Doing Business in Thailand

What should you know about Thai Corporate Income Tax?

(I updated this post in january 2012)Taxes are not really my favorite cup of tea and I guess most of you think the same; the problem is that you cannot invest successfully in Thailand without having a minimum understanding of those issues.  Of course there is more to taxation that I will explain herein, those are only the basics

Who are the subjects of corporate income tax?

The subjects to corporate income taxes are any juristic companies and partnerships, including private and public limited companies; registered ordinary and limited partnerships, joint ventures, foundations and associations.

Are also subjects to corporate income taxes any business or profit seeking enterprises operated by foreign government or organizations owned by foreign government as well as any other juristic persons organized under foreign law or any other juristic persons designated by the Director-General with approval of the Minister.

When does a juristic person become liable to corporate income tax?

Are liable to corporate income tax:

(1) any resident juristic person registered under Thai laws; or

(2) any non-resident juristic person registered under foreign laws and

(i) carrying on business in Thailand; or

(ii) deemed carrying on business in Thailand; or

(iii) not carrying on business in Thailand but receiving assessable income paid either from or in Thailand.

As already explained above any juristic person liable to the corporate income shall apply for a Tax ID and number registration at the Revenue Department tax within 60 days of its incorporation.

When a foreign company is deemed carrying on business in Thailand?

A juristic person organized under foreign law is deemed carrying on business in Thailand if it has:

(i) an employee, a representative or a go-between in Thailand,

(ii) for the purposes of carrying out business,

(iii) that derives income or gains in Thailand.

If those conditions are fulfilled then the employee, representative or go-between will be deemed to be the foreign juristic person agent and will have the duty to file a return and pay taxes on behalf of the foreign juristic person and he must apply for the Tax ID within 60 days of the start of business operations in Thailand;

May non-resident juristic persons not carrying on business in Thailand be subjected to corporate income tax in Thailand?

Of course, Thai Revenue Department is not different from the French or US tax administrations.

It likes to cover all its bases which are why taxes may be withheld at the rate specified by the Revenue Code (or double tax treaties), on specific categories of assessable income paid either from or in Thailand.

Thai revenue code withholding taxes rates on overseas payments are currently between 5, 10 or 15 percent. For example, payments of dividends by juristic persons registered in Thailand to their foreign shareholders are subject to a 10% withholding tax, payments of royalties are subject to a 15% withholding tax, and payments of interests are subject to 15% withholding taxes.

What is the income subject to corporate income taxes?

If your company is a resident juristic person, (registered under Thai laws) it will be subject to corporate income tax on all its income earned from sources within and outside Thailand.

If your company is a non-resident juristic person carrying or deemed carrying on business in Thailand it will be subjected to corporate income tax, on the income arising from or in consequence of the business carried on in Thailand during an accounting period.

What expenses are deductibles from the net profits of a resident juristic person?

Thai Revenue Code (“TRC”) section 65 and 65 bis sets the principles applicable to the determination of the computing taxable net profit of resident juristic persons. Are deductible from your company gross income expenses such as:

(1) all normal business expenses; and

(2) depreciation allowances; and

(3) employer’s contributions to a registered provident or pension fund; and

(4) gifts or  donations made up to a total of 4% of net profit;

(5) entertainment and representation expenses may be deducted only up to a maximum amount. The amount of deduction allowed is calculated either as a percentage of the gross sales, or of paid-up capital at the closing date of the accounting period, whichever is greater.

With regard to depreciation expenses, the annual rate of depreciation will vary from 5 to 20 years depending of the item and your company inventory may be valued either at cost or at market price, whichever is the lowest

What expenses are not deductible from the net profits of a resident juristic person?

The following expenses are not deductible: Expenditures which amount is determined based on net profit (e.g. bonuses paid as a percentage of net profit) at the end of an accounting period are not deductible. In addition, tax penalties, surcharges and criminal fines under the Revenue Code are non-deductible expenses. To those who need to add more employees on their taxes and social security role than they actually have (to fulfill immigration requirement of four Thai employees per visa (B) do not declare as an expenses the salary of those additional employees that you do actually not paid. The Revenue Department does not care if your company have fictive employee for as long as the employer does not try to pass the fictive salaries as deductible expenses.

How are dividends accounted for?

You may exclude from 50 to 100% of the dividends income your company receive from a from your company assessable income.  The 100% exclusion is available if the recipient either is listed with the Securities Exchange of Thailand, or owns at least 25% of the shares of the payer company for at least 3 months both before and after receiving such income, and the payer company does not hold any shares in the recipient company.

How are capital gains accounted for?

Capital gains are treated as ordinary taxable income. Unrealized gains and losses from foreign currency exchange must be included in the computation of taxable net profit.

May net losses be carried forward?

Yes, net losses can be carried-up for up to five consecutive years. Note that a service company that loses money will end up paying corporate income taxes anyway through the mechanism of withholding taxes (please see below).

How are Net Profits of Non-resident Juristic Person Computed?

Net profit of non-resident legal entities (for example a foreign company’s branch) are computed by referring to the revenue arising from or in consequence of the business carried on in Thailand in each accounting period.

May be deducted from the revenue the expenses mentioned in Sections 65 bis and 65 ter of the TRC.

