Taxation in Thailand

1. Corporate Income Tax

Corporate Income Tax (CIT) is a direct tax levied on a juristic company or partnership that is established under Thai or foreign law and carries on business in Thailand or derives certain types of income from Thailand.

The term “juristic company or partnership” (hereinafter called “company”) means a limited company, a limited partnership, or a registered ordinary partnership incorporated under Thai or foreign law as well as an association or foundation engaged in revenue producing business. The term also includes any joint venture and any trading or profit-seeking activity carried on by a foreign government or its agencies or by any other juristic body incorporated under a foreign law.

Taxable Persons

CIT is levied on both Thai and foreign companies. A Thai company is a company incorporated under the law of Thailand. A Thai company is subject to tax in Thailand on its worldwide income, both from Thailand and foreign sources. These taxes are levied at the end of each accounting period (12 months).

A foreign company is a company incorporated under foreign law. Generally, a foreign company is deemed as carrying on business in Thailand if it has an office, a branch, or any other place of business in Thailand, or it has an employee, agent, representative, or go-between in Thailand to carry on its affairs and thereby derives income or gains here.

A foreign company carrying on business in Thailand is subject to CIT only for income arising from or in consequence of such business. These taxes are levied at the end of each accounting period. However, a foreign company engaged in international transport is only subject to tax on its gross ticket receipts collected in Thailand for passenger transportation and its gross freight charges collected anywhere for transportation of goods from Thailand in lieu of tax on net profit. Additionally, when a foreign company disposes its profits outside of Thailand, such profits will be subject to tax relative to the sum disposed. Profit also entails any sum set aside out of profits as well as any sum that may be regarded as profit.

Tax Calculation

The CIT of a company carrying on business in Thailand is calculated from the company's net profit on an accrual basis. A company shall take into account all revenue arising from or in consequence of the business carried on in an accounting period and deduct from that figure all expenses as prescribed by the Revenue Code. For dividend income, one-half of the dividends received by Thai companies from any other Thai companies may be excluded from the taxable income. However, the full amount may be excluded from taxable income if the recipient is a company listed on the SET or the recipient owns at least 25% of the distributing company’s capital interest, provided that the distributing company does not own a direct or indirect capital interest in the recipient company. The exclusion of dividends is applied only if the shares are acquired not less than three months before receiving the dividends and are not disposed of within three months after receiving the dividends.

Since September 2008, where a company has entered into an interest rate swap, cross currency swap, or cross currency interest rate swap contracts of which the swapper is also a lender, the payment for the differences derived from the currency and interest rate swap will be regarded as income under Section 40(4)(a) of the revenue Code only if there is a circumstance showing that the counterparties have an intention to enter into a loan agreement and intentionally execute an additional swap contract to change the remuneration stipulated under the loan agreement to be a remuneration item under the swap contracts, i.e. the swap contract is created without an intention to hedge against the fluctuation in the interest rate and foreign currency. If the transaction is truly for a hedging purpose, the payment for the difference under the swap transaction will be regarded as income under Section 40(8) of the Revenue Code and the payer will not be required to withhold tax when making such payment.

In calculating CIT, deductible expenses are as follows.

1. Ordinary and necessary expenses. However, the deductible amount of the following expenses is allowed at a special rate:
- 200% deduction of Research and Development expense,
- 200% deduction of job training expense,
- 200% deduction of expenditure on the provision of equipment for the disabled;
2. Interest, except interest on capital reserves or funds of the company;
3. Taxes, except for CIT and Value Added Tax paid to the Thai government;
4. Net losses carried forward from the last five accounting periods;
5. Bad debts;
6. Wear and tear;
7. Donations of up to 2% of net profits;
8. Provident fund contributions;
9. Entertainment expenses up to 0.3% of gross receipts but not exceeding 10 million baht;
10. Donations made to public education institutions or for the maintenance of public parks, public playgrounds, and/or sports grounds;
11. Depreciation: Provided that in no case shall the deduction exceed the following percentage of cost as shown below. However, if a company adopts an accounting method in which the depreciation rates vary from year to year, the company is allowed to do so, so long as the number of years over which an asset is depreciated is not less than 100 divided by the percentage prescribed below.

