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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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Thailand Work Permit for Foreigners

Foreigners wanting to work in Thailand need to have employers to sponsor their work permit. Once having a Thailand work permit, the foreigners cannot perform any function other than that described in their work permit.

Generally if the employer is a Thai company, it has to have at least Baht 2 million registered and paid up capital for each foreign employee. In case of foreign companies (which have to obtain the foreign business license before they can operate in Thailand), they have to have at least Baht 3 million capital for each foreign employee. If the foreigner is married to a Thai national, the capital rule is more lenient.

Some companies have obtained BOI (Board of Investment) privileges, some of which grant more relaxed rules regarding Thailand work permits for the foreign employees.

The employers must report changes in employment, transfers and termination of all foreigners in their organization within 15 days.

Thailand work permit holders must obtain a prior permission to change their occupation, and/or place of work. Change of employer location or the residential address of the work permit holder must be properly endorsed in the work permit by the Thai labour authorities.

The Thai law does not prevent foreigners from working in more than one field or for more than one employer. They have to have their Thailand work permit covering all the jobs or employers.

We have summarized here Thailand work permit rules.

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Do You Need A Foreign Business License?

Remember if your foreign majority owned company does exports from Thailand or manufacturing of goods in Thailand, you do not need to obtain a Foreign Business License. And if you are Australian or Japanese or American, you may not have to obtain a Foreign Business License but please read on..

Australia

Thailand and Australia have Thai – Australia Free Trade Agreement. The persons who conduct the business according to the Foreign Business Act and who are under Thai – Australia Free Trade Agreement condition can request for the Certificate of Business Operation from the Bureau of Foreign Business Administration, Department of Business Development details of which are included in Guideline for Requesting Business Operations Certificate according to Section 10 of Foreign Business Acts B.E.2542 under Thai – Australia Free Trade Agreement

Here is the full version of Thai – Australia Free Trade Agreement.

Japan

Since Thailand and Japan have the JTEPA agreement, the persons who conduct the business according to the Foreign Business Act and who are under JTEPA condition can request for the Certificate of Business Operation from the Bureau of Foreign Business Administration, Department of Business Development details of which are included in Request for Business Operations Certificate under JTEPA.

Here is the full Japan – Thailand Economic Partnership Agreement.

USA

Thailand and the USA signed the Treaty of Amity (the Treaty of Amity and Economic Relations between the Kingdom of Thailand and the United States of America) on 29 May 1966. Because of the Treaty of Amity, American citizens and American majority owned companies can operate their business in Thailand without having to have a Foreign Business License. However, they still have to request for the Certificate of Business Operation from the Bureau of Foreign Business Administration, Department of Business Development of the Ministry of Commerce, Thailand.

Here is the full version of Treaty of Amity between Thailand and U.S.A.

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Thai Auditing Standard

Auditors in Thailand who are also certified public accountants need to do their audit work in compliance with the Thai Auditing Standards. Thai auditing standards have a long history. However, now Thai Auditing Standards follow the International Standards on Auditing (ISA) issued by International Federation of Accountants (IFAC). Thailand Federation of Accounting Professions (FAP) translates and reviews ISA and announces the date each module to be adopted among the Thai auditors. Currently FAP has published 37 modules of Thai Auditing Standard which will take effect as the Thai Auditing Standards in 2011.

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Obtaining a Foreign Business License to do business in Thailand

If you are a foreign majority owned company, you will need to obtain a License to Operate Business. If you are a US majority owned company, because of the Treaty of Amity between Thailand and USA, you will request for a Certificate of Business Operation. Some Australian and Japanese citizens and companies may not have to apply for a Foreign Business License (thus only have to request for a Certificate of Business Operation) if certain conditions are met under the Thai – Australian Free Trade Agreement or the JTEPA (Japan Thailand Economic Partnership Agreement). An application must be submitted to the Bureau of Foreign Business Administration, Department of Business Development of the Ministry of Commerce, Thailand with applicable fees. Usually it takes a few months to get a Foreign Business License but only less than a month to get a Certificate of Business Operation in case of American majority owned companies or Australian or Japanese under the trade agreements mentioned above.

The application usually contains details of your company’s profile, type of applied business, characteristics of business and stages of operation, capital structure, business structure, size of business, technology transfer plan, and employment. You may want to hire a lawyer or a good Thai accounting firm with lots of experience in the field like MSNA to obtain the Foreign Business License for you. It is not an easy task if you do not do it all the time to prepare such an application.

In June 2010, the Department of Business Development issued an application preparation handbook to help foreign businesses understand what they need to submit to get the Foreign Business License.

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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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What Should be Filed by a Company in Thailand?

If you have a company in Thailand, you should know that your Thai accounting staff may not know everything your Thai company should file in a year. Even if you hire a Thai accounting firm to handle your accounting, you need to make sure they do their job.

