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Software business with super cluster policy from Thailand BOI

Thailand Board of Investment launched the Cluster-based Special Economics Development Zone Policy to enhance investment potentials and competitiveness. There are Super Cluster and other targeted clusters. Software is one of the activities granted highest incentives under Super Cluster policy.

Without the cluster policy, embedded software development business normally can get 8 years of corporate income tax exemption while enterprise software and digital content can get 5 year income tax exemption.

Under Super Cluster policy, all types of software development are granted 8 years corporate income tax exemption without cap plus 5 years 50% income tax reduction and import duty exemption on machinery if operating in either Chiangmai or Phuket.

Additionally, the international specialist may enjoy the personal income tax exemption, details of which will be announced soon by the Ministry of Finance.

Apart from the above tax related benefits, other incentives include consideration of granting Permanent Residence to the leading specialist and permission for foreigners to own land to implement the activities that receive Thailand BOI promotion. – However, we checked with the Immigration Office and they do not really have any special treatment regarding permanent residence yet.

General Conditions for BOI incentives

  • The business have to spend THB 1.5 M in IT employees’ salaries per year.
  • Projects must include software development process specified by the Software Industry Promotion Agency (SIPA).
  • Projects with an investment of 10 million baht or more (excluding cost of land and working capital) must obtain a quality standard certificate from SIPA or receive a Capability Maturity Model Integration (CMMI) quality standard certificate or any equivalent standard within two years from the full operation start-up date. If the project fails to meet such conditions, one-year corporate income tax exemption shall be withdrawn.
  • Revenue derived from sales or the provision of services that are directly related to a promoted software business shall be regarded as revenue of such promoted businesses.

Additional condition for special incentive under Super Cluster

  • The business must have a cooperation with academic institutions / research institutions / centers of excellence in the designated areas e.g. Talent Mobility / Work-integrated Learning / Co-operative Education / Dual systems or Cooperation in development of human resource or technology as approved by Thailand Board of Investment
  • The BOI applications must be submitted by the end of 2016.
  • The production or operation must start by the end of 2017. (Extension is possible if deemed appropriate.)

Read Thailand BOI promotion process for more information.

Contact us today for your BOI needs.

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To register a Thai company with BOI or not

We often receive inquiries concerning Thailand company registration with BOI. For the benefit of those wondering whether to apply for BOI or not, below are some questions from one of our clients before they decided to register their software business and apply for BOI privileges.

Questions:

We are a software developer from Denmark. As what we understand, we must apply for BOI status, and we know that this may not be approved 100%. However, we will appreciate if you could give us advice on the following:

  1. What are the benefits of getting BOI promotion?
  2. The registered capital (1M Baht), do we have to show this amount? If not, what does it actually mean that it is “registered” then?
  3. We would like to have the company 100% owned by Danes, not Thais. Does that weaken our case with the BOI?

Answers:

  1. Benefits of BOI promotion

If what your new company will do is to develop software, then we can help you get a BOI promotion. Below are the actual benefits that will be given to your software business if you get approved.

Under Section 25, the promoted company can bring in the foreign technicians or experts, spouse and person under the guardian of such foreign technicians or experts, in to Thailand. The number of foreign technicians or experts and the period to work and stay in Thailand will be fixed as the Committee deems appropriate.

Under Section 26, the foreign technicians or experts, who are authorized to stay in Thailand under Section 25, shall be allowed to work only in the position that the Committee approves throughout the approval period.

Under Section 27, the promoted company is permitted to own the land according to the criteria approved by the committee.

Under Section 28, the promoted company is exempted for the import duty for the machinery as approved by the Committee.

Under Section 31;

Paragraph 2, the promoted company is exempted for the corporate income tax for the net profit generated from the promoted activity for a period of 5 years from the date you start to generate such income.

Paragraph 4, in case the promoted company suffers loss during the period of corporate income tax exemption under paragraph 2, the promoted company is allowed to carry over the loss to deduct from the net profit generated after the exemption period for a period of FIVE years after the end of the exempted period. The promoted company may deduct the loss from the net profit of any year or many years.

Under Section 34, the dividends derived from the promoted activity, which is exempted from corporate income tax under Section 31; do not have to be included for income tax calculation throughout the period of corporate income tax exemption of the promoted company.

