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Archives for Thailand Taxation

Legitimate Receipts that are tax deductible for businesses in Thailand

As a Thai accounting firm that handles accounting clients who are foreigners doing business in Thailand, we see a lot of frustrated clients who do not know what constitutes a legitimate payment that will not get added back to their bottom line profit if they get audited by the Thai Revenue Department. Here is some general advice of what you should do. When you have a business operating in Thailand, you need to make sure when you make a payment for goods and/or services, you need to get a legitimate receipt from the vendor otherwise that payment may not be tax deductible. A legitimate receipt should have at least these particulars:

(1) taxpayer identification number of the receipt issuer,

(2) name or label of the receipt issuer,

(3) serial numbers of the book and of the receipt,

(4) date of issuance of the receipt,

(5) amount of payment received,

(6) type, description, quantity and price of the goods

A lot of times, the payment recipient would tell you that they are not in the VAT system. Some vendors are individuals or small partnerships or small companies and it is possible that they really are not registered in the VAT system for some reasons. As long as you get them to issue a legitimate receipt, you will be okay. Please insist that they issue a receipt in your business’s name and make sure the receipt you get has the above particulars. If they are not in the VAT system, they must not collect VAT from you and they must not issue a tax invoice, but it is their duty to issue a legitimate receipt whenever they get paid. And if they are registered in the VAT system, now they will ask for 7% VAT from you. You need to pay for the goods and/or the services and the VAT amount. Remember that if the tax invoice they give you contains all the particulars prescribed by law, you will be able to claim back the VAT you pay them.

What if some vendors are just individuals and do not have a company like people who are not your employees, a part-time messenger, a part-time maid, an electrician who is your maid’s boyfriend, etc. They would tell you they cannot make a receipt for you. This is what we hear very often. Sometimes you procure services from such people. When you pay them, you can make a payment voucher putting the date, their name, the description of goods or services and the amount you pay them and have them sign as the recipient of the payment. Then ask for their Thai ID card copy, make them sign it as to certify true copy and attach it with the payment voucher signed by them. This set of papers can be used as a legitimate proof of the recipient of the payment and therefore, is acceptable to the Thai Revenue Department.

Tomorrow, THAI ACCOUNTANT will talk about the particulars a legitimate tax invoice should contain.

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Tax Implication Thai Companies Render Services for Overseas Clients

When your company in Thailand renders services for overseas clients, if the service’s end product will be used in Thailand, you need to charge VAT on your service fee. If the service’s end product will not be used in Thailand, there is no VAT involved whether or not the services are performed in Thailand.

THAI ACCOUNTANT wants to emphasize that you should consult with a knowledgeable Thai accountant before you assume the above is applicable to your business. This is because there may be more factors involved.

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Interest on Loans to Directors and Affiliates

When your Thai business has surplus cash and chooses to lend it to the directors or other companies in the group, it has to charge an interest. The tax officials will tell you to adjust your corporate income tax return to reflect the interest income from such lending. Usually they are fine with the rate of interest of not less than the interest the company will get if it deposits the money in a fixed account.

When the company receives interest income on the money lent to its directors and other companies, it has to file a Specific Business Tax Return (PT 40) and submit 3.3% on the interest received within 15th of the following month.

THAI ACCOUNTANT suggests you always accrue the interest income when you lend money to other people, but file the SBT form PT 40 only when you have received the interest money.

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What To Do for Withholding Taxes from Vendors in Thailand?

THAI ACCOUNTANT gets this question very often.

There are vendors in Thailand (or outside Thailand) that will not let your Thai company withhold taxes from them saying that their prices do not include taxes. Well, the Thai tax law makes it your duty to withhold some taxes when you pay for certain things. If you do not withhold the tax, you will have to still submit it to the Thai Revenue Department using your own money.

THAI ACCOUNTANT has 3 choices for you to consider:
1. Withhold taxes from those vendors anyway. If any of them do not let you, then you may want to find other vendors to work with.
2. You may choose to submit the taxes on behalf of the vendors (because you did not withhold from the vendors). The taxes you pay on behalf of the vendors who are juristic persons (companies and registered partnerships) will become an add-back expense, which you cannot use to lower your corporate income tax liability. Only the taxes paid on behalf of individuals can be tax deductible expense.
3. You may choose to let your vendors increase their prices by the amount of tax that you have to withhold. This way, the tax you withhold is officially not paid by you. So the tax amount will not be an add-back expense.

THAI ACCOUNTANT prefers choice 1 because it is the law. They need to let you withhold the tax from the payment and hopefully you are in the field where you do not have to deal with the vendors who do not want to comply with the law.

Good Thai accountants will deal with those tough vendors for you.

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More About Thailand VAT

Today THAI ACCOUNTANT talks more about Thailand VAT. What kind of VAT we cannot claim back.

Some VAT invoices are abbreviated tax invoice, like the ones we get from 7 Eleven, cash registers of department stores and small shops, etc. These tax invoices have the word “TAX ABB” and we cannot claim back the VAT included in the amount we paid for these invoices. That means we will not include these tax invoices in our Input VAT Report, thus we cannot claim it back. However, with this kind of tax invoice, if we buy a significant amount worth our time, we can ask the seller to issue a full tax invoice for us. They must issue one for us. And with the full tax invoice, we will be able to claim back the VAT.

Some expenses, like gasoline for passenger cars (not trucks) or gifts or meals and accommodation that seems to be entertainment type of expense, cannot be included in the Input VAT Report. Usually we need a full receipt from the seller/service provider so that we can book the expenses in our accounts, but the law does not permit us to claim back the VAT we paid for these expenses.

