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Tax Thailand System
The taxation system raises the revenue from the following taxes:Corporate income tax;Personal income tax;Withholding tax;Value added tax;Specific business tax;Customs duties; andOther taxes (including excise tax, stamp duty and petroleum income tax).The Ministry of Finance administers the tax collections through three central Government Departments ofRevenue;Customs; andExcise.Local Governments levy tax on land (local development tax) and on land with buildings (house and land tax).Tax RegistrationsEvery individual and corporate entity must register for a Taxpayers Identification Card and in the case of a corporate entity the registration must be within 60 days from the date of received income.
All enterprises having income subject to either VAT or Specific Business Tax are also required to register for such tax at least 15 days prior to the commencement of business.Corporate Income TaxCorporate entities which are registered under the Thai law, or which are registered under a foreign law and carrying on business in Thailand, are subject to corporate income tax.
Corporate entities include private and public limited companies, registered ordinary and limited partnerships, joint ventures, foundations and associations, and branches of foreign corporations.
Companies and partnerships are taxed on the income earned from sources within and outside Thailand (worldwide income), whereas foreign corporations are taxed only on income derived from sources within Thailand.
Corporate Income Tax RateThe corporate income tax rate for companies and partnerships (other than an SME, see below) is 30%, which is imposed on the assessable net profits of the business calculated in accordance with generally accepted accounting principles in Thailand, adjusted for specific matters imposed under the Revenue Code.SME Tax RateA Small and Medium Enterprise (defined as a company or partnership with paid up capital not exceeding 5 million Baht as at the end of the accounting period) is granted reduced rates of corporate income tax as follows:Profit RangeTax Rate0 1 million baht1 3 million baht3 million baht and over15%25%30%Assessable Net ProfitsThe following are taken into account when determining taxable net profits:
Tax losses may be carried forward for 5 years;Inventory is to be valued at the lower of cost or market price;Employer’s contributions to provident funds are tax deductible, subject to certain conditions;Bad debts may be written off only after the specific tax rules and procedures are followed;Expenditure, which has been determined on the basis of net profit at the end of the accounting period (e.g. bonuses based on net profit) are not allowed;Provisions/reserves cannot be treated as a deductible expense;Capital gains are treated as ordinary taxable income;Deductions for gifts, donations and contributions to public charities may not exceed the percentage stipulated in the law;Both realized and unrealized gains and losses from foreign exchange must be included in the computation of taxable net profit;Entertainment expenses are deductible up to maximum limits;50% of dividend income received by a Thai company from another Thai company is excluded from assessable income, subject to conditions;100% of dividend income can be excluded from the assessable income of Thai companies listed on the Securities Exchange of Thailand and for other private limited companies, subject to conditions; andTax costs (such as corporate income tax, VAT, tax penalties and surcharges) may not be deducted from assessable income.Depreciation DeductionsDepreciation of assets is limited to maximum rates prescribed in the tax law. These maximum rates are as follows:AssetMax. Depreciation RateBuildingsDurable buildingsTemporary buildings5%100%Acquisition cost of depletive natural resources5%Acquisition cost of lease rights where there is no leasecontract or where the lease contract allows successiverenewalsWhere the lease contract contains no renewal periods or therenewal periods are limited10%100% divided by the number of limitedyearsAcquisition cost of a right in a process, formula, goodwill,trademark, business license, patent, copyright, or any otherright where the period of use is not limitedWhere the period of use is limited10%100% divided by the number of limitedyearsOther assets subject to depreciation20%Corporate Income Tax FilingsAn annual corporate income tax return is required to be filed within 150 days after the close of the accounting period and the computed amount of tax payable is required to be paid at the same time. surcharge of 1.5% per month (up to the amount of the tax payable) is imposed for late filings.
A half-year corporate income tax return based on estimated net profits for the full financial year must be filed within two months after the close of the first half of the accounting period, and the computed amount of half-year tax is required to be paid at his time. If the half-year tax payment is underpaid by more than 25%, a penalty of 20% of the amount underpaid is payable.
