The rules and regulations of tax in Thailand

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, 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.

Corporate Income Tax

Companies or juristic partnerships established under Thai law are subject to corporate income tax on their worldwide income, while those established under a foreign law carrying on business in Thailand are subject to corporate income tax 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 and unincorporated joint ventures.

Net profit for tax purposes is calculated by taking into account all revenue arising from or in consequence of business carried on in a tax year, and deducting therefrom 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 one, may qualify for exemption from corporate income tax if certain prescribed conditions are met.

In general, expenses incurred for the purpose of acquiring profits or for conducting business in Thailand are deductible. Accordingly, usual business expenses, qualifying bad debts and depreciation are deductible for tax purposes. Deductible expenses must be claimed in the tax year in which they are incurred.

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 pro-rated.

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 Board of Investment (BOI) that receive exemption from corporate income taxes can carry forward tax losses and deduct them as expenses for up to five years after the end of the income tax holiday period.

Transfer Pricing

The Revenue Department has the power to deem a company to have received market value consideration for the sale of goods, provision of services, or the lending of money, where it considers that the actual consideration received was less than market value without justifiable grounds.

The Revenue Department also has the power to deny a deduction for any expenditure that is not exclusively expended for the purpose of acquiring profits or for the purpose of the business.

Transfer pricing guidelines exist for determining the market price of 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. Draft legislation is currently under consideration that would make the guidelines law.

Filing Of Returns & 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 midyear 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.

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 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 corporate income tax. The foreign tax credit cannot exceed the amount of corporate income tax payable on the income.

Tax due should accompany the submission of the return. A refund of tax overpaid may be requested within three years, and a request will generally be subject to tax audit before the refund is made.

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.

Corporate Tax Rates

The corporate income tax rate is generally 20%. For small and medium-sized enterprises, the tax rates are: A regional operating headquarters company may obtain a tax exemption on income derived from foreign operations and a concessionary tax rate of 10% on other qualifying net profits.

An international headquarters company is exempt from tax on qualifying net profits deriving from a foreign associated company or branch. It is taxed at the rate of 10% on qualifying net profits derived from a Thai associated company or branch.

An international trade centre company is exempt from tax on qualifying net profits derived from the procurement and sale of goods abroad, provided that the goods are not imported into Thailand, and from services provided to foreign companies related to international trade.

Foreign companies engaged in international transportation are subject to 3% tax on gross receipts.

Foreign companies carrying on business in Thailand are also subject to 10% tax on the disposal of profits out of Thailand. This tax may be exempted under an applicable double tax agreement.

International procurement centres are taxed at a rate of 10%, as are qualifying net profits derived by companies approved by the Ministry of Energy to conduct oil trading activities.

Qualifying businesses located in Specific Development Zones are taxed at a rate of 3% on net profits.

Petroleum income tax rather than corporate income tax is levied on the net profits and the disposal of profits out of Thailand of businesses engaged in petroleum exploration and production.

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 and on assessable income derived from sources outside Thailand if remitted into Thailand in the same year.

A person who resides in Thailand for one or more periods totalling 180 days or more 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 such income is paid in or outside Thailand.

Expatriate employees working outside Thailand for a regional operating headquarters company may be able to claim exemption from Thai personal income tax.

For some classes of income standard deductions will apply, whereas for others actual expenses incurred in connection with the derivation of the income may be deductible.

For employment income, a standard deduction of 40% of an individual’s gross income, up to a maximum of BT60,000 ($1810) per annum, may be claimed as an expense.

In addition to the itemised or standard expense deductions, individuals are entitled to deduct a number of allowances.

Tax Rates

Personal income tax will be calculated on a person’s net income after deduction of expenses and allowances.

The tax rates range from 5% to 35% for both resident and non-resident tax individuals. Expatriate employees of a regional operating headquarters company, international headquarters company or international trade centre company may elect to be taxed at a flat rate of 15% on their taxable remuneration.

Filing Of Returns & Payment Of Tax

Personal income tax returns must be filed on or before March 31 in respect of the preceding calendar year. Tax due on the return 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 rent, 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

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, such as service fees, royalties, commissions, transport fees, interest, dividends, rents and the sale of immovable property.

Rates generally range from 1-5%. The withholding tax must be deducted at the time of payment and a certificate issued by the payer as evidence of the tax deducted. The withholding tax 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 withholding tax. Dividends are subject to 10% final withholding tax but exemptions apply in some cases, such as dividends paid out of profits subject to tax holidays.

An exemption or reduction of the withholding tax 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.

