Rent of Space – Tax Implication
The companies that rent out building space and provide water, electricity and security to the tenants within the rented building usually have their tenants sign two separate contracts. One is for rental of space. The other is for purchases of water, electricity and services.
There are a few things related to taxes that need to be addressed as follow:
1. Withholding tax
1.1 The contract for rental of space: when the lessee company pays rent to the lessor company (landlord), it needs to withhold 5% tax from the rental amount.
1.2 The contract of purchases of water, electricity and services can be separately considered as follow:
(1) Payments for water and electricity in accordance with actual monthly usage is considered buying of intangible goods. The tenants are not required to withhold tax.
(2) When the lessee company pays for services (the landlord provides services to the common area e.g. security services, cleaning, toilet provisions and usage of electricity and water), it needs to withhold 3% tax from the service fee amount.
2. Stamp duty
2.1 A contract for rental of space is required to be affixed with stamp duty by the lessor.
2.2 A contract for purchases of water, electricity or services is not subject to affixation of stamp duty.
Furthermore, if the rental agreement is of more than 3 years, the company has to register the lease with the Land Department.
Service fee paid to Japan – a case study
A Thai company paid some service fee to a company in Japan for debt collection service inside Japan on its behalf. The payment is considered as income from work under section 40 (2) of the revenue code. Because the Japanese company does not have a permanent establishment in Thailand (as prescribed in the double taxation treaty, that company is not subject to corporate tax liabilities in Thailand. The Thai company therefore has no duty to deduct tax at source under section 70 of the revenue code (pursuant to Article 5 and Article 7 of the Double Taxation Treaty between Thailand and Japan).
In respect of VAT (Value Added Tax), the nature of the payment for the services rendered in Japan does not fall under the category of services provided outside Thailand for use in Thailand, therefore, the Thai company does not have to submit VAT on behalf of the Japanese service provider pursuant to section 83/6 (2) of the revenue code.
Tax Invoice in a Foreign Currency
A company registered in the VAT system that wants to issue a tax invoice in a foreign currency needs to get a permission from the Director General of the Revenue Department to do so.
We have a client who receives an order from an overseas buyer for goods to be delivered to the buyer’s customer in Thailand. That is considered a domestic sale because the goods never leave Thailand. Therefore, the company cannot issue tax invoices in a foreign currency.
However, if the company has issued a correct tax invoice as stipulated by law, they can add the foreign currency amounts to that tax invoice in addition to the Thai Baht amounts.
Thailand tax implication when buying software
When your company in Thailand buys software for use in the company’s operation, THAI ACCOUNTANT would like to point out that there is some tax implication you need to know.
If you buy it from a vendor in Thailand, you need to withhold 3% from the price (before 7% VAT).
If you buy it from overseas and hand carry it without going through customs, or you buy it online, in order for you to book the cost of the software as the company’s asset, you need to deal with withholding tax and submitting VAT on behalf of the overseas vendor.
How much tax to withhold on software purchase? You need to consult with the double taxation treaty between Thailand and the country you buy it from. Software is considered royalty. You need to withhold 5% – 15% and submit the tax with form PND 54 within the 7th of the following month.
When you pay an overseas vendor for their service (in this case, it is royalty), you also need to submit 7% VAT on their behalf (with form PP 36) and the VAT becomes your input VAT of same the month you submit the PP 36. The reason behind this is that if all the vendors in Thailand charge you VAT and if you can buy goods or services from overseas and you don’t have to pay VAT, then who will want to buy from the Thai vendors. So the law has to make everyone submit VAT on behalf of the overseas vendors. (When you buy goods in Thailand you have to pay VAT to the vendors and when you import goods, you pay VAT at the Customs.)
Questions about tax or accounting, please contact MSNA for answers.