Thailand Taxes - Deductible Expenses under Scrutiny

Thailand Taxes – Deductible Expenses under Scrutiny

February 3 2012 Categories: Thailand Taxes No comments yet

I told my business owners clients that this year would be a bad one for all of us not only because we have to survive amid the context of the global economic downturn and the political crisis but also because economical crisis’s do not only affect companies they also affect the Thai Revenue Department and this year was a bad one for the Revenue Department with collections that will fall short of the target by Bt170 billion (first estimation was a shortfall of 300 billions) THB.

Why is a Collection Shortfall Bad News for Company Owners ?

Now the Revenue Department faced with a collection shortfall is bad news for business owners because it means that they will have to deal with Tax Officials who will be trying at all costs to pressure companies that are barely surviving the crisis to paid more taxes.

Of course the easiest way to do it is to review in details companies deductible expenses accounts in order to increase companies’ taxable profits.

One of our customers who is running a service commissions based business has just been audited recently by the Tax Revenue Department. Now the Tax Official found that the salaries of the Thai employees of the company were too high and that a company paying high salaries to its Thai employees was certainly up to something.

While the company accountants explained that the high salaries of the Thai employees of the company were the result of a commission based remuneration system and provided all documentary records permitting to establish that the company was really paying the declared salaries to its Thai employees, that security socials payments were made, that withholding tax on employees salaries was paid every month and that the Thai employees of the company were filling proper personal income tax returns and paying their personal income tax on their whole declared salary the Tax Official was still not satisfied by the evidences and explanation provided.

Hence the Official requested that Thai employees of the company been requested to come for an interview in order to confirm that they were really receiving said remuneration and to explain to the tax officer how their monthly salaries were calculated.

Fortunately after 3 hours meetings with the company employees the Tax Official had to acknowledge that the company was indeed paying the salaries as claimed in its expenses account to its Thai employees.

But the Tax Official could not let it go like that. So the next step was to contest the legal expenses invoiced by the company lawyer for the renewal of the work permit and of the one year visa of the company foreign director on the based that those expenses were made for the exclusive director personal benefit not for the company but this is another story.

The End of an Era

The point of this post is that for years business owners have beneficiated from the fact that the Revenue Department officers were not really checking the expenses accounts of the small and medium companies they were auditing but were only checking whether taxes (when applicable) on those expenses were paid.

It seems that this is the end of an era and that we are about to enter into a new area were Tax Officials will be scrutinizing all and every expenses recorded into companies expenses account therefore be careful what you are doing.

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

Originally posted 2009-09-24 05:17:58.

Doing Business in Thailand