For the expenses that we pay for, if their tax invoices are not correct (as THAI ACCOUNTANT talked about yesterday), we will not be able to claim back the VAT and also the VAT we paid will be classified as “Add-back expense”, which means we have to add back this VAT portion to the bottom line profit when calculating the corporate income tax at year-end. (But we can still use the expense portion as the expense of the company.) So please always try to get the correct form of tax invoices.

There is much more to Thailand VAT. It helps to have a good Thai accountant handle your Thai accounting and tax.

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Thailand VAT

Today THAI ACCOUNTANT gives a brief explanation of VAT in Thailand for the purpose of giving you a general idea of VAT that you need to know doing business in Thailand.

VAT (Value Added Tax) is the amount we collect from our customers when they buy our goods or services and we have to submit it (using the form PP.30) to the Thai Revenue Department within 15th of the following month. When we have registered our company into the VAT system, we need to file this form every month even the months we do not have any sales or income. If we fail to file the form, there is a fine of Bath 500 per form, plus the fine and interest on the amount of VAT owed.

Before we can submit PP.30, we need to prepare 2 reports; Output VAT Report and Input VAT Report (explained in detail down below). Then we take the month’s totals of these reports to fill into the form PP.30. If the amount of Output VAT is higher than the Input VAT (that means the sales VAT that we collected from our customers is more than the purchase VAT that we paid to our suppliers) then we have to pay the difference to the Revenue Department when we submit the form PP.30. If the Output VAT is less than the Input VAT, then we can choose to get the refund in cash (but it takes a lot of time and effort to try to get the refund because the Thai Revenue Department will have to check a lot of papers) or choose to take the difference to offset with the Output VAT of the following month. THAI ACCOUNTANT highly recommends you choose the latter.

Output VAT Report is the detailed summary of all the tax invoices we issue for the month for the sales of our goods (whether or not we have been paid) and for the services we provided and got paid for.

Note:
1. The law says that for goods, we have to issue a tax invoice when we receive a deposit (issue a tax invoice just for the deposit amount) or when we deliver the goods (issue a tax invoice for the whole amount of the sale minus the deposit received earlier, if any) whether or not we have been paid.
2. For services, we have to issue a tax invoice when we get paid (a deposit or the whole amount of service fees).

Input VAT Report is the detailed summary of all the tax invoices we get for the month from our suppliers when we buy goods and services from them (because they have to collect 7% from us too).

The tax invoices that can be filled into the Input VAT Report (thus the VAT can be claimed) are the ones that have the following particulars specified by law, i.e. the word “TAX INVOICE” (not “Tax Invoice Copy”), date of the tax invoice, tax invoice number, name and address of the tax invoice issuer, their tax ID number, name and address of the customer, description of the goods or services (and in case of goods, quantity and unit price) and the Thai Baht amount of the VAT separated from the total amount of the invoice. Please make sure there is no correction made anywhere in the tax invoice even if someone has initialed it. THAI ACCOUNTANT recommends you ask the issuer to issue a new one for you if there are any mistakes on the tax invoice.

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Paying for Travel Insurance for Employees

When a company in Thailand pays travel insurance premium for their employees, the premium will be considered the employees’ assessable income, which needs to be included in their personal income tax calculation unless all the following conditions are met:

1. Only the premium covering medical expenses is allowed.
2. The premium is paid to an insurance company operating in Thailand.
3. The premium is for a group insurance policy (not for individual employees) with coverage of not longer than one year.

For Thai accountants who want to refer to the Thai tax law, the Ministerial Regulations No. 126 (1966), section 2 (77), specifies the conditions of insurance premiums if paid by an employer on behalf of the employee, that will be exempt from the tax calculation purpose. If not all of the conditions are met, the paid premium has to be added to the employee’s personal income (to calculate his withholding tax) at the end of the month since the Thai tax law consider the insurance premium an added benefit derived from work.

Experienced Thai accountants know that the Thai Revenue Department has a more lenient practice. If the company has a written policy that it will pay for the travel insurance for its employees when travelling for the company’s business, the premium will not become the employee’s assessable income (even though not all of the above conditions are met). This policy should be signed by the authorized signatory and kept in the company main document file. Good Thai accountants know to attach one copy to the insurance premium payment voucher.

Doing business in Thailand, you want to work with good Thai accountants. MSNA can help with your Thailand tax and accounting needs.

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VAT for Recruiting an Employee Overseas by a Thai Headhunter

Today THAI ACCOUNTANT got a VAT question from a Thai headhunter company who recruit an employee overseas to work outside Thailand.

Scenario 1: If the employee is recruited inside Thailand to work overseas and is hired by the overseas company, the Headhunter’s service is done in Thailand, but the end product is used overseas. The Headhunter does not have to charge 7% VAT on its service fee to the overseas client.

Scenario 2: If the Headhunter Company recruits an employee (inside or outside Thailand) to work for a Thai client company on a project overseas, then the Headhunter has to charge 7% VAT on its invoice to the Thai client company.

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Welcome to MSNA Ltd.

Welcome to MSNA Ltd, your business partner in doing business in Thailand. We are Thai accountants who know the Thai Accounting Law and Thai Tax Law very well. We provide not only accounting services, but also many other services necessary for helping you do business in Thailand. If you have any questions, be it Thai accounting or Thai tax related or anything to do with doing business in Thailand, please email us at info@msnagroup.com.

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