Outlining the incentives: A detailed review of taxes, exemptions and deductions

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.

In recent years, 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.

Corporate Income Tax

Companies or juristic partnerships established under Thai law are subject to corporate income tax (CIT) on their worldwide income while those established under foreign law but are conducting business in Thailand are only subject to CIT 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 of the revenue arising from or in consequence of the business carried out in a given tax year, and deducting those figures from all allowable expenses. Revenue and expenses, in turn, are computed on an accruals basis. Dividends received by Thai companies, either from another Thai company or from a foreign company, may qualify for an exemption from CIT if certain prescribed conditions are met.

In general, expenses incurred for the purpose of acquiring profits or for conducting business in Thailand are also tax deductible. Accordingly, the usual business expenses, qualifying bad debts and depreciations are deductible for tax purposes. It is important to note that 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 Investors (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 Thai 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 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 cross-border and Thai domestic transactions between related parties. The guideline’s definition of market price is consistent with the “arm’s length” principle used in the Organisation for Economic Cooperation and Development’s (OECD’s) transfer pricing guidelines. In addition, the instructions set out a list of documents that revenue department officers may request from taxpayers while they are conducting a transfer pricing audit.

The revenue department is increasingly focusing on transfer pricing issues when reviewing the tax affairs of companies.

Filing Corporate Tax Returns & Paying Tax

undefined A company may choose any 12-month period as its accounting period. Subsequent changes in the 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 that 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 three years and a request will generally be subject to a 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 

Thailand’s headline CIT rate is currently 20% and applies for accounting periods commencing on or after January 1, 2013 and by December 31, 2014. For small- and medium-sized enterprises (SMEs), the first BT300,000 ($9180) of net profit is exempt from income tax and the next BT700,000 ($22,890) subject to 15% tax. Net profits exceeding BT1m ($32,700) are subject to 20% tax.

To be eligible for the SME rates, the following conditions must be met:

• The company’s paid-up share capital must not exceed BT5m ($163,500) on the last day of the accounting period; and
• The income derived from the sale of goods or pro vision of services during the accounting period must not exceed BT30m ($981,000). A Regional Operating Headquarters (ROH) may obtain a tax exemption on income derived from foreign operations and a concessionary tax rate of 10% on other qualifying net profits.

A qualifying International Procurement Centre (IPC) is subject to CIT of 15% on qualifying income for five consecutive accounting periods. A tax rate of 10% applies to qualifying net profits derived by companies that are approved by the Ministry of Energy to conduct oil trading activities.

Foreign companies that are engaged in international transportation are subject to 3% tax on gross receipts. A foreign company that is carrying out business within Thailand is also subject to a 10% tax on the disposal of profits out of Thailand. In some cases, this tax may be exempted under an applicable double taxation agreement, such as the one between Thailand and Hong Kong currently in place.

Meanwhile, rather than CIT, petroleum 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.

Meanwhile, non-residents are subject to tax only on income earned from sources inside Thailand regardless of whether such income is paid within or outside of Thailand.

Expatriate employees working outside Thailand for a ROH or a qualifying IPC may also be able to claim exemption from Thai personal income tax. For some income levels, 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 ($1962) per annum, may be claimed as an expense. In addition to the itemised or standard expense deductions, individuals are also 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 for both resident and non-resident tax individuals were established at the beginning of 2013 and are as follows:

• Those earning BT1-BT150,000 ($0-$4905), are exempt from taxes;
• BT150,001-BT300,000 ($4905-$9810): 5%;
• BT300,001-BT500,000 ($9811-$16,350): 10%;
• BT500,001-BT750,000 ($16,351-$24,525): 15%;
• BT750,001-BT1m ($24,526-$32,700): 20%;
• BT1m-BT2m ($32,701-$65,400): 25%;
• BT2m-BT4m ($65,401-$130,800): 30%; and
• BT4m and above ($130,801 and above) 35%. Expatriate employees of a ROH or qualifying IPC may elect to be taxed at a flat rate of 15% on their remuneration.

Filing Personal Tax Returns & 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 on this income must also be paid on or before this date.

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, for example rent, income from liberal professions and from businesses ventures.

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, that would have been subject to a withholding tax at the time of transfer; and dividends or mutual fund distributions subject to 10% withholding tax.

Witholding 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, for example service fees, royalties, commissions, transport fees, interest, dividends, rents and the sale of immovable property. Rates generally range from 1% to 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 out business in Thailand, including interest, capital gains, rents, royalties and service fees, are subject to 15% final withholding tax. Meanwhile, 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 Board of Investment promotion may obtain special taxation incentives. Foreign investors typically establish a Thai company if they wish to seek Board of Investment 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;
• 50% reduction of corporate income tax for five years;
• Double deduction from transportation, electricity and water supply costs; and
• 25% deduction from net profit for facility installation and construction costs in addition to normal depreciation. The criteria for granting tax and duty privileges for promoted projects is primarily based on the location of the project. The provinces in Thailand are divided into three investment zones based on economic factors such as the level of income and the availability of infrastructure in each province. Different tax and duty privileges are also specified for particular types of activities. It is therefore important to consider not only the location of the project but also the classification of the promoted activity.

VAT

Most people who 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 ($58,860) per annum are exempt from VAT. Foreign businesses may also be exempt from VAT registration if they are only carrying out business in Thailand on a temporary basis.

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 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 tax 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 tax collected 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. A request for a refund 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 a specific business tax instead. The specific business tax is levied on the gross receipts of the business. Businesses subject to specific business tax and tax rates include:

• Banking and similar businesses at 3.0% or 0.01%;
• Finance, securities and credit foncier at 3.0% or 0.01%;
• Life insurance at 2.5%;
• Pawn broking business at 2.5%;
• Sale of immovable property at 3.0%;
• Factoring at 3.0%; and
• Securities repurchase agreements at 3.0%. In addition, a 10% municipal tax is imposed on top of the specific business tax rate. Specific business taxes are payable to the revenue department on a monthly basis. Specific business taxes on the sale of immovable property, such as land, condominium units or buildings, will be paid to the land department when the sale is registered.

A number of exemptions from the 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, 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 (FTAs), 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. Customs valuations are determined using the General Agreement on Trade and Tariff valuation system. The primary method of valuation is transaction value, which is the price actually paid or payable for the goods..

Excise Tax

An 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.

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 VAT. A bonded warehouse can be established with Thai Customs’ approval.

Under the scheme, any imported goods that are stored in a bonded warehouse for the purpose of re-export shall be exempted from the payment of import/export taxes and duties, regardless of being exported in the same nature as they were imported or in the nature of having been produced, mixed or assembled as other goods. Various types of bonded warehouses are permitted to be established under Thailand’s Customs Act.

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, stamp duty is capped. For example, for loan agreements stamp duty is capped at BT10,000 ($327). Flat rate duties range from BT1 ($0.03) to BT200 ($6.54) per instrument.

A number of exemptions from stamp duty are provided under the law. Documents subject to stamp duty that have not been stamped cannot be used as evidence in a civil case.

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 is 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 is subject to a 1% fee.

A 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 the House and Land Tax it may be subject to the Local Development Tax.