*Companies that benefit from this method will not be permitted to take the benefit of the tax exemption on income equal to 25% of capital expenditure that is otherwise available under Royal Decree No. 460.
** SMEs refer to any Thai companies with fixed assets less than 200 million Baht and number of employee not exceeding 200 people.

Tax Rates

The corporate income tax rate in Thailand is 30% on net profit. However, the rates vary depending on the type of taxpayer.

Withholding Tax

Certain types of income paid to companies are subject to a withholding tax at the source of income. The withholding tax rate depends on the type of income and the tax status of the recipient. The payer of income is required to file the return (Form CIT 53) and submit the amount of tax withheld to the District Revenue Office within seven days of the following month in which the payment is made. The tax withheld will be credited against the final tax liability of the taxpayer.

Government agencies are required to withhold tax at the rate of 1% on all types of income paid to companies.

Tax Return and Payment

Thai and foreign companies carrying on business in Thailand are required to file their tax returns (Form CIT 50) within 150 days of the closing date of their accounting period. Tax payment must be submitted with the tax return. Any company disposing profits outside of Thailand is also required to pay tax on the sum so disposed within seven days of the disposal date (Form CIT 54).

In addition to the annual tax payment, any company subject to CIT on net profit is also liable for tax prepayment (Form CIT 51). A company is obliged to estimate its annual net profit as well as its tax liability and pay half of the estimated tax amount within two months of the end of the first half of its accounting period. Prepaid tax is creditable against annual tax liability. Failure to pay the estimated tax or underpayment by more than 25% may subject the taxpayer to a fine amounting to 20% of the amount in deficit.

A foreign company paying income to foreign companies not carrying on business in Thailand is subject to a flat tax that must be withheld at the time of payment. The payer must file the return (Form CIT 54) and make the payment to the Area Revenue Branch Office within seven days of the following month in which the payment is made.

Failure to file a tax return, late filing, or filing a return containing false or inadequate information may subject the taxpayer to various penalties. Failure to file a return, and subsequent non-compliance with an order to pay the tax assessed, may result in a penalty equal to twice the amount of tax due. Penalties are due within 30 days of assessment.

Small and medium –sized enterprises (SME) have been granted exemption from corporate income tax for the first Baht 150,000 of net taxable profit and the net taxable profit in excess of Baht 150,000 will be taxed as follows: 15% on net profit exceeding baht 150,000 but not exceeding baht 1 million; 25% on net profit exceeding Baht 1 million but not exceeding Baht 3 Million; and 30% on net profit exceeding Baht 3 million.

Losses

Net losses may be carried forward for five accounting periods so that they may be offset against future profits from all sources. There is no provision for loss carry-back.

If a company has more than one project that has been granted investment promotion, income and expenses of all promoted projects within the same accounting period must be computed under the provisions of the Revenue Code, so as to incur a net profit or net loss of the promoted project. Thus, the loss of a promoted project is required to be offset against a profit from another promoted project within the same accounting period in order to obtain a net profit or net loss of all promoted projects within the accounting period.

If one promoted business is subject to a reduction of 50% of the corporate income tax rate and a non-promoted business is subject to the normal tax rate, the company is entitled to first deduct the annual loss of the promoted business against the net profit of the promoted business. If an annual loss remains, the company is entitled to deduct such loss against the net profit of the non-promoted business.

Note: The Board of Investment has appealed this decision and it is now being considered by the Minister of Finance.

Loss on Investment from Liquidation

Where a Thai debtor company has incurred a significant loss and increases the share capital for settlement of the liability owed to its parent company for liquidation purposes, the Thai creditor company can recognize the loss on the investment in such increased share capital as a deductible expense. The loss will be allowed to be deductable only upon the completion of the liquidation of the debtor and to an extent not exceeding the amount receivable from the debtor as of the date of the capital increase. The following conditions must be met:

The creditor is organized under Thai law and holds at least 25% of the voting shares in the debtor from the time of the incorporation of the debtor until the increase in capital.

• The receivable due from the debtor qualifies for writing-off under Ministerial Regulation No. 186.
  