Under Section 37, the promoted company is allowed to transfer money to overseas in foreign currency.

If you get BOI approval, your registered capital can be only Baht 1M (100% owned by the 2 Danes, and able to get more than 2 work permits), instead of Baht 4M if you will do it another way (51% Thai and 49% foreign share structure) because you will need 2 work permits for the 2 Danes (For non-BOI companies, the ratio of work permit to paid-up capital is 1: Baht2M.)

2. Registered capital

The registered capital is the capital you registered with the Department of Business Development that the company will have, but it can be different from the paid-up capital, which means the shareholders put their money into the company according to the number of shares held by them. In most cases, because the foreigner in the company needs a work permit, the paid up capital and registered capital both need to be Baht 2M for the company to be able to sponsor one work permit.

3. 100% foreign ownership

It will not affect the result of BOI approval at all whether you decide to register the company as 100% Danes owned. Actually the BOI’s purpose is to attract investment to the country so it is fine that the company will be 100% owned by foreigners.

We hope that the above information would be a great help to those who are still undecided. Please contact MSNA for expert advice on Thailand BOI application.

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Withholding tax certificate for overseas vendors

If you are a company operating in Thailand and pay overseas vendors for services, you will have to withhold some tax from the payments and submit it to the Thai Revenue Department within the 7th of the following month using form P.N.D. 54. The tax rates depend on the double taxation treaty between Thailand and vendors’ countries. If there is no such treaty, tax rate will be as stipulated in Thailand Revenue Code. Within the same period, paying to overseas suppliers, it also has to submit VAT return, form P.P. 36, which is the form that you submit 7% VAT on behalf of the vendor overseas. After you withhold the tax from the payment you make to the foreign vendors, sometimes you are requested by them to issue a withholding tax certificate for overseas vendors so that they can use the amount of tax withheld by you as a proof of their prepaid income tax.

How to get a withholding tax certificate for overseas vendors: You will have to get the withholding tax certificate in English from the Revenue Department and send it to them so they can use their tax credit in their country. The process will take 10-15 business day. You, as the payer, have to submit the following documents to Regional Revenue Office.

  1. A copy of the filed withholding tax return i.e. P.N.D 54. and VAT return, P.P. 36
  2. A copy of tax receipt issued by the Revenue Department
  3. A copy of document indicating overseas remittance of payment and exchange rates.
  4. A copy of service invoice
  5. A copy of your company affidavit issued not over 1 month
  6. Power of Attorney
  7. Other relevant documents, such as copy of royalty agreement, passport or ID card copy of the authorized signatory and the agent’s.

Contact MSNA your Thailand accountant for tax and accounting needs.

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Thailand inheritance tax and gift tax

Thailand inheritance tax and gift tax will start taking effect on 1 February, 2016. It is the first inheritance tax law in the country. 5% for ascendants or descendants and 10% for others are to be levied on inherited assets worth more than Baht 100 M. In order to prevent avoidance of the newly announced inheritance tax, Thailand gift tax is also introduced by amending the types of tax exempt income in the Thai Revenue Code. The gift tax will be enforced on the same day as the Inheritance Tax.

The inheritance tax is levied on heirs, both individuals and juristic persons. It is also applied to non-Thai nationals who are considered residents in Thailand according to Thailand immigration law and non-Thai inheriting assets which are located in Thailand.

The gift tax: Before 1 February 2016, the types of income exempt from personal income tax include income derived from maintenance, income derived from moral obligation, inheritance or a gift received in a ceremony or on other occasions in accordance with established custom. However, starting from 1 February 2016, only the following types of income are exempt from personal income tax:

1. The portion of inheritance income not more than Baht 100 M;

  1. Income derived from the transfer of ownership or possessory right in an immovable property without consideration by the parent to a legitimate, non-adopted child, only for the portion not more than Baht 20 M per tax year;
  2. Income derived from maintenance or gift from ascendants, descendants or spouse, only for the portion not more than Baht 20 M per tax year;
  3. Income derived from maintenance under moral purposes or gift received in a ceremony or on occasions in accordance with custom and tradition from persons who are not ascendants, descendants or spouse, only for the portion not more than Baht 10 M per tax year; and
  4. Income from gift received for use for religious, educational or public purposes according to the rules and conditions under a ministerial regulation yet to be issued.

