The Revenue Code outlines regulations for the imposition of taxes on income, with income tax divided into three categories: Corporate income tax, value added taxes (or specific business taxes), and personal income tax.

CORPORATE INCOME TAX

Incorporated firms operating in Thailand pay income tax at a rate of 30 percent of net profits. Foundations and Associations pay income taxes at a rate of two to 10 percent of gross business income, depending upon the activity. International transport companies face a rate of three percent of gross ticket receipts and three percent of gross freight charges.

All companies registered under Thai law are subject to taxation as stipulated in the Revenue Code and are subject to income tax on income earned from sources within and outside of Thailand. Foreign companies not registered or  not residing in Thailand are subject to tax only on income derived from sources within Thailand.

Normal business expenses and depreciation allowances, at rates ranging from five to 100 percent, depending on the item, or at rates under any other acceptable depreciation methods, are allowed as deductions from gross income. Inventory must be valued at cost or at market price, whichever is lower. 

Net losses can be carried forward for up to five consecutive years. Interest payments on some foreign loan may be exempt from a firm’s income tax.

Inter-corporate dividends are exempt from tax on 50 percent of dividends received. For holding companies and companies listed on the SET, dividend are completely exempt, provided the shares are held three months prior to and after the receipt of dividends.

Deductions for gifts and donations up to a total of four percent of net profit are available, as follows:

• Two percent to approved public charities or for public benefit
• Two percent to approved education or sports bodies

No deduction is permitted for any expenditure that is determined on the basis of net profit (e.g. bonuses paid as a percentage of net profit) at the end of an accounting period. Depreciation of assets of limited companies and partnerships is based on cost. The rates of annual depreciation permitted by the law generally vary from five to 20 years.

Entertainment and representation expenses are deductible up to maximum limits as a percentage of gross sales, or of paid-up capital at the closing date of the accounting period whichever is the greater.

Taxes are due on a semi-annual basis within 150 days of the close of a six-month accounting period, and employers are required to withhold personal income tax from their employees.

Except for newly incorporated companies, an accounting period is defined as a duration of 12 months. Returns must be accompanied by audited financial statements.

A corporate  taxpayer must file a half-year return and pay 50 percent of the estimated annual income tax by the end of the eighth month of the accounting period. Failure to pay estimated tax or underpayment by more than 25 percent may subject the taxpayer to a fine amounting to 20 percent of the amount in deficit.

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. Filing a return with a tax deficiency may result in a penalty equal to the amount of tax. All penalties must be paid within 30 days of being assessed.

SOME RECENT CHANGES

As of September 6, 2001, the corporate income tax rate has been cut for existing and newly listed companies registered with either the Stock Exchange of Thailand (SET) of Market for Alternative Investment (MAI). The rates are as follows:

The lowered rates can be applied for 5 accounting periods. Only newly listed companies listed within three years of 6 September 2001 qualify for the lowered rates.

Since January 1, 2002, small and medium sized enterprises (SMEs, defined as a juristic company or partnership with paid up capital not exceeding 5 million baht at hte end of any accounting period) have been granted reduced corporate income tax rates as follows:

Since January 31, 2002, qualified SMEs were granted special initial deduction methodsof certain assets:

Computers and computer accessories can be initially depreciated at 40% of the total cost on the acquisition date. The remaining cost would be depreciated within 3 accounting periods beginning from the acquisition date.
Factory buildings can be initially depreciated at 25% of the total cost on the acquisition date. The remaining cost would be depreciated according to normal deprecation computation.
Machinery and machine equipment can be initially depreciated at 40% of total cost. The reaming cost would be depreciated according to normal deprecation computation.

REGIONAL OPERATING HEADQUARTERS

Tax incentives to attract foreign firms to establish regional operating headquarters (ROH) in Thailand came into effect on 16 August 2002 under Royal Decrees No. 405 and No. 406. These new ROH rules should make Thailand, with its wide tax treaty network, an attractive headquarters location for multinational companies. Tax reductions are just part of the incentive package.