Here is a brief summary of what should be filed by a Thai company, but keep in mind that depending on many factors, there may be more forms that your company should file than these:

Yearly:

  • Within 31 January, file form Kor Tor 26 Kor “Workmen Compensation Fund Estimate for the year …. (current year)” with the Social Security Office.
  • Within 28 February, file form Kor Tor 20 “Employees Compensation Sheet to attach to Form Kor Tor 20 Kor for the year….(previous year)” and also make payment with the form Kor Tor 20 Kor with the Social Security Office.
  • Within 7 February, file form “Information of foreign employees’ income” with the Revenue Department (together with the monthly PND 1 of January (see the monthly filing below). Also if during the year there is any foreign employee joining or leaving the company, this form must be filed within 7th of the month following the transaction.
  • Within 28 February, file PND 1 Kor with the Revenue Department. This is the return that summarizes all the employees’ income and tax withheld throughout the previous year.
  • Within 30 April (or within 4 months after the accounting year-end), hold an AGM (Annual General shareholders’ Meeting) to approve the prior year financial statements.
  • Within 27 May, (or within one month after the AGM, whichever comes first), file the audited financial statements and the copy of list of shareholders as of the AGM date with the Department of Business Development, the Ministry of Commerce.
  • Within 27 May, (or within 150 days after the accounting year-end) file the audited financial statements and Corporate Income Tax Return (PND 50) with the Revenue Department.
  • Within 31 August, (or within 2 months after the first half of your accounting year) file the interim corporate income tax return (PND 51) with the Revenue Department.

Monthly:

  • Within the 7th of the month, file the withholding tax returns (PND 1, 3, 53 and 54 if any) of the previous month with the Revenue Department. Also VAT return form 36 (PP 36), if any, must be filed.

PND 1 shows all the taxes withheld from the employees’ salaries.

PND 3 shows all the taxes withheld from the suppliers who are individuals.

PND 53 shows all the taxes withheld from the suppliers who are juristic persons.

PND 54 is shows all the taxes withheld from paying the suppliers overseas.

PP 36 is the Valude Added Tax (VAT) return that the company files on behalf of its overseas suppliers. Because overseas suppliers are not registered in the Thai VAT system, when the company makes payment to them, it has to submit 7% VAT on behalf of them. The VAT amount will become the company’s input tax (thus can be claimed back) in the month that the company submits it.

  • Within the 15th of the month, file the monthly Valude Added Tax (VAT) return (PP 30) with the Revenue Department. This form summarizes the input and output VAT of the previous month and it has to be filed even if there are no transactions. If the company is not registered in the VAT system, it cannot file this form.
  • Within the 29th of the month, file the social security form “Sor Por Sor 1-10” with the Social Security Office. This form shows all the social security contribution deducted from the employees’ salaries and the contribution made by the company from the previous month.

Good Thai accounting companies (like MSNA) know to file all those forms for their accounting clients. However, you may be surprised that many Thai accounting firms don’t.

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Options for Foreigner Who Wants To Do Business in Thailand

The following is an overview of establishing a business in Thailand. There are 4 forms of establishment you can choose to operate your business in Thailand:

  1. Sole Proprietorships. This is not the form of business we recommend since the sole owner is exposed to unlimited liability of the business.
  2. Partnerships. A partnership can be registered and unregistered. Again partnerships are not recommended for foreigners wanting to do business in Thailand for the same reason as sole proprietorships.
  3. Limited Companies. The most popular form of business organization among general investors is private limited companies due to the fact that the liability of the investors is limited to the amount of unpaid shares subscribed by them.
    A private limited company requires a minimum of three promoters who file a memorandum of association, convene a statutory meeting and register the company. Once the company has been registered, it needs to obtain a tax identity card. Some companies are required to register into the VAT (Value Added Tax) system, depending on the types of business and the level of their gross income. They must also follow accounting procedures specified in the Civil and Commercial Code, the Revenue Code and the Accounting Act. Companies are required to close their accounts and have an auditor audit their books and file their audited financial statements once a year with the Revenue Department and the Department of Business Development.
  4. Branch Office . You may choose to operate your existing foreign company in Thailand as a Branch Office. Or you can choose to set up a representative office, which is a form of Branch Office but you cannot earn income in Thailand.

In order to operate a business in Thailand as a foreigner, you need to consult Thailand Foreign Business Law (Alien Business Act). Certain types of businesses do not have to apply for a Foreign Business License while most types do require that you get the Foreign Business License before you start the business operation.

Contact MSNA for any questions about setting up a business in Thailand.

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Types of Business a Foreigner Can Do in Thailand

If your company is Thai majority owned, you can do almost any kind of legal business. However, if yours is a foreign majority owned company, set up inside or outside of Thailand, you can do business with the following conditions:

(1) Non-restricted Businesses
General rules are that if your foreign majority company does export (from Thailand) or manufacturing businesses, it can operate the business without having to apply for a Foreign Business License.

(2) Restricted Businesses
Nearly all types of service and retail businesses are restricted to foreigners. As a foreign majority company you may obtain exemptions through getting a Foreign Business License or a Board of Investments (BOI) promotion, or in case of US companies or American majority companies, registration under the Treaty of Amity and Economic Relations between the United States of America and the Kingdom of Thailand. It should be noted that for some types of businesses, exemptions cannot be obtained.

Click for more information of Thailand Foreign Business Law or for the full version: http://msnagroup.com/thailand-business-company/thailand-foreign-business-law.

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