If your business in Thailand is registered in the VAT system, you and your Thai accountant need to pay attention to the tax invoice you receive from vendors.

When you buy goods from someone who is also registered in the VAT system, they need to issue a tax invoice right when the goods are delivered. The “tax invoice” may or may not be on the same paper as “invoice” or “delivery note” or “receipt”. If they are not registered in the VAT system, they cannot issue a tax invoice and must not collect VAT from you.

When you buy services, the vendors do not need to issue a tax invoice until you pay them. If you get a credit term on the transaction, they may send you an “invoice” to let you know how much you owe them. When they get paid, they need to issue a receipt and a tax invoice, which could be on the same paper.

A tax invoice must at least contain the following particulars-

(1) the word “tax invoice” at a prominent place;

(2) the name, address and taxpayer identification number of the business issuing the tax invoice;

(3) the name and address of the purchaser of goods or service;

(4) serial number of the tax invoice;

(5) description, type, category, quantity and value of goods or services

(6) the amount of value added tax calculated on the value of goods or services which is clearly separated from the value of goods or services;

(7) the date of issuance;

(8) any other particulars as prescribed by the Director-General of the Revenue Department.

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.

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.

In Part 2 and Part 3, THAI ACCOUNTANT explained about Regional Operating Headquarters or ROH and its tax privileges, old scheme and new scheme.

Again Regional Operating Headquarters or ROH is a company registered in Thailand providing managerial, administrative and technical services as well as other supporting services to ROH’s foreign branches or its associated enterprises.

What does “Associated enterprise” mean?

The Revenue Department has the following criteria in determining whether a company is an ROH’s associated enterprise.

1. Shareholding basis. A company shall be regarded as ROH’s associated enterprise if:

i. ROH holds at least 25 percent of that company’s issued capital; or

ii. The company holds at least 25 percent of ROH’s issued capital; or

iii. The company holds at least 25 percent of ROH and other company’s issued capital. In this case, ROH and the other company are regarded as associated enterprises.

2. Control basis. A company shall be regarded as ROH’s associated enterprise if:

i. ROH has control over that company; or

ii. The company has control over ROH; or

iii. The company has control over ROH and the other company. In this case, ROH and the other company are regarded as associated enterprises.

“Control” in this context is used in accordance with General Accepted Accounting Principles.

The services provided by Regional Operating Headquarters or ROH to its associated enterprises or its branches that qualify for tax privileges are as follows:

Managerial services, administrative services, technical services, and supporting services. Supporting services include:

1. General administration, business planning and coordination
2. Procurement of raw materials and components
3. Research and development of products
4. Technical support
5. Marketing and sales promotion planning
6. Personnel management and regional human resource training
7. Financial advisory services
8. Economic or investment research and analysis
9. Credit control and administration
10. Any other activities stipulated by the Director-General of the Revenue Department

If you have any questions regarding tax and accounting, please contact MSNA, a Thai accounting firm that provides accounting services to SME’s in Bangkok Thailand.

Today THAI ACCOUNTANT wants to explain more about Regional Operating Headquarters or ROH and its tax privileges. This is Part 2 of 3. In part 1, THAI ACCOUNTANT talked about the old scheme ROH. In this Part, we will look at the new scheme ROH which was officially enacted on 6 November 2010. The new scheme is in addition to the old ROH incentives scheme. An ROH company has to choose only one from the two schemes in order to get the tax benefits from the selected tax incentive scheme.

New Scheme Regional Operating Headquarters

Tax privileges

ROH Company

1. Exemption of corporate income tax on qualifying income earned from the services provided to associated enterprises outside Thailand
2. 10% corporate income tax on qualifying income earned from the services provided to associated enterprises in Thailand
3. 10% corporate income tax on interest income and royalty income for the use of R&D products developed by the ROH in Thailand received by the ROH from Thai and/or overseas associated enterprises
4. Corporate income tax exemption on dividends received from Thai and/or overseas associated enterprises
5. Withholding tax exemption on certain dividends of the qualified ROH company distributed to overseas corporate shareholders

The tax privileges under items 1, 2, 3 and 4 will be granted for 10 consecutive accounting years and extendible to 15 consecutive accounting years if the qualified ROH is continuously entitled to corporate income tax exemption/reduction for 10 accounting years and at the end of the tenth accounting year, it has accumulated operating expenses paid in Thailand of more than THB 150 million.