• The dissolution and liquidation of the debtor must commence within a period not exceeding one accounting period from the accounting period in which the debtor has increased its capital.

Tax Credits

Thai companies can use foreign tax paid on business income or dividends received as a credit against their CIT liability. The credit cannot exceed the amount of Thai tax on the income had the income been derived in Thailand.

Credit is also given for any Thai CIT that has been deducted at the source (as mentioned above) and for the half-year tax paid.

Remittance Taxes

There are two final types of withholding tax imposed on the remittance of income or profits to foreign companies:

• Remittance of income in the form of:
  
• Brokerage, fees for services 15%
  
• Royalties 15%
  
• Interest 15%
  
• Dividends 10%
  
• Capital gains 15%
  
• Rental of property 15%
  
• Liberal professionals 15%
  
• Remittance of profits after corporate income tax, a sum representing profits, or a sum set aside out of profits or regarded as profits is subject to 10% withholding tax.

Double Taxation Treaties

Countries that have concluded double tax treaties with Thailand and the applicable rates of withholding taxes are as follows:

1.

Source: Thailand Revenue Department

The treaties generally place taxpayers in a more favorable position for Thai income than they would be under the Revenue Code, as profits will only be taxable if the taxpayer has a permanent establishment in Thailand.

Transfer Pricing Rules

Thailand has no detailed transfer pricing legislation. However, transfer pricing guidelines issued by the Thai Revenue Department on 16 May 2002 define the term “market price,” detail the permitted pricing methods, describe the transfer pricing documentation requirements and provide for advance pricing agreements.

2. Value Added Taxes

Value Added Tax (VAT) has been in place in Thailand since 1992, replacing the Business Tax (BT). VAT is an indirect tax imposed on the value added of each stage of production and distribution.

Taxable Persons

Any person or entity that regularly supplies goods or provides services in Thailand and has an annual turnover exceeding 1.8 million baht is subject to VAT. Service is deemed to be provided in Thailand if the service is performed in Thailand, regardless of where it is utilized or if it is performed elsewhere and utilized in Thailand.

An importer is also subject to VAT regardless of whether or not they are registered person. VAT will be collected by the Customs Department at the time goods are imported. Certain businesses are excluded from VAT and are instead subject to Specific Business Tax (SBT).

Under VAT, taxable goods denote all types of property, tangible or intangible, whether they are available for sale, for personal use, or for any other purpose. It also includes any type of article imported into Thailand. Services refer to any activity conducted for the benefit of a person or an entity.

Exemptions from VAT

Certain activities are exempted from VAT. Those activities are:

1. Small businesses whose annual turnover is less than 1.8 million baht;
   
2. Sales and import of unprocessed agricultural products and related goods such as fertilizers,
   animal feeds, pesticides, etc.;
   
3. Sales and import of newspapers, magazines, and textbooks;
   
4. Certain basic services such:
   1. Transportation: domestic and international transportation by way of land;
      
   2. Healthcare services provided by the government and private hospitals and clinics;
      
   3. Educational services provided by the government and private schools and other recognized educational institutions;
      
   4. Professional services: medical and auditing services, lawyer services in court, and other similar professional services that have laws regulating such professions;
      
   5. Renting of immovable properties;
      

    

5. Cultural services such as amateur sports, services of libraries, museums, zoos;
   
6. Services in the nature of employment of labor, research and technical services, and services of public entertainers;
   
7. Goods exempted from import duties under the Industrial Estate law imported into an Export Processing Zone (EPZ) and under Chapter 4 of the Customs Tariff Act;
   
8. Imported goods that are kept under the supervision of the Customs Department which wil be re-exported and be entitled to a refund for import duties; and
   
9. Other services such as religious and charitable services and services of government agencies and local authorities.

Tax Rates

The current VAT rate is 7%.

A zero percent rate is applied to the following items:

• Exported goods
  
• Services provided in Thailand but totally used in a foreign country
  
• Sales of goods or services to government agencies or state enterprises under foreign aid programs
  
• Sales of goods or services to the United Nations or its specialized agencies, such as embassies and consulate generals
  
• Sales of goods and services between bonded warehouses or between enterprises located in a Duty Free Zone
  

VAT Calculation

VAT must be paid on a monthly basis and is calculated as:
Output tax - Input tax = Tax paid
where output tax is the VAT that the operator collects from the purchaser when a sale is made, and input tax is the VAT that an operator pays to the seller of a goods or service that are then used in the operator’s business.

