A summary of tax legislation for businesses operating in Thailand

The main body of tax law in Thailand is the Revenue Code. Taxes listed 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 are permitted to 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 net profits derived from their worldwide activities, 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 legal terms “company” and “ juristic partnership” include entities such as limited partnerships, registered partnerships as well as unincorporated joint ventures.

Net profit for tax purposes is calculated by taking into account all revenue that has arisen from or in consequence of the business carried out in a given tax year, and deducting from this figure all allowable expenses. Both revenue and expenses are computed on an accruals basis.

Dividends received by Thai companies, either from another domestic business or from a foreign firm, may qualify for exemption from corporate income tax if certain prescribed conditions are met.

In general, expenses that are 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 or period in which they were incurred.

Tax Incentives

A number of incentives are contained in the tax law that allow for accelerated depreciation and capital write-offs with respect to certain types of business 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. Companies that are promoted by the Board of Investments (BOI) and therefore receive an exemption from corporate income tax for a period of time 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 used for the purpose of acquiring profits or for legitimate business purposes.

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.

Thailand has committed to improving its transfer pricing rules to comply with international tax standards, and draft legislation is currently under consideration that would make the guidelines law.

Accounting Period

A company may choose any 12-month period as its accounting period. Subsequent changes in any company’s accounting period must be approved by the director-general of the Revenue Department.

An annual corporate income tax return must be filed within 150 days of the end of the accounting period. A mid-year tax return must also be filed and taxes 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 the 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 corporate income tax. The foreign tax credit cannot exceed the amount of corporate income tax payable on the income.

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.

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 (SMEs), the tax rates are displayed in the table below.

A company’s regional operating headquarters (ROHs) may obtain a tax exemption on income derived from foreign operations and a concessionary tax rate of 10% on other qualifying net profits.

With the purpose of promoting Thailand as a trade and investment centre and to take advantage of the formation of the ASEAN Economic Community, a new incentive package was introduced in 2015 for internationally headquartered companies (IHQs).

The new incentives were introduced as an alternative to the ROHs scheme, and come with less restrictive conditions for qualification. Both tax and non-tax incentives are offered to IHQs through the Revenue Department and the BOI. An IHQ is exempt from tax on qualifying net profits deriving from a foreign-associated company or branch and is taxed at the rate of 10% on qualifying net profits derived from a Thai company or branch.

Incentives for companies operating as an international trade centre (ITC) were introduced at the same time as those for IHQs. An ITC 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.

Other businesses that are subject to special corporate tax treatment include the following:

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

• Companies approved by the Ministry of Energy to conduct oil-trading activities are taxed at the rate of 10% on qualifying net profits.

• Qualifying businesses located in special economic zones on Thailand’s borders are taxed at the rate of 3% on net profits. A foreign company carrying out business in Thailand in its own name, for example, by operating through a branch office rather than a Thai company, is also subject to a 10% tax on the disposal of profits out of Thailand. This tax may be exempted under an applicable double tax agreement.

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.

International Tax

In 2017 Thailand joined the OECD’s inclusive framework on base erosion and profit shifting (BEPS). As a member, Thailand commits to implement the four minimum standards of the BEPS package, as well as develop a monitoring process to review its own tax systems and identify and remove elements raising BEPS risks.

The four minimum standards, developed by OECD members and G20 countries, are as follows:

• To fight harmful tax practices (Action 5);

• To prevent tax treaty abuse, including treaty shopping (Action 6);

• To improve transparency with country-by-country reporting (Action 13); and

• To enhance the effectiveness of dispute resolution (Action 14).

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 ROHs, IHQs or ITCs may be able to claim exemption on 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 50% of an individual’s gross income up to a maximum of BT100,000 ($2890) 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 specified allowances.

Calculating 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. These tax bands are listed in the graph on this page.

Expatriate employees of ROHs, IHQs or ITCs may elect to be taxed at a flat rate of 15% on their taxable remuneration.

Filing Returns & Payment

Personal income tax returns must be filed on or before March 31 with respect of the preceding calendar year. Taxes 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 rents and income from liberal professions and businesses.

Under certain conditions, assessable income may be excluded from the personal tax return, such as in the following cases:

• Certain types of interest that has been subject to 15% withholding tax;

• Gains from the sale of immoveable 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 immoveable property. Rates generally range from 1% to 5%. The 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 for that tax period.