1. Only 15% personal income tax imposition for 8 consecutive years for qualified expatriates registered with the Revenue Department as top executives or specialized professionals
2. Personal income tax exemption for qualified expatriates assigned to work overseas

To qualify for the above tax privileges, ROH must meet the following criteria:

1. ROH must have a paid-up capital of at least THB 10 million.
2. Services must be provided to its associated enterprises in at least 3 foreign countries whereby ROH must provide services to at least one foreign country in the first and second accounting years, at least two foreign countries in the third and fourth accounting years, and at least three foreign countries from the fifth accounting year onwards.
3. ROH must incur operating expenses or have capital expenditure paid to Thai nationals of at least THB 15 million or THB 30 million per accounting year, respectively.
4. All associated enterprises must have real operations with physical presence and staff.
5. ROH must have skilled staff with minimum knowledge as prescribed by the Director-General of the Revenue Department.
6. Starting from the third accounting year onwards, the ROH must have at least 75% skilled staff and pay annual staff benefits of at least THB 2.5 million per person to at least 5 staff
7. To be eligible for the corporate income tax benefits under items 3, 4, and 5 and the personal income tax benefits, at least 50% of the total income of the ROH company must be generated from qualifying service income or qualifying royalty income from overseas.
8. ROH must register with the Revenue Department within 5 years from the date to be announced by the Director-General of the Revenue Department.

If the ROH cannot meet one of the above conditions in any accounting year, it will be disqualified for tax incentives retroactively starting from the first accounting year.

In Part 3, THAI ACCOUNTANT will talk about the definition of associated enterprises and the definition of qualifying services by Regional Operating Headquarters.

Today THAI ACCOUNTANT wants to explain about Regional Operating Headquarters or ROH and its tax privileges. This is Part 1 of 3.

Regional Operating Headquarters or ROH is a company registered in Thailand providing managerial, administrative and technical services as well as other supporting services to ROH’s foreign branches or its associated enterprises.

Regional Operating Headquarters or ROH incorporated in Thailand will enjoy certain tax privileges. Currently Thailand has 2 schemes of ROH tax privileges. An ROH company has to choose between the old scheme (which was granted on 16 August 2002) and the new one (enacted on 6 November 2010).

Old Scheme Regional Operating Headquarters

Tax privileges

ROH Company

1. Corporate income tax at the rate of 10 percent on net profits for income derived from services provided to ROH’s foreign branches or associated enterprises;
2. Corporate income tax at the rate of 10 percent on net profits for royalties derived from ROH’s foreign branches or associated enterprises for the use of Research and Development (R&D) done by ROH in Thailand. This benefit is also extended to royalties received from a third party providing services to ROH’s branches or associated enterprises using ROH’s R&D;
3. Corporate income tax at the rate of 10 percent on net profits and interest received from ROH’s foreign branches or associated enterprises for loans granted, provided that such loans are made from other sources and extended to ROH’s branches or associated enterprises;
4. Tax exemption for dividends received by ROHs from associated enterprises;

5. Tax exemption for dividends paid out of ROH’s concessionary profits to its shareholders not carrying out business in Thailand;
6. Accelerated depreciation for buildings at the rate of 25 percent on the date of acquisition. The residual value can be depreciated within 20 years.

Expatriates working for ROH

1. Expatriate may opt to be taxed at 15 percent of gross income. By doing so, the income received must not be calculated together with other income and cannot claim for refunds. This privilege is available only to expatriates employed by ROH and are limited to their first four years of employment in Thailand. It does not matter how extensively the beneficiaries have to travel abroad during the employment period. To be entitled for the benefits once again, expatriates have to discontinue employment with any ROH in Thailand for more than 365 days.
2. Expatriates who are sent to work in another country by ROH will receive a tax exemption in Thailand on their income paid by the foreign company for services rendered abroad, provided that such income is not directly or indirectly deducted as ROH’s nor its associated enterprise’s expenses in Thailand.

