provided outside Thailand and use in Thailand, due date and filing Documentation transfer pricing, stamp duty and period of retention of documents Tax Audit and Disclosure of Information in-charge person dealing with the Revenue Department, potential tax dispute and evidences in court trial Page 24

25 BDO THAILAND Tax & Legal Contacts RUJI APHIWORAKITPHAN Manager Tax & Legal Services Telephone: Mobile: Fax: Qualifications Bachelor of Law degree from Thammasat University and Graduate Diploma from Institute of Legal Education of the Thai Bar. Experience Ruji has over 8 years experience providing tax and legal advisory services. Ruji specialises in advising on, personal income tax, corporate income tax, value added tax, stamp duty and property tax. She also has significant experience in advising on tax planning and carrying out tax review and tax due diligence assignments. Page 25

26 BDO PROFILE THAILAND BDO Advisory Limited specialises in providing tax and legal services to multinationals operating in Thailand and the Asia Pacific region. BDO Advisory Limited, a limited liability company incorporated in Thailand, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO International network and for each of the BDO Member Firms INTERNATIONAL BDO International is a worldwide network of public accounting firms, called BDO Member Firms, serving international clients. BDO International is the world's fifth largest international accounting and advisory network, with over 1,000 offices in 119 countries and more than 46,000 professionals. Page 26

27 BDO ADVISORY LIMITED Tax & Legal Services 28 th Floor, CTI Tower 191/16 New Ratchadapisek Road Klongtoey, Bangkok Thailand Telephone: TeleFax: Website: Page 27