MSNA has many accounting clients in Bangkok whose companies operating in Thailand providing services. As their Thai accountant, we get this question often – Is there withholding tax when a Thai company invoices an overseas client?

Withholding tax is there when your company pays a vendor (mostly for services, but please check with your Thai accountant or MSNA for your type of business) and you have to withhold some tax. And when another company in Thailand pays your company for service, they will have to withhold some tax from the payment.

In the case of getting paid from an overseas client, if the tax law of the country of your client’s origin generally requires that they withhold tax when paying an overseas company (you), then we need to consult the double taxation treaty between Thailand and that country to see if your company should pay tax in that country and if so what the rate is.

If you have any tax or accounting questions, please contact MSNA.

When you have a company operating in Thailand, a lot of times you or the company’s employees have to travel for the company’s business. How do you reimburse your travelling expenses, like tickets, meals, accommodation and entertainment in a way that is considered legitimate to the eyes of the Revenue Department officials?

When the Revenue Department officials audit the books of your company, if they see that you have travelling related expenses, they want to assume that you took the trip for your pleasure unless you have proof that it was for the company’s business and that all the expenses paid on the trip were reasonable for the trip and reimbursed at cost. If you cannot prove those two points, the travelling expense may get added back to your bottom line profit to recalculate the corporate income tax and you may end up having to pay more tax.

To prove that the trip was for the company’s business, you can attach some email correspondence with, or invitation from, the company in the country (or province in case it was inside Thailand) where you took the trip to. It can be trade show brochures or any other publication if you went to that particular country for the event. The best practice is to attach such supporting documents to the payment voucher in which you reimbursed for the travelling expenses.

Now to prove that the expenses paid for the trip are legitimate expenses, the general rule is that you need to have original receipts for each expense item.

– For air ticket, the safest way is to have the travel agent (if you buy the ticket from a Thai travel agent) issue a receipt in your company’s name. If you buy the ticket online or it is impossible to get a receipt issued in your company’s name, then the E-receipt sent by the online vendor may suffice. I use “may” because some Revenue Department officials are more difficult than others.

– For meals and accommodation, the Revenue Department officials that we talk to advised that you need to get receipts for those expenses from the vendors. And the safest way is for the receipts to be in the company’s name. In case of overseas trips, if it is not possible to have the company’s name of the receipts, just get the receipts.

– For taxi fares and any other expenses whose nature is that the vendors do not issue receipts for the customers, then in your travelling expense report (or expense reimbursement form), you should specify the reason why you had to pay for the expense. Like taxi fares, write down that you took the cab from where to where for what business.

– Please note that if the company just gives the employee a daily allowance for meals and taxi for example, it will likely be treated as part of the employee’s income and thus needs to be included in his personal income tax calculation. If the employee reimburses for the expenses at cost, it will not be part of his income.

– What happens if the expenses do not have receipts for is that the Revenue Department officials will very likely add them back to recalculate the corporate income tax.

For tax questions, contact https://msnagroup.com/contact-us/.

Usually when an employer fires an employee, there are two kinds of payment that the employer is required by the Thai labor law to pay the employee for termination of employment.

1. Payment in lieu of advance notice

If an employment contract does not specify any duration, either party can terminate the contract by giving an advance notice in writing before or at the date the wage payment is due, to take effect on the following wage payment due date. If the employer terminates an employee and wants the termination to take effect right away, the employer has to pay the employee all the wages that should have been owed if the termination would take effect on the following wage payment due date. This is called payment in lieu of advance notice.

1. Severance pay

An employee terminated without a valid cause as stipulated by law is entitled to receive the following severance pay:

• 30 days’ wages where the employment period is at least 120 days but is less than one year.
• 90 days’ wages where the employment period is at least one year but is less than three years.
• 180 days’ wages where the employment period is at least three years but is less than six years.
• 240 days’ wages where the employment period is at least six years but is less than ten years.
• 300 days’ wages where the employment period is ten years or more.