Refund

Each month, if input tax exceeds output tax, the taxpayer can claim a refund, either in the form of cash or in the form of a tax credit to be used in the following months. Therefore, in a zero-rated case, the taxpayer will always be entitled to a VAT refund. As for unused input tax, it may be creditable against output tax within the next six months. However, the refund can only be claimed within three years of the last filing date. Certain input taxes, such as tax in relation to entertainment expenses, are not creditable under VAT. However, those non-creditable input taxes can instead be used as deductible expenses under CIT.

VAT Registration

Any person or entity who is liable for VAT in Thailand must register to be a VAT registered person or entity (Form VAT 01) before the operation of business or within 30 days after its income reaches the threshold. The registration application must be submitted to the Area Revenue Office if the business is situated in Bangkok or to the Area Revenue Branch Office if it situated elsewhere. Should the taxpayer have several branches, the registration application should be submitted to the Area Revenue Office of the province in which the headquarters is located.

Tax Return and Payment

The VAT taxable period is a calendar month. VAT return therefore must be filed on a monthly basis. VAT return (Form VAT 30) together with tax payment, if any, must be submitted to the Area Revenue Branch Office within 15 days of the following month. If the taxpayer has more than one place of business, each place of business must file the return and make a payment separately unless there is approval from the Director-General of the Revenue Department. Services utilized in Thailand and supplied by service providers in other countries are also subject to VAT in Thailand. In such a case, the service recipient in Thailand is obliged to file a VAT return (Form VAT 36) and pay tax, if any, on behalf of the service providers.

In the case where the supply of goods or services is also subject to Excise tax, VAT return and tax payment, if any, must be submitted to the Excise Department together with Excise tax return and tax payment within 15 days of the following month. In the case of imported goods, VAT return and tax payment must be submitted to the Customs Department at the point of import.

3. Personal Income Tax

Personal Income Tax (PIT) is a direct tax levied on an individual taxpayer’s income derived from sources both inside and outside of Thailand. In general, an individual liable for PIT has to compute their tax liability, file a tax return, and pay tax accordingly on a calendar year basis.

Taxable Persons

Individual taxpayers are classified into five categories: a natural person, a group of persons that do not constitute a legal entity, an unregistered ordinary partnership, a deceased person for their assessable income and estate throughout the year in which death occurred, and an undistributed estate of the deceased.

The natural person class can be further divided into “resident” and “non-resident.” “Resident” means any person residing in Thailand for one or more periods totaling more than 180 days in any tax (calendar) year. A resident of Thailand is liable to pay tax on income from sources in Thailand, regardless where the money is paid, as well as on the portion of income from foreign sources that are brought into Thailand. A “non-resident” is subject only to tax on income from sources in Thailand, regardless of payment location.

Assessable Income

Income liable to the PIT is called "assessable income". The term covers income both in cash and in kind. Therefore, any benefits provided by an employer or other persons, such as a rent-free house or the amount of tax paid by the employer on behalf of the employee are also treated as assessable income of the employee for the purpose of PIT.

Assessable income is divided into eight categories:

1. Income derived from personal services rendered to employers (employment income)
   
2. Income derived by virtue of a post, office of employment, or services rendered
   
3. Income from goodwill, copyrights, franchises, patents, other rights, annuities, etc.
   
4. Income in the nature of interest (including interest derived on bank deposits in Thailand), dividends, bonuses for investors, gains from amalgamation, acquisition or dissolution of juristic companies or partnerships, and gains from transferring of shares or partnership holdings, etc.
   
5. Income from leasing property, breaches of contract of installment sales or hire-purchase contracts;
   
6. Income from liberal professions (e.g. law, medicine, engineering, architecture, accountancy and fine arts)
   
7. Income from construction and other contracts of work;
   
8. Income from business, commerce, agriculture, industry, transport or any other activity not specified above.
   

Capital Gains

Most types of capital gains are taxable as ordinary income, with the following exemptions:

• Capital gains from the sale of shares in a company listed on the SET, provided that the sale is made on the SET, and capital gains from the sale of investment units in a mutual fund.
  
