It’s time for foreigners in Thailand to file their personal income tax. MSNA is always chosen by expats living in Thailand to help prepare and file their tax returns for the income they earned the previous year. We have worked with foreign tax payers from all over the world to determine what income must be included as their taxable income in their Thai tax returns, what and how much expenses are allowed by law, what tax related deductions they are allowed to take, and how much tax they have to pay while considering the double taxation treaty their home country has with Thailand.

If you were in Thailand more than 180 days in 2010, you are considered a tax resident and need to find out if you must file your income tax for 2010 within 31 March 2011. Please contact us for consultation.

Today THAI ACCOUNTANT would like to talk about VAT and Withholding Tax When Getting Services from Overseas.

As a company operating in Thailand, if you need to procure services from overseas, there are two things important to know:

1. Very likely, you need to withhold some tax and submit it to the Thai Revenue Department within the 7^th of the following month using form PND 54. In case you did not withhold the tax, you will have to pay from the company’s pocket. By the way, the tax you pay on behalf of another company (domestic or overseas) is a non-tax-deductible expense. Usually the withholding tax rate is 15% for most cases, but make sure you consult first with the double taxation treaty between Thailand and the country where the vendor is. MSNA is a Thai accounting company that is familiar with double taxation treaties because we deal mostly with international clients and we can give you an accurate advice. If you withhold the tax from the payment you make to the vendor, then the tax you submit is not part of your cost. If the vendor wants a withholding tax certificate so that they can use the amount of tax withheld by you as their prepaid tax, you will have to get the withholding tax certificate in English from the Thai Revenue Department. It takes many papers and forms and a few months to get the withholding tax certificate from the RD.
2. Once you pay an overseas service provider, you need to submit 7% VAT on their behalf by the 7th of the following month using VAT return form PP 36. When you submit it, you will get a tax receipt from the Revenue Department. The VAT amount in the receipt is considered a purchase VAT or input VAT in the month that you submit it. You will claim it back in the same manner as all other purchase VAT you pay to Thai vendors. The reason behind the fact that you have to submit 7% VAT on behalf of the overseas vendors is that all the vendors in Thailand charge you VAT and if you can buy goods or services from overseas and you don’t have to pay VAT, then no one will want to buy from the Thai vendors. So the law has to make it fair to the Thai vendors. When you buy goods in Thailand you have to pay VAT, so to be fair to the Thai vendors, when you import goods, they make you pay VAT at the Customs too. The same idea applies to buying services from overseas; you need to pay VAT by submitting it on behalf of the overseas vendor.

If you have any Thai taxation questions, please consult with MSNA, the Thai accounting firm based in Bangkok.

Most companies in Thailand choose their accounting year-end to be 31 December of each year. They need to close their books and file the Corporate Income Tax Return with the Revenue Department within 150 days after the accounting year-end.

THAI ACCOUNTANT would like to point out that the profits per accounting books are not the same as the profits per corporate income tax return. This is because there are many expenses that are included in the companies’ accounting but are not allowed by the Thai tax law, thus have to be added back to the profits in the tax return.

Good Thai accountants and Thai accounting firms should be knowledgeable on this matter.

According to Thailand Revenue Code, Section 65 Ter, the following items shall not be allowed as expenses in the calculation of net profits:

(1) Reserves except:

(a) Insurance premium reserves for life insurance set aside before calculation of profit, but only the amount not exceeding 65% of the amount of insurance premiums received in an accounting period after deducting premiums for re-insurance.

In a case where money is paid out on an amount insured on any life insurance policy whether in full or in part, only the paid amount which does not exceed the reserves under Paragraph 1 for such policy shall not be allowed as expense.

In a case where any life insurance policy contract is terminated, the amount of remaining reserve under Paragraph 1 for such policy shall be calculated in the calculation of income in the accounting period in which the contract is terminated.

(b) Insurance premium reserves for any other insurance set aside before the calculation of profit, but only the amount not exceeding 40% of the amount of insurance premiums received in an accounting period after deducting premiums for re-insurance and this amount of reserves set aside shall be income in the calculation of net profit for tax purposes in the following accounting period.

(c) A reserve set aside for bad debts or suspected bad debts from liability arising from the provision of credit which a commercial bank, finance company, securities company or credit foncier company sets aside under the laws governing commercial banks or laws governing the finance business, securities business and credit foncier business, as the case may be; but only the amount set aside which increases from such type of reserve appearing in the balance sheet of the previous accounting period.

For the increased reserve set aside under paragraph 1 and treated as expense for the purpose of calculating net profit or net loss in any accounting period, if afterwards, there is a reduction of such reserve, such reduced reserve which was already used as expense shall be included as income in the accounting period in which the reserve is reduced.

(2) Fund except provident fund under the rules, procedures and conditions prescribed by a Ministerial regulations.⁷

⁷M.R.No.183

(3) Expense for personal, gift, or charitable purpose except expense for public charity, or for public benefit as the Director-General prescribes with the approval of the Minister, shall be deductible in an amount not exceeding 2% of net profit. Expense for education or sports as the Director-General prescribes with the approval of the Minister shall also be deductible in an amount not exceeding 2% of net profit.⁸

⁸N.DG.ITNo.44

(4) Entertainment or service fees that are not in accordance with the rules prescribed by a Ministerial Regulation.⁷

⁹M.R.No.143

(5) Capital expense or expense for the addition, change, expansion or improvement of an asset but not for repair in order to maintain its present condition.

(6) Fine and/or surcharge, criminal fine, income tax of a company or juristic partnership.⁸

¹⁰R.CT.No.10/2528

(6 Bis) Value added tax paid or payable and input tax of a company or juristic partnership which is a VAT registrant except value added tax and input tax of a registrant paid under Section 82/16, input tax not deductible in the calculation of value added tax under Section 82/5(4) or other input tax as prescribed by a Royal Decree. ¹¹

¹¹R.D.No.243

(7) The withdrawal of money without remuneration of a partner in a juristic partnership

(8) The part of salary of a shareholder or partner which is paid in excess of appropriate amount.

(9) Expense which is not actually incurred or expense which should have been paid in another accounting period except in the case where it cannot be entered in any accounting period, then it may be entered in the following accounting period.

(10) Remuneration for assets which a company or juristic partnership owns and uses.

(11) Interest paid to equity, reserves or funds of the company or juristic partnership itself.

(12) Damages claimable from an insurance or other protection contracts or loss from previous accounting periods except net loss carried forward for five years up to the present accounting period. ¹²

¹²N.RD. Re: Computation of Net Profits and Net Loss of Companies or Juristic Partnerships that are Granted Investment Promotion.

R.CT.No.35/2540

(13) Expense which is not for the purpose of making profits or for the business.

(14) Expense which is not for the purpose of business in Thailand.¹³

¹³R.CT.No.13/2529

(15) Cost of purchase of asset and expense related to the purchase or sale of asset, but only the amount in excess of normal cost and expense without reasonable cause.

(16) Value of lost or depleted natural resources due to the carrying on of business.

(17) Value of assets apart from devalued assets subject to Section 65 Bis

(18) Expense which a payer cannot identify the recipient.

(19) Any expense payable from profits received after the end of an accounting period.

(20) Expense similar to those specified in (1) to (19) as will be prescribed by a Royal Decree.¹⁴

¹⁴R.D.No.315