    For the taxpayers receiving income stated in No. 2 to 4 above, which exceeds the thresholds, may choose to pay tax at the rate of 5% and do not have to include those incomes in their annual personal income tax calculation/filing.

Consult with MSNA for your Thailand accounting and tax needs.

 

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Exemption for tax audit by the Thai Revenue Department

The businesses in Thailand welcomed a new law announced by the Thai government on 1 January 2016 that they may be eligible for being exempt from an audit by the Revenue Department on their income incurred within the accounting periods beginning before 1 January 2016. Here are the conditions:

  1. Being a company or juristic partnership that did not have gross income exceeding THB 500 Million in the accounting period of 12 months ended within 31 December 2015;
  2. Being a company or juristic partnership that is not being audited by the Revenue Department before 1 January 2016; and
  3. Not being a company or juristic person that issues or uses fake VAT invoices or presents false expenses to the Revenue Department.

What do you have to do to enjoy this measure?

The company or juristic partnership must register for this measure on the website of the Thai Revenue Department between 15 January to 15 March 2016.

After the registration on the website, the company or juristic partnership must:

  1. prepare its accounts and financial statements to reflect the real position of its business operation from the accounting period beginning on or after 1 January 2016;
  2. file all tax returns applicable to its operation and submit taxes and duties completely from 1 January 2016 onward; and
  3. not do anything to avoid paying taxes and duties.

If you do not fully comply with the above, the Revenue Depart will have the right to audit you.

Please note that even though your company has complied with all the above, if you seek a tax refund, the Revenue Department is empowered by the law to audit you for the purpose of processing the tax refund.

Consult with MSNA for your accounting and tax needs in Thailand.

 

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Thailand corporate income tax rate reduction for 2016 and 2017

The Government just announced Thailand corporate income tax rate reduction for 2016 and 2017 for SMEs. In order to be eligible for the 2016 and 2017 reduced corporate income tax rates, the SMEs must meet the following conditions:

  1. Being a company or juristic partnership registered (or in other words, established) before 1 January 2015;
  2. The paid-up capital on the last day of any accounting period must not exceed THB 5 million; and
  3. The income from the sale of goods and provision of services must not exceed THB 30 million in any accounting period.
  4. The SME must register for this corporate income tax reduction on the website of the Thai Revenue Department between 15 January to 15 March 2016.

The following corporate income tax rates apply:

  • For the accounting period beginning between 1 January and 31 December 2016 – 0% tax.
  • For the accounting period beginning between 1 January and 31 December 2017, – 0% for the net profit of Baht 300,000 and 10% for the amount beyond 300,000

Contact your Thai Accountant at MSNA for any questions on accounting and tax in Thailand.

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Mid-year corporate income tax return

Thai limited companies, representative offices and branch offices of foreign companies in Thailand need to submit a mid-year (or interim) corporate income tax return (Form PND 51) to the Revenue Department within 2 months after the end of the first 6 months of their accounting year. Most of such juristic persons use 31 December as the fiscal year-end, so the deadline to file their interim corporate tax return is 31 August of each year. If your accounting year-end is 30 June, then you need to file PND 51 within the end of February.

Penalties:

If you file PND 51 later than the deadline, you need to pay Baht 1,000 – 2,000 late submission fine (Baht 1,000 if not later than 7 days). Plus you will have to pay 20% on top of the amount of tax owed.

How to calculate mid-year tax for most companies:

In theory, the Thai Revenue Department wants you to prepay your tax at mid year using the best estimates of total revenues and expenses to derive your estimated profit for the year and divide it by two to get half year’s profit. From there, you calculate your corporate tax using the current tax rate. Most companies use the actual operating results from their 6 months’ income statement and forecast the second half of the year’s operating result in order to get the year’s estimated incomes and expenses. However, during the second half of the year sometimes your actual profit turns out to be much higher or lower than what you estimated and reported in the PND 51.

What happens if you under-estimate your mid-year tax?

You may have to pay for some penalties if you underpaid your interim tax. If at the end of the year, your actual profit is more than 125% of your estimated profit that you filed on your mid-year corporate tax return, then you will have to pay 20% fine on the underpaid tax. There are very few exceptions. The one and only that will apply to most cases is that if at mid-year the tax you paid is more than 50% of your last year’s tax, then you will not have to pay for the fine.