An ROH is defined as a juristic company organized under Thai law and providing administrative, technical assistance or supporting services to its domestic and overseas affiliated companies or branches. A summary of the tax incentives:

VALUE ADDED TAXES

The value added tax (VAT) system, which came into effect on 1 January 1992, largely replaced the old business tax system, which critics claimed caused inefficient redundancies and facilitated tax evasion.

Under the new tax regime, value added  at every stage of the production process is subject to a seven percent tax rate. Those who are affected by this tax are: Producers, providers of services, wholesalers, retailers, exporters and importers. VAT must be paid on a monthly basis calculated as:

Output tax - input tax = tax paid

where output tax is the VAT which the operator collects from the purchaser when a sale is made, and input tax is the VAT which  an operator pays to the seller of a goods or service which is then used in the operator’s business.

If the result of this calculation is a positive figure, the operator must submit the remaining tax to the Revenue Department not later than 15 days after the end of each month. However, for a negative balance, the operator is entitled to a refund in the form of cash or a tax credit, which must be paid in the following month.
 

ZERO RATE VAT

· Exports

· Services provided in Thailand for persons in foreign countries

· International transportation by air and sea by Thai juristic persons. Foreign juristic persons may enjoy zero percent  when its country applies zero percent to Thai juristic persons operating there

· Sale of goods or services to civil service or state enterprises under foreign loan or aid schemes.

· Sale of goods or services to the UN and its agencies, foreign embassies and consulates

· Sale of goods or services between bonded warehouses, between operators in export processing zones, or between the former and the latter.

Operators whose gross earnings from the domestic sale of goods and services exceed 600,000 baht, but are less than 1,200,000 baht per year, can choose between paying a gross turnover tax of 1.5 percent or the normal VAT. However, operators paying the gross turnover tax may not offset this tax by charging VAT to their customers in any step of production.
 

SPECIAL EXEMPTIONS FROM VAT

· Operators earning less than 600,000 baht a year

· Sale or import of agricultural products, livestock, and agricultural inputs, such as fertiliser, feed and chemicals

· Sale or import of published materials and books

· Auditing, legal services, health services and other professional services

· Cultural and religious services

· Educational services

· Services provided by employees under employment contracts

· The sale of goods as specified by Royal Decree

· Goods exempt from import duties under the Industrial Estate Authority of Thailand (IEAT) Act

· Domestic transportation (excluding airlines) and international transportation (excluding air and sea lines).

SPECIFIC BUSINESS TAX (SBT)

A specific business tax of approximately three percent is imposed, in lieu of VAT, on the following businesses:

· Commercial banks and similar businesses

· Insurance companies

· Financial securities firms and credit fanciers

· Sales on the stock exchange

· Sales of non-movable properties

· Pawn shops.

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

Type of business	Tax rate
Type of business: Banking or similar business: finance, securities and credit foncier business
Insurance	3 percent
Life	2.5 percent
Insurance against loss	3 percent
Pawnship	2.5 percent
Sale of immovable property in a commercial manner for profits	3 percent

 REMITTANCE TAX

Remittance tax remittance tax applies only to profits transferred or deemed transferred from a Thailand branch to its head office overseas. It is levied at the rate of 10 percent of the amount to be remitted before tax, and must be paid by the remitting office of the offshore company within seven days of the date of remittance.

However, outward remittances for the purchase of goods, certain business expenses, principal on loans to different entities and returns on capital investment, are not subject to an outward remittance tax. The tax does not apply to dividends or interest payments remitted out of Thailand by a company or partnership; these are taxed at the time of payment.

Section 70 of the Revenue Code addresses income paid to foreign juristic persons. When a company or partnership incorporated under a foreign law and not carrying on business in Thailand receives “assessable income” paid either from or in Thailand, the payer is usually required to deduct income tax at a rate of 15 percent of the gross remittance. In 1992, standard deductions, which used to vary with each type of income, were abolished, making the flat 15 percent rate effective on all assessable income exempt for dividend income, on which the 20 percent withholding tax was reduced to 10 percent.

There is no withholding tax on capital gains or on the share of profit paid to foreign investors in mutual funds, if in the SET. Physical remittance of funds may not be necessary in order to incur either the dividend or interest tax liabilities. These taxes may be incurred by making book entries.
 