• Capital gains from the sale of non-interest bearing government bonds, debentures, bills, or debt instruments issued by a corporate entity or other juristic entities, except in the case where the bonds or debt instruments were sold for the first time to an individual at a price lower than their redemption price and the tax has been withheld from the difference between the redemption price earned and the selling price and the instrument has been stamped to the effect that tax has been so withheld.
  
• Gains from the sale of government bonds.
  

Exemptions

Certain types of income are exempt from PIT. In relation to income from employment, money derived in the form of per diem, traveling expenses, and certain fringe benefits (such as medical treatment) are tax exempt. The exemptions also cover the share of profits obtained from a non-juristic body of persons, maintenance income, income derived under moral obligation, corpus of a legacy, or inheritance, income from a mutual fund or from the sale of investment units in a mutual fund, interest from government bonds earned by a non-resident, etc.

Additionally, in order to support low-income earners and the elderly, an income exemption is granted to taxpayers. The first 150,000 baht of net income is tax exempt. A Thai resident who is 65 years of age or older is also granted a PIT exemption on income received up to an amount not exceeding 190,000 baht.

Computation

Thailand uses a self-assessment system in collecting taxes. Taxpayers are required to declare their tax liabilities in the specified tax returns (PND 90, PND 91) and pay the tax due at the time of filing.

Certain deductions and allowances are allowed in the calculation of taxable income. Taxpayers shall make deductions from assessable income before the allowances are granted. Therefore, taxable income is calculated by:

TAXABLE INCOME = assessable income - deductions - allowances

Deductions and Allowances

Deductions allowed for the calculation of PIT

Special Allowances

Tax Credits

Any taxpayer who domiciles in Thailand and receives dividends from a juristic company or partnership incorporated in Thailand is entitled to a tax credit of 3/7 of the amount of dividend received. In computing assessable income, a taxpayer shall gross up his dividends by the amount of the tax credit received. The amount of tax credit is then creditable against his tax liability.

Tax Credit = Dividend x Corporate Tax Rate/ (100 – Corporate Tax Rate)

Tax Rates

Personal income tax rates applicable to taxable income are as follows.

Effective for taxable income arising from 2008 onward

Withholding Tax for Personal Income Tax

For certain categories of income, the payer of income has to withhold tax at source, file tax return (Form PIT 1, 2, or 3 as the case may be) and submit the amount of tax withheld to the District Revenue Office. The tax withheld shall then be credited against the tax liability of the taxpayer at the time of filing PIT return. The following are the withholding rates on some categories of income.

4. Other Taxes

Specific Business Tax (SBT)

Due to the difficulty in determining the value added by certain businesses for the purpose of VAT imposition, an alternative tax levy on services, especially in the financial services sectors, was introduced in tandem with the VAT regime. Specific business tax (SBT) is collected on gross revenue at fixed rates.

The SBT is computed on the monthly gross receipts at the following rates:

* Scheduled to expire 29 March 2009, it has been extended for one year to 28 March 2010. No regulation issued yet, but approved by Cabinet on 2 December 2008.

Stamp Duty

Certain documents mentioned in the Stamp Duty Schedule of the Revenue Code (e.g. power of attorney, letter of credit, check, bill of lading, service contracts, etc.) must contain documentary stamps of various specified denominations. While the stamp duty is generally at nominal rates, failure to affix such stamps may be subject to a surcharge of up to 600%.

Petroleum Income Tax

The Petroleum Income Tax Act replaced the Revenue Code in imposing tax on income from anybody who holds a petroleum concession or has a joint interest in one, or anybody who purchases crude oil produced by any concessionaire, all of which is intended for export. Net income from petroleum operations includes revenue from production, transport, or sale of oil and gas, the value of gas delivered to the government as a royalty, and the proceeds of a transfer of interest in a concession. The tax rate for most operators is not less than 50% and not more than 60% of net profits.