Suppose you estimated a mid year tax of THB 70 (or 140 for the year from an estimated profit of THB 700), but at the end of the year, you happen to make a profit of THB 1,000, thus you have a tax of THB 200 for the year. That means at mid year, you should have submitted the tax for the half year of THB 100. So you will have to pay a fine of 20% on THB 30 underpaid tax (100 – 70). However, if last year, your income tax was THB 130, fifty per cent of which is 65, then even though this year’s actual tax is much more than the mid-year tax you paid, you will not have to pay for the fine because your mid-year tax was THB 70 and higher than 50% of last year’s tax.

Now what happens if you over-estimated your mid-year tax? Suppose you thought you would make a profit of THB 1,000 for the year (or THB 500 for half year), so you paid tax of THB 100 (tax rate is 20%) on half year’s profit. At the end of the year it turns out you have a loss. You may seek to get a refund on the tax you paid at mid year. However, asking for a tax refund is essentially inviting the Revenue Department to audit your company. So most companies are willing to let go of their overpaid tax. Therefore, planning your mid-year tax is very important.

The best technique to fill out the mid-year corporate income tax return:

Normally the estimates should be done in a way that the tax to be paid at midyear will be a little over 50% of last year’s tax. This is so that if at year-end you end up having so much profit, there will be no fines for under-estimating your mid-year tax. If your last year’s tax was zero due to the year’s operating loss, you can just estimate your profit of this year using any figures. Let’s use ones that will result in a very little tax to pay at mid-year. This way, whatever real profit you have at year end will not result in a penalty and if you have a loss, you can forego the prepaid tax easily.

Consult MSNA for all your accounting and tax needs in Thailand.

You may find this useful about what shoud be filed by a company in Thailand.

 

 

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Tax on money received from employment settlement

This article is about tax on earnings which an employee received from the employer concerning the agreement of compromise. When the employee whose working period is not less than 120 days is terminated, the employer has to pay the employee the compensation according to the Thai Labor Law. The amount of the compensation depends on how long the employee has been working with the employer. This compensation is not subject to tax.

In the case that there is a dispute on unlawful termination in the labour court, if there is a monetary offer from the employer to settle the case and the employee accepts it, both parties can agree in front of the judge. The amount received according to the agreement of compromise before the judge is subject to tax because it is not considered a compensation stipulated in Labour Protection Act. It is considered an income under Section 40(1) of the Revenue Code, which shall be treated the same way as a monthly salary. Therefore, the employer has to deduct withholding tax at the progressive rate from the amount of settlement.

For questions regarding Thailand labour law, please contact our legal team at ThaiLawyers.com

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How to get official answers for tax questions from the Revenue Department (Ruling)

Business people frequently have problems concerning the Thai taxation and cannot find the answers in the Revenue Code. Therefore, it is necessary for them to consult with the revenue department of Thailand. In some cases, you can ask an official verbally to get answers. However the best way is to write a letter detailing the tax question to the Revenue Department. The answer obtained with this process is called ‘’ruling’’.

Ruling is a letter written by people who have tax problems for consulting with Revenue Department to get their official answers. The following is how to get a Revenue Department’s ruling.

  1. The letter should be addressed to the Director-general of the Revenue Department.
  2. You should describe the problem clearly with the details and attach it with supporting documents.
  3. If possible, you should ask the question in reference to the Revenue Code by specifying sections or terms in the code because the answer will refer to the terms and sections of the law.
  4. You should keep a copy of the answer from the Revenue Department (ruling) and a copy of your letter for future reference.

However, ruling is only a legal opinion given by the legal team of the Revenue Department. It is not the law. Taxpayers are not obliged to follow it.

Contact MSNA for any tax and accounting needs in your doing business in Thailand.

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Tax implications when buying software online from a USA company

When a company buys software online from a USA company, the double taxation treaty between Thailand and the USA requires the company in Thailand to withhold 5% tax and submit it to the Thai Revenue Department within the 7th of the following month using form PND 54. And because the Thai company cannot really withhold the tax when you make the payment online for the software, it has to submit the tax anyway from its own pocket. This tax will be treated as a non-tax deductible expense.

Also the company has to submit 7% VAT on behalf of the USA software company. However, the Thai company can claim it back as its input VAT.

Contact MSNA for your Thai accounting and tax questions.

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