According Section 65 ter (14) TCR the deduction of any expenses not exclusively expended for the purpose of the business in Thailand is not allowed.

Expenses paid by a Thai branch to its foreign head office or branch for assistance or services may be treated as expenses for the computation of the net profits, only if said expenses have been made in connection with assistance or services given by head office or branch related to the business of the Thailand branch.

Research & development expenses services may be treated as expenses for the computation of the net profits only if they are made for the Thailand branch or the results of such R&D are actually applied for the benefit of the business of the Thailand branch. Expenses already treated as expenses in the computation of net profits of the foreign head office/branch may not be treated as expenses of the Thailand branch.

How are expenses of the foreign head office allocated?

The allocation of the expenses made by a foreign head office/branch to the Thailand branch must;

(1)conform to the Generally Accepted Accounting Principles (GAAP) and

(2) be consistently applied to the branches in other countries; and

(3) not belong particularly to the head office or another branch.

Therefore, office rentals, water and electricity charges, stationery expenses, costs of appliances, wear and tear and depreciation of appliances or equipment of a foreign branch may not be allocated to the Thai branch.

The Thai branch may deduce the expenses paid to its foreign head office or branch for assistance or services only if documents or certificates substantiate these expenses and if the documents or certificates permit to establish that the expenses are genuinely necessary and reasonable expenses for the conduct of business of the Thailand branch.

The Revenue Department reserves the right to challenge claimed expenses and declare them taxable income.

All Tax Treaties signed by Thailand allow overhead expenses to be allocated to the Thai branch of a foreign company as if it is a separate legal entity but the Revenue Department continues to apply the restriction of 65 TRC to prohibit the allocation and only allows tax deductions to branch of foreign companies which complies with conditions of DI Paw.13/2529.

There is an inequity in terms of tax treatment between foreign companies’ branch offices and Thai companies, which can enjoy the tax deductibility of overhead expenses.

What are the corporate income taxes rates applicable?

The normal tax rate for juristic companies or partnerships (Branch, Agent, Joint Venture), is from 1st january 2012 of 23 % (instead of 30% before) of the net profit at the Company Level and 10% of withholding tax at the shareholders level.

Resident SME that is to say companies that have a paid-up capital of not more than THB 5 million as at the fiscal year-end (regardless of their revenue or assets) will benefit of a tax exemption for the first net taxable profit of THB 150,000.Then they will pay taxes at a rate as follows of:

What are the corporate income taxes rates that are applicable to Regional Operating Headquarters?

Regional Operating Headquarter (ROH) under the promotion granted by the tax revenue department will pay corporate income tax at a rate of 10% only on service income from affiliated enterprise and branches; for services including administrative services, technical assistance, management, research and development (R&D), or training in three other countries or interest income received as a result of re-lending to affiliated enterprises or branches funds borrowed by the ROH or on royalty income derived from affiliated enterprises and branches including its related companies and generated from R&D work performed in Thailand.

ROH are exempt from corporate income tax on dividends received from domestic and overseas affiliated enterprises and branches.

To qualify for the tax incentives, the ROH must meet the following conditions: the ROH must be formed as a corporation under Thai law, has a paid up capital of at least THB10 million (US$250,000) on the last day of any accounting period, provides services to affiliated enterprise or branches in at least 3 other countries.

Income from services provided must form at least 50% of ROH income (reduced to 1/3 for the first three years).

When is corporate income tax due?

Normally juristic persons must file their income tax return and paid their tax to the latest 150 days of the closing of the account period. Note that normally accounting period closed on the 31 December of each year but that companies have the option before the end of the first accounting period to modify the date of the closure of the accounting period. Note also that all juristic persons will after their first accounting period (in the second year) have to file a half-year corporate income tax statement and pay taxes.

Can I trust my tax advisor?

I am about to upset a few people (sorry) but I have to say something about taxes advisors.

They will charge you fees to devise a complex and edgy scheme to save taxes. It might even work for 2 or 3 years and you might save plenty of money at first.

The problem is that the Revenue Department always catches up at the end. Then you will have to pay your tax advisor fees to defend you against the Tax Administration. Then you might lose and will have in addition of your tax advisor fees to pay a fine and interests.

Alternatively, you may win. Do you really want to win against the Revenue Department? I mean, I know a few French people who have actually win against French Tax Administration. Are they better for it? Not at all.

Be smart, pay your taxes, live your life and do not get yourself in more trouble than it is worth.

Note: This post is an excerpt of Rene Philippe Dubout next book: “How to Invest Safely Into Thailand” to be published in January 2010

About the Author:

The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.

http//:www.renephilippe.com

© Copyrights 2009 – Rene Philippe Dubout –This article may be reprinted if information about the author, the websites, and the URLs remain intact.

Originally posted 2009-07-25 11:44:07.

Related posts:

1. Thailand Taxes: Introduction to personal income tax
2. Thailand Taxes: Understanding Thai withholding tax
3. Thailand Taxes: Personal Income Tax Simulation Table
4. Thailand Taxes Reporting Requirements and Sanctions
5. Thailand Taxes – Deductible Expenses under Scrutiny
6. Doing Business in Thailand: Understanding Thai Administration
7. Thailand Taxes: Managing Tax Audits (part 1)
8. Thailand Taxes: Managing Tax Audits (part 2)