International TransportationFor companies or partnerships organized under foreign laws and engaged in the business of international transportation, corporate income tax is imposed in the following manner:
In the case of transport of passengers, tax is paid at the rate of 3% of the fares, fees and any other benefits collectible in Thailand in respect of the transport business, before the deduction of any expenses;In the case of transport of goods, tax is paid at the rate of 3% of the freight, fees and any other benefits collectible (whether in Thailand or elsewhere) in respect of the transportation of goods from Thailand, before the deduction of any expenses.Foundations and AssociationsFoundations and associations are subject to either 2% or 10% income tax, depending on the type of gross revenues, except that membership fees and dues are tax-exempt.
Withholding TaxThailand operates an extensive system of withholding tax for both domestic payments of various types of assessable income and international payments or repatriations of income out of Thailand.The tax withheld must be remitted to the Revenue Department within the 7th day of the following month, and a surcharge of 1.5% per month applies for all late payments made.Domestic Payments Withholding TaxThe major types of “assessable income” paid domestically and the applicable withholding tax rates are as follows:Type of Domestic Payment
Withholding Tax RatePayment for hire of work, office of employment or services rendered3%Payment for goodwill, copyright, franchise fee, patent, or other rightsand annuities3%Payment of interest to individualsPayment of interest to banks etcPayment of interest to other companies15%1%1%Payment of dividends and bonuses to investors10%Payment for leasing of property5%Payment of liberal professional income such as law, engineering,architecture and accounting3%Payment for contracting work3%Payment for advertising fees2%A withholding tax certificate is issued to the recipient of the payment, who then claims the withholding tax as a tax credit in his annual income tax return. In the event the withholding tax exceeds the annual tax liability, the taxpayer is entitled to a refund of the tax over-paid, although in practice such claims will trigger a Revenue Department tax investigation, which must be completed prior to refunding the tax.
International Payments Withholding TaxInternational payments or repatriations of income from Thailand to a foreign company not carrying on business in Thailand are subject to the following withholding taxes (subject to any reduction in the rates afforded by a Double Tax Agreement):Type of International PaymentWithholding Tax RatePayment of dividends10%Payment of interest15%Payment of rent15%Payment of royalties15%Payment for services15%Payment of capital gains15%A non-resident withholding tax certificate (in English) can be obtained by the payer from the Thailand Revenue Department and passed onto the foreign recipient for claiming the tax credit or otherwise according to the rules in the recipient’s country.Personal Income TaxEvery individual who derives income from employment in Thailand is subject to Thai personal income tax, whether such income is paid in or outside of Thailand, and irrespective of his length of stay in Thailand.
A person who is present in Thailand for more than 180 days in any tax year (calendar year) is subject to tax, both on income from employment or business carried on in Thailand and on income from foreign sources to the extent that such income is brought into Thailand.Exemptions are granted to UN officers and diplomats under the terms of international and bilateral agreements.
Personal Income Tax RatesPersonal income tax is applied on a progressive basis, and the rates are as follows:Income Range (Baht)Tax Rate0 100,000100,001 500,000500,001 1,000,0001,000,001 4,000,0004,000,001 0%10%20%30%37%Exclusions from Assessable IncomeCertain categories of income are excluded for the purpose of computing personal income tax as follows:
Relocation expenses paid by the employer to the employee for travelling from another location to assume employment for the first time, and for returning to his place of origin at termination of employment;Per diem or transportation expenses;Medical expenses paid by an employer for his employee and/or the employee’s spouse, ascendants and descendants;Income from the sale of immovable property acquired by bequest or by way of a gift (but a sale of immovable property made for commercial purposes must be included in assessable income);Profit from the sale of residential property, if the profit is spent on purchasing another residential property within 1 year before or after the date of sale;Gains on sale of shares traded on the Stock Exchange of Thailand;Interest income may be excluded for the purposes of computing personal income tax, when the interest has been subject to 15% withholding tax at source; andDividend income may be excluded for the purposes of computing personal income tax, when the dividends have been subject to 10% withholding tax at source.Standard DeductionsStandard deductions are allowed against personal income as follows:
Type of Assessable IncomeStandard DeductionIncome from employment40% of income but not exceeding 60,000 BahtIncome from copyright40% of income but not exceeding 60,000 BahtType of Assessable IncomeStandard DeductionIncome from rent30% for buildings and wharves, 20% foragricultural land, 15% for other types of land, 30%for vehicles and 10% for other propertyIncome from liberal professions60% for medical professionals and 30% for otherprofessionalsIncome from contract of work whereby thecontractor provides essential materials besidestools70% of income or actual expensesIncome from business, commerce, agriculture,industry, transport and other activities65-85% of income depending on the type ofincome or actual expensesStandard AllowancesIn addition to standard deductions, the following standard allowances are allowed:Taxpayer allowance30,000 BahtSpouse allowance30,000 BahtChild allowances15,000 Baht for each child (maximum of 3children)Education allowances2,000 Baht for each child studying in ThailandParent and parent-in-law maintenance allowances30,000 Baht for each parent and parent-in-lawbeing cared forParent and parent-in-law health insuranceallowancesAmount paid, but not exceeding 15,000 Baht foreach parent and parent-in-lawLife insurance premiumsAmount paid, but not exceeding 50,000 Baht forthe taxpayer and 10,000 Baht for spouseApproved provident fund contributions15% of income, but not exceeding 300,000 Bahtfor taxpayer and 10,000 Baht for spouseRetirement mutual fund contributions15% of income, but not exceeding 300,000 Bahtfor taxpayerLong term equity funds15% of income, but not exceeding 300,000 Bahtfor taxpayerSchool welfare fundsAmount paid, but not exceeding 300,000 Baht fortaxpayerHome mortgage interest allowanceAmount paid, but not exceeding 100,000 BahtSocial security contributionsAmount paid for taxpayer and spouseCharitable donationsAmount paid but not exceeding 10% of incomeafter deductionsPersonal Withholding TaxAll employers in Thailand are required to deduct withholding tax from all payments of salary and wages, hire of work, office of employment or services rendered using the progressive rates of personal income tax, and remit such deductions to the Revenue Department within 7th day of the following month.
Employers are required to issue Withholding Tax Certificates to employees by 15th February each year or within 1 month of termination of employment
Personal Income Tax ReturnsAll individuals are required to file an annual personal income tax return by 31 March each year. Any additional tax must be paid at the same time. In the event tax has been over-withheld a refund may be claimed.Value Added TaxMost businesses are required to register for VAT, the exceptions being:Those business operations subject to specific business tax; andExempt business such as agriculture, sale of newspapers, educational establishments, etc;Rates of VATThere are two rates of VAT as follows:
0% rate for export of goods and services; and10% standard rate (which has been temporarily reduced to 7%) for sales of goods and provision of services in Thailand and import into Thailand.Liability to VATLiability to VAT for sale of goods arises at the time of delivery of goods unless transfer of ownership, receipt of payment or issuance of a tax invoice occurs prior to delivery.
Liability to VAT for provision of services arises at the time the service fee is received, unless a tax invoice is issued earlier or the service is used before payment is made.Tax InvoicesVAT operators are required to issue tax invoices to their customs and such tax invoices must be serially numbered. The tax invoice must include the particulars and the information stipulated in the Revenue Code.
Credit NotesWhere the value of the goods or services sold to a customer has to decrease, a credit note is issued to the customer. This credit note must also include the particulars and the information stipulated in the Revenue Code.
VAT ReturnsMonthly returns must be completed and filed by the 15th day of each month (in respect of the preceding month’s VAT transactions). The net VAT amount is required to be paid to the Revenue Department at the same time, and is calculated as the amount of output VAT (VAT charged to customers) less input VAT (VAT incurred on goods and services purchased).
For imported goods, the VAT is collected by the Customs Department, which issues a tax receipt. This tax receipt then becomes input VAT and is claimed against output VAT in the monthly VAT returns.Certain input VAT cannot be claimed as an offset against output VAT. These include input VAT on entertainment expenses, input VAT on passenger vehicles, input VAT where a proper tax invoice is not available or where the tax invoice is incorrect or incomplete, and input VAT where a tax invoice has been issued by a person not authorised to do so.If input VAT exceeds output VAT, the excess input VAT is carried forward and offset against future month’s VAT returns or an application can be made for a refund of the excess input VAT.
VAT RecordsInput and output VAT records must be maintained and these must detail all the VAT transactions occurring during the month. In addition, operators who carry out sale of goods are required to maintain a goods and raw materials record.VAT on Imported ServicesFor payment of services provided by foreign companies not carrying on business in Thailand, such as payments for management fees, royalties and technical service fees etc, the recipient of the services in Thailand is required to pay the VAT.
