DECEMBER 2012 BDO TAXFOCUS TAX GUIDE FOR DOING BUSINESS IN THAILAND CONTACT Andrew Jackomos, Senior Partner, Tax & Legal Services in Bangkok on andrew.jackomos@bdo-thaitax. com or +662 260 7290 Paul Ashburn, Senior Partner, Tax & Legal Services in Bangkok on paul.ashburn@bdo-thaitax.com or +662 260 7290 Detailed Tax Analysis The main body of tax law in Thailand is the Revenue Code. Taxes under the Revenue Code are primarily collected under a self assessment system of taxation, whereby taxpayers take responsibility for correctly filing their tax returns and paying taxes. The Revenue Department administers the Revenue Code and enforces compliance with the law through regular tax audits. Taxpayers can ask the Revenue Department for a ruling to clarify the Department s viewpoint in advance of a tax audit. The Revenue Department has invested heavily in IT and now provides a number of e-services through its website, including e-tax filings. IT systems have played a critical part in the Revenue Department s ability to improve its collection of tax revenues over the past few years.
2 BDO TAXFOCUS Corporate Income Tax (CIT) Companies or juristic partnerships established under Thai law are subject to CIT on their worldwide income whilst those established under a foreign law carrying on business in Thailand are subject to CIT only on the net profits arising from their business activities in Thailand. The term company or juristic partnership is defined to include entities such as limited partnerships, registered partnerships as well as unincorporated joint ventures. forward tax losses and deduct them as expenses for up to five years after the end of the tax holiday. Transfer Pricing The Revenue Department has the power to deem a taxpayer to have received market value consideration for the sale of goods, provision of services, or the lending of money, where it finds that the actual consideration received was less than market value without justifiable grounds. The department also has the power to deny a deduction for any expenditure that is not exclusively expended for the business or for the purpose of acquiring profits. Transfer pricing guidelines have been introduced for determining the market price of cross-border and domestic transactions between related parties. The guideline s definition of market price is consistent with the arm s length principle used in the OECD s transfer pricing guidelines. In addition, the instruction sets out a list of documents that officers may request from taxpayers when conducting a transfer pricing audit. There is an increasing focus on transfer pricing issues when reviewing the tax affairs of companies. Net profit for tax purposes is calculated by taking into account all revenue arising from or in consequence of the business carried on in a tax year, and deducting therefrom all allowable expenses. Revenue and expenses are computed on an accruals basis. Dividends received by Thai companies, either from another Thai company or from a foreign company, may qualify for exemption from CIT under certain conditions. In general, expenses incurred for the purpose of acquiring profits or for conducting business in Thailand are deductible within the tax year in which they are incurred. Accordingly, usual business expenses, qualifying bad debts and depreciation are deductible. A number of incentives are contained in the tax law that allow for accelerated depreciation and capital write offs in respect of certain types of assets. If an asset is acquired during a tax year, the depreciation allowance must be prorated. Tax losses may be carried forward for a maximum of five years and set off against net profits of any nature. Companies promoted by the BOI that receive exemption can carry Filing of Returns and Payment of Tax A company may choose any 12-month period as its accounting period. Subsequent changes in accounting period must be approved by the Director-General of Revenue. An annual corporate income tax return accompanied by audited accounts must be filed within 150 days of the end of the accounting year. A mid-year tax return must also be filed and tax paid on half of either the actual or estimated profit for the year, depending on the business of the taxpayer. The tax paid on the mid-year return, as well as domestic withholding tax deducted from income during the year, is allowed as a tax credit against the tax payable on the annual tax return. Thai companies are also entitled to claim a foreign tax credit for tax paid in a foreign country on income which is subject to CIT. The foreign tax credit cannot exceed the amount of CIT payable on the income. Taxes due should accompany the submission of the return. A refund of tax overpaid may be requested within 3 years and a request will generally be subject to tax audit before the refund is made.