 PERSONAL INCOME TAX

Every person, resident or non-resident, who derives assessable income from employment or business in Thailand, or has assets located in Thailand, is subject to personal income tax, whether such income is paid in or outside of Thailand. Exemptions are granted to certain persons, including United Nations, officer, diplomats and certain visiting experts, under the terms of international and bilateral agreements.

Personal income tax is applied on a graduated scale as follows:
 
 

Net annual income (baht)	Tax rate
0-100,000	5 percent
100,001-500,000	10 percent
500,001-1,000,000	20 percent
1,000,001-4,000,000	30 percent
4,000,000	37 percent

Individuals residing for 180  days or more in Thailand for any calendar year are also subject to income tax on income from foreign sources if that income is brought into Thailand during the same taxable year that they are a resident.

Exchange control laws stipulate that all foreign exchange earned by a resident, whether or not derived from employment or business in Thailand, and brought into Thailand, must be sold to or deposited with commercial banks within 15 days, unless permission for an extension is granted. 

Personal income taxes and tax returns must be filed prior to the end of March of the year following the year in which the income was earned.

A standard deduction of 40 percent, but not in excess of 60,000 baht, is permitted against income from employment or services rendered or income from copyrights.

Standard deductions ranging from 1 percent to 85 percent are allowed for other categories of income. In general, however, taxpayers may elect to itemise expenses in lieu of taking standard deductions on income from sources specified by law.

Other types of taxable income and the rate of standard deduction include:

· Interest, dividends, capital gains on the sale of securities: Forty percent, but not exceeding 6,00 baht.

· Rental income: Ten percent to 30 percent depending on type of property leased.

· Professional fees: Sixty percent for income from medical practice, 30 percent for others.

· Income derived by contractors: Seventy percent

· Income from other business activities: Sixty-five percent to 85 percent depending on the nature of the business activity.

Annual personal allowances permitted
 

Taxpayer	30,000 baht
Taxpayer's spouse	30,000 baht
Each child's education	15,000 baht
For taxpayer and spouse for contributions to an approved provident fund	10,000 baht
For taxpayer and spouse for interest payments on loans for purchasing, hire purchasing or construction of residential buildings	10,000 baht
For taxpayer or spouse with respect to contributions to social securities funds or the amount actually paid if less	Actual contribution not more than 10 percent of adjusted income

Only three children per taxpayer family quality for the child allowance, but this limitation applies only to children born on or after 1 January 1979. Therefore, in counting the number of children, a child born prior to 1979 can also be counted. For example, a taxpayer with four children born before 1979 continues to qualify for an aggregate allowance of 60,000 baht. A fifth children, born in 1979, would not qualify.

Additional taxes can be assessed, with a period of two years from the date of filing a return, and up to five years for tax evasion or tax refund. If an individual fails to file a return, the assessment officer may issue summons within a period of 10 years from the filing due date.
 

TREATIES TO BE AVOID DOUBLE TAXATION

Thailand has treaty agreements to eliminate double taxation with the following countries:

Austria, Australia, Bangladesh, Belgium, Canada, China, Czech Republic, Denmark, Finland, France, Germany, Hungary, Indonesia, Israel, Italy, India, Japan, Laos, Luxembourg, Malaysia, Mauritius, Nepal, Netherlands, New Zealand, Norway, Pakistan, the Philippines, Poland, Romania, Singapore, S Korea, S Africa, Spain, Sri Lanka, Sweden, Switzerland, United Kingdom and Northern Ireland, United States and Vietnam.

The treaties generally place taxpayers in a more favourable 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.
 
 OTHER TAXES

Petroleum Income Tax

The Petroleum Income Tax Act replaces the Revenue Code in imposing a tax on income from firms which own an interest in a petroleum concession granted by the Thai government or which purchase oil from a concession holder 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 percent and not more than 60 percent of net profits.

Stamp

The Revenue Code contains a Stamp Duty Schedule listing transactions subject to stamps tax. Rates depend on the nature of the transaction, and fines for failure to stamp documents are very high.