Individuals who obtain dividends from a company subject to petroleum income tax which are paid oput of the net profits of the petroleum business are not entitled to the benefit of the dividend tax credit under Section 47 bis of the Revenue Code; the credit is granted only if the dividends are paid out of net profits which have been subject to income tax under the Revenue Code.

In the event a company receives dividends paid out under the net profits of a petroleum business subject to petroleum income tax and then distributes such dividends to individual shareholders, these individuals are not entitled to the tax credit for dividends under Section 47 bis of the Revenue Code. Since the dividends obtained by the company are exempt from tax under the Revenue Code by virtue of the law governing petroleum income tax, they are not regarded as dividends paid out of net profits which have been subject to income tax under the Revenue Code.

Excise Tax

Excise tax is currently levied on the following commodities:

Fuel oil and petroleum products
Beverages
Electrical appliances
Crystal glassware
Motor vehicles
Boats
Perfume products and cosmetics
Entertainment services
Liquor and beer
Cigarettes containing tobacco
Woolen carpets
Motor bicycles
Batteries
Playing cards
The manufacturer of these products must file a return and remit the tax due prior to taking the goods from the factory or bonded warehouse. If a VAT liability arises before the goods are taken out of such locations, the manufacturer must file a return and remit the tax to the Excise Department within 15 days of the end of the month.

Property Tax

There are two kinds of property tax in Thailand: house and land tax and local development tax.

House and land tax is imposed on the owners of a house, building structure, or land that is rented or otherwise put to commercial use. The tax rate is 12.5% of the actual or assessed annual rental value of the property.

Local development tax is imposed on any person who either owns land or is in possession of land. The tax rates vary according to the appraised value of the property, as assessed by the local authorities, and usually range from 0.25%-0.95% annually. An allowance is granted for land utilized for personal dwellings, the raising of livestock, and the cultivation of crops by the owner. Cultivated land in excess of the exempt is subject to one-half the statutory rate, while idle land is subject to twice the statutory rate.

5. Customs Duties

Customs duties are governed by the Customs Tariff Decree of 1987, an amendment of previous tariff codes, to conform to the Harmonized System of the Customs Cooperation Council. Tariff duties on goods are levied on an ad valorem or a specific rate basis. The majority of goods imported by businesses are subject to rates between zero and 80%.

The majority of imported articles are subject to two different taxes: tariff duty and VAT. Tariff duty is computed by multiplying the CIF value of the goods by the duty rate. The duty thus determined is added to the value of the goods determined with reference to the CIP price.

VAT is then levied on the total sum of the CIF value, duty, and excise tax, if any. Goods imported for re-export are generally exempted from import duty and VAT. Export duties are imposed on only a few items including rice; hides, skins, and leather; scrap iron and steel; rubber, including latex, rubber waste, tree and lump scraps, earth rubber, and bark shavings from rubber trees; teak and other kinds of wood.

Tariff duties may be lowered at the discretion of the Minister of Finance and with the approval of the Cabinet. Two exceptions to the obligation to pay customs duties apply to the importation of machinery, equipment, and materials for use by oil and gas concessionaires, their contractors, and certain companies promoted by the Board of Investment.

As a part of the BOI’s Investment Promotion Program, BOI-promoted companies are eligible to receive exemptions or reductions from import duties on raw and essential materials as well as machinery.

Further, companies that belong to the BOI’s Investor Club Association (IC) are eligible to use the IC’s Raw Materials Tracking System (RMTS) and Machinery Tracking System (MCTS). For companies that take advantage of this service, release of raw materials and machinery can be done in three hours or less. For more information, please contact the Investor Club at: Rasa Tower 2, 16th Floor, 555 Phaholyothin Road, Chatuchak, Bangkok 10900. The telephone number is 02 937 1155.

All exported goods are exempt from export duties except raw hides and skins, wood and sawn (including lumber) items. Interested persons can receive advice and additional information from the Export Promotion and Privileges Group, Customs Department at Tel: 02 240 2513.

Sources: A Business Guide to Thailand published by the Thailand Board of Investment, Tilleke and Gibbins

The Board of Investment of Thailand