Certain payments made to foreign companies not carrying out business in Thailand are subject to 15% final withholding tax. These include interest, capital gains, rents, royalties and service fees. Dividends are subject to a 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-taxation 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 the 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, merit for decentralisation and for the development of industrial areas.

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

Businesses operating in a super cluster 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 duties on imported machinery.

Tax incentives are offered to promote investment in targeted industries in the Eastern Economic Corridor, which will consist initially of the Chachoengsao, Chonburi and Rayong provinces. Incentives include a corporate income tax exemption for up to 15 years and exemption from import duties on machinery and raw and essential materials.

Production Efficiency Incentives

A threeyear corporate income tax exemption capped at 50% of the total investment amount is granted to both BOI-promoted and non-BOI-promoted companies that conduct the following types of investments:

• Investments to upgrade machinery that will either save energy, use alternative energy or reduce the environmental impact of existing machinery;

• Investments in manufacturing technology or machinery to increase production efficiency; and

• Investments in research and development (R&D) to upgrade manufacturing technology and engineering designs. The conditions to be met include the following:

• Operating a business eligible for BOI promotion;

• A minimum capital investment of BT1m ($29,000) in each project, which is reduced to BT500,000 ($14,500) for SMEs; and

• A minimum investment amount for R&D based on the percentage of turnover.

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 (VAT).

A bonded warehouse can be established with Thai Customs’ approval. Under a bonded warehouse scheme, imported goods stored in an established bonded facility for the purpose of re-export shall be exempted from payment of import and 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.

VAT Regulations

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 ($52,100) per year are exempt from VAT. Foreign businesses may be exempt from VAT registration if they only carry on 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 and 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, claim a corporate income tax deduction for the VAT paid.

VAT Rates

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 used 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 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 paid 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 for their use in Thailand shall be liable to remit the VAT on these services to the Revenue Department.

Specific Business Tax

Businesses that are not subject to VAT may be subject to specific business tax instead. A specific business tax is levied on the gross receipts of the business. Businesses subject to the specific business tax and the applicable tax rates fro their operations include:

• 3% for sale of immoveable property;

• 3% for factoring;

• 3% for securities repurchase agreements;

• 3% or 0.01% for banking and similar businesses;

• 3% or 0.01% for finance, securities and credit foncier;

• 2.5% for life insurance; and

• 2.5% for pawnbroking businesses. In addition, a 10% municipal tax is imposed on top of the specific business tax rate. The specific business tax is payable to the Revenue Department on a monthly basis. Such taxes on the sale of immoveable property, such as land, condominium units or buildings, will be paid to the Land Department upon registration of the sale. A number of exemptions to the specific business tax are provided under the law.

Customs Duties

Customs duties are imposed on certain imports and exports. Export duties are generally imposed on only two groups of commodities: those 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 bases, 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, New Zealand and ASEAN member states.

Generally, under current Thai Customs regulations the import value for the calculation of import duty is based on the cost, insurance and freight model. Meanwhile, the calculation for exports is based on the free-on-board model. The Customs valuation is made under the international General Agreement on Tariffs and Trade, which primarily uses the transaction value based 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 upon importation. In addition to excise duties, an interior tax at the rate of 10% may be imposed.

Stamp Duty

Stamp duty is levied 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. With loan agreements, for example, the stamp duty is capped at BT10,000 ($290). Flat rate duties range from BT1 ($0.03) to BT$200 (5.80) per instrument. A number of exemptions from stamp duty are provided under the law. Documents which have not been stamped cannot be used as evidence in a civil case.

Other Taxes & Fees

Inheritance tax applies to certain inherited assets, including real estate, securities, registered vehicles and deposits, among others. The first BT100m ($2.9m) is not subject to inheritance tax. Parents or descendants are taxed at a rate of 5%, while other heirs are taxed at 10%. Certain heirs such as the deceased’s spouse and state organisations are exempt from inheritance tax.

A 5% gift tax applies to gifts over BT20m ($579,000) to a spouse, parents or descendants, and to gifts over BT10m ($289,000) in other cases. 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.

Real estate leases longer than three years are subject to a 1% registration fee. House and land tax is collected yearly 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. The draft of a new property tax law has recently been approved by the Cabinet and will see these two taxes replaced by a tax imposed on the official appraised price of the property. An annual tax applies to signboards.