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.
Thailand Labour Law for Working hours and Paid Sick, Maternity and Vacation Leave
The maximum number of working hours of employees in Thailand is fixed at 8 hours a day and 48 hours a week in total. In some types of works, as stipulated by the Thai labor law, the employer and the employee may agree to arrange the period of working hours but the working hours in any case must not exceed 48 hours a week. In establishments in which the work is deemed injurious to health or personal safety, as stipulated by law, working hours must not exceed 7 hours a day and 42 hours a week in total.
All employees are entitled to a daily rest period of at least 1 hour after working for 5 consecutive hours. The employer and the employee may arrange the daily rest period to be shorter than 1 hour at each time but it must not be less than 1 hour a day in total. A weekly holiday of at least 1 day a week at intervals of a 6 day period must be arranged for the employee.
For work performed in excess of the maximum number of hours fixed either by regulation or by specific agreement (if the latter is lower), employees must be paid overtime compensation. The rates of overtime vary ranging from 1.5 times to 3 times the normal average hourly wage rate for the actual overtime worked. Certain employees engaged in employment related work on behalf of the employer and other types of work as prescribed by law are not entitled to overtime compensation. The maximum number of overtime working hours is limited to not more than 36 hours a week.
All employees are entitled to unlimited sick leave, but the number of days paid sick leave shall not exceed 30 regular workdays a year. The employer may require an employee to produce a certificate from a qualified doctor for a sick leave of three days or more.
A female employee is entitled to maternity leave for a period of 90 days including holidays, but the number of days paid leave shall not exceed 45 days.
An employee who has worked consecutively for one year is entitled to at least 6 working days of paid vacation every year, in addition to the 13 holidays in a year traditionally observed in Thailand.
Here is the full version of Labour Protection Act B.E. 2541 (A.D. 1998)
and Labour Protection Act B.E. (No.2) 2551 (A.D. 2008)
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.
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.
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.
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.
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.
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..
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.
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.
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.
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.
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.
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.