The VAT on the offshore payments is remitted to the Revenue Department by the 7th day of the following month, and the receipt issued by the Revenue Department is treated as input VAT and claimed in the monthly VAT return for the month that the VAT is paid.Specific Business TaxCertain business transactions are subject to specific business tax (SBT) rather than VAT. Such business transactions and their SBT rates are as follows:
Type of Business TransactionSBT RateBanking businesses3.3%Finance, securities and credit foncier businesses3.3%Life insurance businesses2.75%Pawn broker businesses2.75%Businesses with transactions similar to commercial banking3.3%Sale of immovable property in a commercial manner of for profit3.3%SBT is applied on the monthly gross receipts, and a monthly tax return must be filed on or before the 15th day of the following month and the SBT concurrently paid. Excise TaxExcise tax is levied on petroleum and oil products, non-alcoholic beverages, liquor, beer and tobacco, certain air-conditioners, certain light fittings, crystal, passenger cars, yachts and pleasure craft, perfume and cosmetics.Stamp DutyThe execution of 28 different types of documents and instruments specified in the Stamp Duty Schedule are subject to stamp duty (SD).The rates of SD applying to some of the more common types of documents and instruments are as follows:Type of Document or InstrumentSD RateLease of land, building, other construction or floating house0.1%Transfer of share, debenture, bond, certificate of indebtednessissued by a company, association or organisation0.1%Hire purchase of property0.1%Hire of work contract0.1%Loan of money or agreement for a bank overdraft0.05% but subject to a maximum of10,000 BahtPolicy of insurance against loss0.4%Other policies of insurance0.05%Receipt issued in connection with a transfer of or a creation ofany right in an immovable property0.5%Receipt issued in connection with a sale, letting out on hirepurchase or transfer of ownership in a vehicle0.5%House and Land TaxHouse and land tax is levied by local authorities and is paid on the value of houses not occupied by the owner, industrial and commercial buildings and the land in connection therewith.
The rate of tax is 12.5% of the annual rental value of the property, which is defined as the amount for which the property can be let from year to year.Local Development TaxLocal development tax is assessed on the appraised value of land (but not including land with building structures situated thereon), such value being determined by the local authorities.
Double Taxation AgreementsThailand has concluded 52 double taxation agreements in order to provide relief from international double taxation of income. A listing of the counties and territories and their effective dates is attached in Appendix I (see end of publication).Transfer Pricing GuidelinesIn 2002, Thailand introduced Transfer Pricing (TP) guidelines to Revenue officers for their use when examining pricing arrangements between related parties. The guidelines require the Revenue officers to be concerned with arrangements that don’t apply “market prices” between “related parties”.The related party connection between two or more companies is determined according to:Direct or indirect shareholding in one company by another; orCommon directors and/or management.Under the guidelines, the Revenue Department officers are permitted to accept four kinds of pricing methods by companies as follows:Comparable uncontrolled price (CUP) method;Resale price (RP) method;Cost price (CP) method; andOther (Other) internationally accepted method.
The CUP, RP and CP methods are favoured. The use of another method is acceptable when a company can demonstrate that the first three methods cannot be applied, when the other method is internationally accepted, and when it can be appropriately applied in the circumstances.
The guidelines also set out a list of 10 documents’ that the Revenue officers will require when examining a company’s TP practices and transactions. The list of 10 documents’ is as follows:
1. Documentation relating to the structure and nature of the company and the international group towhich it belongs;2. Budgets, business plans and financial projections;3. Documentation setting out the company’s business strategies and the reasons for their adoption;4. Documentation setting out the company’s sales and operating results and the nature of its dealings with related parties;5. Documentation setting out the reasons for entering into significant international dealings with related parties;6. Pricing policies and documents relating to product profitability, relevant market information, profit contributions, functions performed, assets used and risks assumed;7. Documents setting out the reasons for the company’s selection of a particular pricing methodology or methodologies;8. Where other methods have been considered and rejected, details of those other methods, including the reasons for their rejection;9. Documents evidencing the negotiation process taken by the company in relation to its international dealings with related parties and the basis of the negotiations;10. Other documentation determining the market price.
The guidelines also allow companies to enter into an Advance Pricing Arrangement (APA) with the Revenue Department. Companies wanting to make an APA can do so by submitting an application to the Revenue officers and attaching all the relevant documents pertaining to the pricing issues.
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