BDO TAXFOCUS 3 Branches of foreign incorporated companies are subject to the same filing requirements as Thai incorporated companies. The Revenue Department has the power to issue a summons to conduct a tax audit within two years from the date the return is filed. The two year prescription period can be extended to five years where there is documentary evidence or reason to suspect the taxpayer had an intention to evade tax. If tax deficiencies are found, the Revenue Department can assess additional taxes provided the assessment is made within 10 years of the date the tax was required to be paid. international transportation are subject to 3% tax on gross receipts. A foreign company doing business in Thailand is also subject to 10% tax on the disposal of profits abroad. This tax may be exempted under an applicable double tax agreement, such as the one made with Hong Kong. Petroleum income tax rather than CIT is levied on the net profits and the disposal of profits out of Thailand of businesses engaged in petroleum exploration and production. Corporate Tax Rates Thailand s headline corporate tax rate has been reduced from 30% to 23% for the 2012 year and will then be reduced further to 20%. The reduced rates have been introduced initially for three consecutive accounting periods as follows: Accounting Period First accounting period commencing on or after 1 January 2012 The next two accounting periods commencing on or after 1 January 2013 Tax Rate 23% 20% For small and medium enterprises (SMEs), the first Baht 150,000 of net profit of an SME will be exempt from income tax and the next Baht 850,000 subject to only 15% tax. The new tax rate of 23% will apply to profits exceeding Baht 1 million for the accounting period commencing on or after 1 January 2012. The tax rate will then be reduced to 20% for accounting periods commencing on or after 1 January 2013. To be eligible for the SME rates, the following conditions must be met: 1. The company s paid-up share capital must not exceed Baht 5 million on the last day of its accounting period; and 2. The income derived from the sale of goods or provision of services during the accounting period must not exceed Baht 30 million. A tax rate of 10% applies to qualifying net profits derived by Regional Operating Headquarters (ROH) and companies approved by the Ministry of Energy to conduct oil trading activities. Foreign companies engaged in the business of Personal Income Tax The tax year for individuals is the calendar year. Tax residents are subject to tax on assessable income from sources in Thailand, as well as on assessable income derived from foreign sources if remitted into Thailand in the same year. A person who resides in Thailand for one or more periods totalling 180 days in a tax year is deemed to be a tax resident for that year. Non-residents are subject to tax only on income earned from sources in Thailand regardless of whether paid in Thailand or abroad. Expatriate employees working outside Thailand for a ROH in Thailand may be able to claim exemption from Thai personal income tax. Standard deductions will apply for some classes of income, whereas for others the actual expenses incurred in connection with the derivation of the income may be deductible for tax purposes. In addition to the itemized or standard expense deductions, individuals are also entitled to deduct a number of allowances. For employment income, a deduction of 40% of an individual s gross income, up to a maximum of Baht 60,000, may be claimed as an expense. Personal income tax for both resident and non-resident tax individuals will be calculated on net income after deduction of expenses and allowances. Net Profit (Baht) Marginal Tax Rate 1 150,000 Exempt 150,001 5000,000 10% 500,001 1,000,000 20% 1,000,001 4,000,000 30% 4,000,001 above 37%
4 BDO TAXFOCUS Dividends are subject to 10% final WHT but exemptions apply in some cases e.g. dividends paid out of profits subject to tax holidays. An exemption or reduction of the WHT may be obtained under an applicable double tax agreement. Service fees are usually exempted and the rate on interest is generally reduced to 10% if paid to a financial institution. Value Added Tax (VAT) Filing of Returns and Payment of Tax Personal income tax returns must be filed on or before March 31 in respect of the preceding calendar year. Any outstanding tax must also be paid on or before this date. Employment income and certain other categories of income are subject to withholding tax. The taxpayer can claim a credit for the tax withheld in their personal tax return. Mid-year returns must be filed for certain types of income, such as rents and income from liberal professions and businesses. Under certain conditions, assessable income may be excluded from the personal tax return including certain types of interest that has been subject to 15% withholding tax; gains from the sale of immovable property acquired by way of bequest or as a gift, which would have been subject to a withholding tax at the time of transfer; and dividends or mutual fund distributions subject to 10% withholding tax. Withholding tax (WHT) Thailand has a comprehensive withholding tax system that applies to both domestic and international payments. Withholding tax applies to many domestic payments that are not for the sale of goods e.g. service fees, royalties, commissions, transport fees, interest, dividends, rents and the sale of immovable property. Rates generally range from 1% to 5%. The WHT must be deducted at the time of payment and a certificate issued by the payer as evidence of the tax deducted. The WHT deducted can be used by the income recipient as a tax credit in their income tax return. Certain payments made to foreign companies not carrying on business in Thailand, including interest, capital gains, rents, royalties and service fees are subject to 15% final WHT. Most persons that sell goods or provide commercial or professional services in Thailand will have to register with the Revenue Department to pay VAT. Suppliers with a sales turnover not exceeding Baht 1,800,000 per annum are exempt. Foreign businesses may also be exempt from VAT registration if they only carry on business in Thailand temporarily. The law provides that certain sales, services and imports are exempt from VAT, such as the sale or import of unprocessed agricultural products, books, transport services and rental of real estate. A trader engaged in exempt transactions need not collect VAT, but at the same time cannot claim a refund of VAT paid to suppliers but can get a CIT deduction for this amount. Taxable supplies attract VAT at either the standard rate of 7% or 0%. Imports are subject to 7% VAT which will be collected at the time of import by the Customs Department at the time of entry. Zero rated transactions include exported goods, services performed in Thailand and used entirely in a foreign country and services of international transportation by air and sea. A supplier may obtain an input credit for VAT incurred on purchases in respect of zero rated transactions. Paying VAT Registrants shall add VAT to the price of their goods and services and collect the VAT from their customers or clients. A VAT registrant must prepare and issue a tax invoice in the prescribed format for every sale or service provided that is subject to VAT. Businesses with a large number of VAT transactions shall have the right to issue an abbreviated tax invoice instead. VAT registrants that wish to claim a credit for the VAT on their purchases must receive a full tax invoice to support their claim.