Excise Tax

Excise tax is levied on the sale of a number of goods, including petroleum products, tobacco, liquor, soft drinks, cement, electrical appliances, and automobiles.
 

Property Tax

Owners of land and/or buildings in designated areas may be subject to annual taxes levied by the local government. Under the Local Development Tax Act of 1965, rates per unit vary according to the appraised value of the land. However, land for the personal  residence of the owner, animal husbandry, or land cultivation is exempted from this Act. For land taxable under the House and land Tax Act of 1932, which is based on the value of the  land and buildings or any other improvements, annual tax is levied at the rate of 12.5 percent of the assessed assumed rental value of the property, and only owner-occupied residences are exempt.
 

TAX COURTS

Tax cases are considered different in nature from normal civil cases. The Tax Court Establishment and Procedure Act, effective since 1985, provides special and accelerated procedures for tax litigation. Tax courts have authority to judge the following cases:

· Appeals against the decision of tax officers or committees

· Disputes over the claims of state tax obligations

· Disputes over tax refunds

· Disputes over rights or obligations concerning tax collection obligation. Disputes over the right or obligations regarding tax collection obligations

· Other cases made subject to the Act as prescribed by other laws.

Decisions of the tax courts may be appealed to the Supreme Court within one month after the date of the judgement
 

TAX CLEARANCE CERTIFICATES

As of May 1991, requirements for tax clearance certificates have been significantly reduced. Provided that an individual demonstrates compliance with tax laws, he  is not required to secure a tax clearance certificate within 15 days before leaving the country.

Employees of businesses incorporated under foreign law, but  which carry out business in Thailand, must acquire a certificate from the Revenue Department before departure. The requirement is not enforced if the individual has been in Thailand less than 90 days in any tax year and not received any income.
 

TAX REFORMS

In August 1999 the Cabinet approved several important tax and tariff measures to promote private investment, lower production costs, improve corporate liquidity, and reduce consumer prices.

The Cabinet also eliminated the registration requirement for the import and export of gold.
 
 CUSTOMS DUTIES

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 ranging from five percent to 60 percent.

The majority of imported articles are subject  to two different taxes: Tariff duty and VAT. Tariff duty is computed by multiplying the CIF values of  the goods by the duty rate. The duty thus determined is added to the value of the goods determined with reference to the CIF price. VAT is then levied on the total sum of the CIF value, duty, and excise tax, if any. Goods imported for r-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 or steel, rubber, teak and other kinds of wood.

Two exceptions to the  obligation to pay  customs duties apply to the importation of machinery, equipment, and materials for the use by:

· Oil and gas concessionaires and their contractors

· Certain companies promoted by the BOI.

IMPORT AND EXPORT REGULATIONS

There are certain regulations governing the import and export of goods into and out of Thailand. However, trade in certain items is restricted through outright prohibition, the imposition of duties or licensing requirements. Thus, the export of unmilled rice and rice bran is expressly prohibited. Other goods, such as rubber, timber, rice, hides and skins, silk yarn, and iron scrap may be sold to foreign buyers, but duties must be paid on them. To export certain items, such as gold, cattle, or sugar, one must secure a license from the relevant government authorities.

IMPORT CONTROLS

The Ministry of Commerce designates classes of goods that are subject to import controls, which usually take the form of permission and licensing. Although these controls are being liberalized, at present more than 50 classes of goods require import licenses from the Ministry of Commerce. These categories are frequently changed through notifications from the ministry. A license to import any of the specified items must be secured from the Ministry of Commerce. Application for the license must be accompanied by a supplier’s order, confirmation, invoice, and other pertinent documents.

In addition to the Act imposing the above controls, a number of goods are subject to import controls under other laws. These include:

EXPORT CONTROLS

The Act Controlling the Importation and Exportation of Goods authorizes the Ministry of Commerce to subject products to export control. At present, close to 50 items require such control.

Certain goods require export licenses under other laws, such as seeds, trees, and leaves of tobacco. Certain goods, such as sugar and rice, are subject to export licenses under the Export Standard Act, which aims to ensure that such exports are of a set quality.

Exporters of agricultural commodities may find that membership in trade associations is mandatory, and they may impose their own regulations for membership.