Investment Promotion

Companies that receive BOI promotion may obtain special taxation incentives. Foreign investors typically establish a Thai company if they wish to seek BOI promotion for their business. Depending on a project’s characteristics, eligible projects may obtain tax incentives that include the following:

• Exemption or reduction of import duties on imported machinery, raw materials and components;
• Exemption from corporate income tax for three to eight years;
• Exclusion from taxable income of dividends received from promoted enterprises during the corporate income tax holiday;
• Additional 50% reduction of corporate income tax for five years after the tax holiday period;
• Double deduction of transportation, electricity and water supply costs; and
• A 25% deduction from net profit for facility installation and construction costs in addition to normal depreciation.

Tax incentives are specified for each type of promoted activity. Additional incentives are granted based on the merits of the project, considering their competitive enhancement, and merit for decentralisation and industrial area development.

The BOI’s cluster-based Special Economic Development Zones Policy came into effect on September 16, 2015 and initially targets development of two types of clusters: Super Clusters and other targeted clusters. Super Clusters include those of businesses using advanced technology and industries of the future. Specific provinces are designated for the location of each cluster type. For example, Chiang Mai and Phuket are designated as the provinces for digital-based clusters.

Super cluster businesses will be granted a corporate income tax exemption for eight years, with an additional 50% corporate income tax reduction for five years, and an exemption from import duty on imported machinery.

Production Efficiency Incentives

There shall be a three-year corporate income tax exemption capped at 50% of the total investment amount granted to both BOI-promoted and non-BOI-promoted companies that conduct the following types of investment in Thailand:

• Investment to upgrade machinery that will either save energy, use alternative energy or reduce the environmental impact of existing machinery;
• Investment in manufacturing technology and machinery to raise production efficiency; and
• Investment in research and development to upgrade manufacturing technology and engineering designs to improve efficiency.

The conditions to be met in order to qualify for benefits include operating a business eligible for BOI promotion; minimum capital investment of BT1m ($30,100) in each project (reduced to BT500,000 [$15,050] for small and medium-sized enterprises); and minimum investment amounts for research and development based on percentage of turnover.

Value-Added Tax (Vat)

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 BT1.8m ($54,200) per annum are exempt from VAT. 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, the sale or import of 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. The trader can however get a corporate income tax deduction for the VAT suffered.

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.

Transactions that are zero-rated include exported goods, services performed in Thailand and used entirely or partially in a foreign country, and services of international transportation by air and sea. Under the zero rate, a supplier may obtain an input credit for VAT incurred on purchases.

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 that sell goods or provide services to a large number of customers 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.

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 following 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

Businesses that are not subject to VAT may be subject to specific business tax instead. Specific business tax is levied on the gross receipts of the business.

In addition, a 10% municipal tax is imposed on top of the specific business tax rate.

Specific business tax is payable to the Revenue Department on a monthly basis. Specific business tax 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.

A number of exemptions from specific business tax are provided under the law.

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, 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 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, an interior tax at a 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%, although for certain instruments the stamp duty is capped. For example, for loan agreements stamp duty is capped at BT10,000 ($301). Flat rate duties range from BT1 ($0.03) to BT200 ($6.02) 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.

Other Taxes & Fees

An inheritance tax came into effect in February 2016 that applies to certain assets inherited, such as real estate, securities, registered vehicles and deposits. The first BT100m ($3.01m) is not subject to inheritance tax. Ascendants (e.g., parents) or descendants are taxed at the rate of 5% and other heirs taxed at 10%. Certain heirs, such as the deceased’s spouse and state organisations, are exempt from inheritance tax.

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.

OBG would like to thank BDO Advisory for its contribution to THE REPORT Thailand 2016 These prices are currently reviewed every four years. The registration of real estate leases longer than three years are subject to a 1% fee.

House and land tax is collected annually on the annual rental value of commercial buildings at a rate of 12.5%. If land is not subject to the house and land tax it may be subject to local development tax. Reforms have been proposed that involve scrapping these two taxes and introducing a new property tax that would be imposed on the official appraised price of the property. A tax applying to signboards is also collected annually.

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 import duty and value added tax.

A bonded warehouse can be established with Thai Customs’ approval. 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. Various types of bonded warehouse can be established under the Customs Act.

Anti-Avoidance Rules

Thai tax law has limited general anti-avoidance provisions, pursuant to which the Revenue Department may deny a tax deduction for artificial or fictitious expenses, or expenses not exclusively expended for a business purpose or for acquiring profits.

Tax Treaty Network

Thailand has an extensive tax treaty network – as of February 2016 the country had a total of 60 tax treaties in force.