BDO TAXFOCUS 5 Each month the VAT liability is calculated by taking the difference between the VAT on sales and the VAT on purchases that are allowed as a credit under the law. In the case where a credit balance arises, the taxpayer may carry forward the VAT credit to the next month or request a refund from the Revenue Department, which will most likely result in an audit. A person that pays for services from a foreign supplier to use in Thailand shall be liable to remit the VAT on the services to the Revenue Department. Specific Business Tax (SBT) Businesses that are not subject to VAT may be subject to SBT instead. SBT is levied on the gross receipts of the business. A 10% municipal tax is imposed on top of the SBT. A number of exemptions are provide under the law. The rates for businesses subject to SBT include: Banking and similar businesses: 3.0% or 0.1% Finance, securities and credit foncier: 3.0% or 0.1% Life insurance: 2.5% Pawnbroking business: 2.5% Sale of immovable property: 3.0% Factoring: 3.0% Securities repurchase agreements:3.0% SBT is payable to the Revenue Department on a monthly basis. SBT on the sale of immovable property e.g. land, condominium units or buildings, will be paid to the land department when the sale is registered. Customs Duty Customs duty is imposed on certain imports and exports. Export duties are generally imposed on only two groups of commodities, comprising rawhide and wood. Import duties are imposed on a specific, an ad valorem, or compound basis. The compound basis is a combination of the specific and ad valorem basis (whichever is higher). The duty rates generally range between 5% and 20% and may be reduced or eliminated under Thailand s free trade agreements, such as those with Australia, China, India, New Zealand and the member countries of ASEAN. Generally, the import value for the calculation of import duty is based on cost, insurance and freight and free on board for exports. The Customs valuation is made under the general agreement on trade and tariff, which primarily uses the transaction value on prices actually paid or payable. Excise Tax Excise tax is imposed at ad valorem or specific rates on certain commodities and services, including liquor, tobacco, motor vehicles and certain kinds of electrical appliances. The tax liability arises on locally manufactured goods when the products are shipped from the factory or on importation. In addition to excise duty, interior tax at the rate of 10% may be imposed. Stamp Duty Stamp duty is imposed under the Revenue Code on certain documents including real estate leases, share transfers, loan agreements and hire of work contracts. The rate of stamp duty applicable depends on the type of document. In general rates are between 0.05% and 1.0% although for certain instruments the stamp duty is capped e.g. for loan agreements stamp duty is capped at Baht 10,000. Flat rate duties range from Baht 1 to Baht 200 per instrument. A number of exemptions from stamp duty are provided under the law. Documents subject to stamp duty which have not been stamped cannot be used as evidence in a civil case.
6 BDO TAXFOCUS ABOUT US 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 network and for each of the BDO Member Firms. Export Incentives Industrial operators in export processing zones under the Industrial Estate Authority of Thailand are granted numerous tax incentives and privileges including exemptions from VAT and import duty. Under a bonded warehouse scheme, the imported goods stored in a bonded warehouse for the purpose of re-export shall be exempted from payment of import/ export taxes and duties, regardless of being exported in the same nature as imported or in the nature of having been produced, mixed or assembled as other goods. A bonded warehouse can be established with Thai Customs approval. Various types of bonded warehouse can be established under the Customs Act. Other Taxes Fees are imposed under the Land Code for the registration of certain rights and acts. The transfer of land, buildings or condominium units are subject to a 2% fee based on the official appraised value of the property set by the government. These prices are currently reviewed every four years. The registration of real estate leases longer than three years are subject to a 1% fee. BDO Advisory Limited is promoted by the Thailand Board of Investment to provide advice and assistance on tax and legal matters and has been designated as the exclusive accountancy partner of Oxford Business Group (OBG) to provide specialist analysis for The Report: Thailand 2014. This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Advisory Limited to discuss these matters in the context of your particular circumstances. BDO Advisory Limited, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. House and Land Tax is collected on the annual rental value of commercial buildings at the rate of 12.5%. If land is not subject to this tax, it may be subject to local development tax instead. Reforms have been proposed to replace these taxes with a single new property tax. All right reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in any retrieval system of any nature, without the written permission of the copyright holder and the publisher, application for which shall be made to the publisher. 2012 BDO Advisory Limited. Printed in Thailand. BDO ADVISORY LIMITED 28th Floor, CTI Tower 191/16 New Ratchadapisek Road, Klongtoey, Bangkok 10110 Thailand Tel: +66 2 260 7290 Fax: +66 2 260 7297 www.bdo.co.th