Tax implication:

The payment in lieu of advance notice is considered the employee’s income from work. If the employer is a juristic person (limited partnerships, companies, etc.), which normally has to withhold tax from employees’ income, it has to include this payment to the withholding tax calculation to determine if there is any more tax to withhold from this employee.

Severance pay is tax exempt for the employee if the amount is not more than Baht 300,000 and not more than 300 days’ wages. The portion over Baht 300,000 or the portion that is more than 300 days’ wages has to be included in the withholding tax calculation by the employer.

Note for employees: If you worked for more than 5 years, when you prepare your personal income tax return of the year, you can claim more deductions on the severance pay’s portion over Baht 300,000 or the portion that is more than 300 days’ wages.

If you want to ask us questions on Thailand labor law, please visit https://msnagroup.com/contact-us/ for more information.

One of our accounting clients, a Thai company which is a software and computer dealer, has to pay a German company for software. The software can be installed only once on one computer with a specific period of usage. The transaction is considered permission to use or right to use the software pursuant to the double taxation treaty between Thailand and Germany. The company has a duty to withhold 5% tax from the software price when paying to Germany.

If the company has withheld the tax and paid to the authority higher than the amount required by law, the company has the right to file a claim for a refund within three years from the last day that the company had to submit the tax.

Personal Income Tax (PIT) is a direct tax levied on income of a person. A person means an individual, an ordinary partnership, a non-juristic body of person and an undivided estate. In general, a person liable to Personal Income Tax has to compute his tax liability, file tax return and pay tax, if any, accordingly on a calendar year basis.

Taxpayers are classified into “resident” and “non-resident”.

“Resident” means any person residing in Thailand for a period or periods aggregating more than 180 days in any tax (calendar) year. A resident of Thailand is liable to pay tax on income from sources in Thailand as well as on the portion of income from foreign sources that is brought into Thailand.

A non-resident is, however, subject to tax only on income from sources in Thailand.

Talk to your tax consultant like MSNA to find out if your income is subject to personal income tax in Thailand.

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.

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.

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.

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 7^th 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.

Today THAI ACCOUNTANT would like to talk about VAT and Withholding Tax When Getting Services from Overseas.

As a company operating in Thailand, if you need to procure services from overseas, there are two things important to know:

1. Very likely, you need to withhold some tax and submit it to the Thai Revenue Department within the 7^th of the following month using form PND 54. In case you did not withhold the tax, you will have to pay from the company’s pocket. By the way, the tax you pay on behalf of another company (domestic or overseas) is a non-tax-deductible expense. Usually the withholding tax rate is 15% for most cases, but make sure you consult first with the double taxation treaty between Thailand and the country where the vendor is. MSNA is a Thai accounting company that is familiar with double taxation treaties because we deal mostly with international clients and we can give you an accurate advice. If you withhold the tax from the payment you make to the vendor, then the tax you submit is not part of your cost. If the vendor wants a withholding tax certificate so that they can use the amount of tax withheld by you as their prepaid tax, you will have to get the withholding tax certificate in English from the Thai Revenue Department. It takes many papers and forms and a few months to get the withholding tax certificate from the RD.
2. Once you pay an overseas service provider, you need to submit 7% VAT on their behalf by the 7th of the following month using VAT return form PP 36. When you submit it, you will get a tax receipt from the Revenue Department. The VAT amount in the receipt is considered a purchase VAT or input VAT in the month that you submit it. You will claim it back in the same manner as all other purchase VAT you pay to Thai vendors. The reason behind the fact that you have to submit 7% VAT on behalf of the overseas vendors is that 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 no one will want to buy from the Thai vendors. So the law has to make it fair to the Thai vendors. When you buy goods in Thailand you have to pay VAT, so to be fair to the Thai vendors, when you import goods, they make you pay VAT at the Customs too. The same idea applies to buying services from overseas; you need to pay VAT by submitting it on behalf of the overseas vendor.

If you have any Thai taxation questions, please consult with MSNA, the Thai accounting firm based in Bangkok.