To qualify for the above tax privileges, ROH must meet the following criteria:

1. Its paid-up capital must not be less than 10 Million Baht at the end of each accounting period;
2. Provide services to its branches or associated enterprises in at least 3 countries;
3. Half of its total income is derived from administrative, technical and other supporting services provided to its branches or associated enterprises in other countries and royalties received outside Thailand for the use of ROH’s R&D. This criterion can be mitigated to one-third of the total income in the first three accounting periods of its operation as ROH. In the case of force majeure, the Director-General of the Revenue Department may lower the income threshold for one accounting period; and
4. It must notify the Revenue Department about the incorporation as ROH. Benefits will be given once the accounting period has been notified.

In Part 2, THAI ACCOUNTANT will talk about the new scheme ROH.

A few weeks ago, the Thai cabinet approved certain tax privileges on International Procurement Center as follows.

1. IPC’s Corporate income tax is reduced to 15% (on taxable profits) for 5 consecutive accounting periods from the following revenues.

a. Revenue from purchase and sale of goods to overseas affiliates and such goods is not imported to Thailand

b. Revenue from sale of raw materials and parts to overseas affiliates’ manufacturing plants

2. Personal income tax for expatriates (maximum 3 persons) in management levels is reduced to 15% for 5 consecutive years. In order for an IPC to be qualified under this privilege, it must have a qualified revenue of at least 50% of the total of qualified revenue and revenue from sale of raw materials and parts to affiliates for manufacturing in Thailand.

This tax privilege is granted for the purpose of promoting an investment in manufacturing business and promoting Thailand as a center of both manufacturing business (under IPC scheme) and service business (under Regional Operating Headquarters scheme).

If you have any questions about Thailand taxation, please contact MSNA, an English Speaking Thai Accounting firm servicing SME’s in Bangkok Thailand.

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.

• A good Thai accountant should be knowledgeable on the Thai tax law and practice. A general knowledge of business law is a big plus.
• A good Thai accountant knows what constitute a valid tax invoice, the tax invoice from which you can claim back the VAT you paid on goods and services.
• A good Thai accountant recognizes when the transaction requires tax withholding.
• A good Thai accountant always meets deadlines for financial reports.
• A good Thai accountant is neat and tidy and makes sure all transactions have proper supporting documentation.
• Smart Thai accountants know that they need to freshen up their knowledge very often by attending training or seminars and reading tax and accounting publications.

It is a good idea to hire another Thai Accountant from a well established Thai accounting firm to check your accountant’s work once in a while.

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 15^th 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.

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.

In the event that the employer relocates its place of business that essentially affects the normal living of an employee or his/her family, the employer must notify the employee of the relocation at least 30 days in advance or pay an amount in lieu of the advance notice equal to 30 days’ wages. In this connection, if the employee refuses to move and work in the new location, the employee has the right to terminate the employment contract and is entitled to receive a special severance pay of not less than the prescribed rates of severance pay.

In the event that the employer terminates the employment of an employee as a consequence of streamlining the work units, production process, distribution service, or the introduction or change of machinery or technology, which thereby results in the reduction of the number of employees, the employer must notify the Labor Inspector and the employee concerned at least 60 days before the date of termination of the employment or pay in lieu of the advance notice to the employee an amount equal to 60 days’ wages. The terminated employee will be entitled to the prescribed rates of severance pay. Moreover, if the terminated employee, has worked consecutively for over 6 years, the employee would be entitled to an additional special severance pay at the rate of 15 days’ wages per one full year of service, calculating from the start of year 7 onwards. However, the total amount of this additional special severance pay is limited to the equivalent of 360 days’ wages.

Read the official version of the Thai Labor Law:

Labour Protection Act B.E. 2541 (A.D. 1998)

Labour Protection Act B.E. (No.2) 2551 (A.D. 2008)