MSNA has many accounting clients in Bangkok whose companies operating in Thailand providing services. As their Thai accountant, we get this question often – Is there withholding tax when a Thai company invoices an overseas client?

Withholding tax is there when your company pays a vendor (mostly for services, but please check with your Thai accountant or MSNA for your type of business) and you have to withhold some tax. And when another company in Thailand pays your company for service, they will have to withhold some tax from the payment.

In the case of getting paid from an overseas client, if the tax law of the country of your client’s origin generally requires that they withhold tax when paying an overseas company (you), then we need to consult the double taxation treaty between Thailand and that country to see if your company should pay tax in that country and if so what the rate is.

If you have any tax or accounting questions, please contact MSNA.

To set up a business in Thailand, what are the fees you can expect to pay if you hire a full service professional firm?

Professional Fees:

1. Setting up a new company in Thailand, including getting a tax ID and VAT registration

– Professional fee: Baht 40,000 – 100,000

2. Getting a foreign business license (or certificate to operate business) for your newly set up company. (You can skip this part if you have a Thai partner who will hold more than 50% of the shares in the new company since it will be considered a Thai owned company.)

– Professional fee: Baht 50,000 – 100,000

Government fees:

Government fees are related to the amount of registered capital of the company. And to know how much registered capital the company should have, we need to consider a few things:

1. If a company has Thai majority shareholders and it will not hire any foreigner, then the registered capital can be as little as Baht 5 per share and because a company needs at least 3 shareholders, the registered capital can be as low as Baht 15. However, the government fee to register a company in Thailand is the same for Baht 15 capital or Baht 1M capital. Thus the government fee to set up a Thai company is about 7,000 for Baht 1 M registered capital.
2. If a company has Thai majority shareholders and will hire a foreigner to work for it, then the registered capital has to be at least Baht 2M (or Baht 1M if the foreign employee is married to a Thai national). Basically for each work permit the company sponsors, it needs Baht 2M in registered capital. Thus the government fee to set up a Thai company is about 12,000 for Baht 2M registered capital plus about Baht 6,000 for each additional million.
3. If your new company has foreign majority shareholders, you need to have at least Baht 3M registered capital for each kind of business you want to operate in Thailand. And with each Baht 3M capital, you can sponsor one work permit. So if you want to operate just one business, your new company needs to have Baht 3M registered capital and it can sponsor one work permit. In this case the government fee to set up the company is about Baht 18,000. And the government fee for getting a license to operate a foreign business in Thailand is about Baht 35,000.

For more information on doing business in Thailand, visit www.msnagroup.com.

When you have a company operating in Thailand, a lot of times you or the company’s employees have to travel for the company’s business. How do you reimburse your travelling expenses, like tickets, meals, accommodation and entertainment in a way that is considered legitimate to the eyes of the Revenue Department officials?

When the Revenue Department officials audit the books of your company, if they see that you have travelling related expenses, they want to assume that you took the trip for your pleasure unless you have proof that it was for the company’s business and that all the expenses paid on the trip were reasonable for the trip and reimbursed at cost. If you cannot prove those two points, the travelling expense may get added back to your bottom line profit to recalculate the corporate income tax and you may end up having to pay more tax.

To prove that the trip was for the company’s business, you can attach some email correspondence with, or invitation from, the company in the country (or province in case it was inside Thailand) where you took the trip to. It can be trade show brochures or any other publication if you went to that particular country for the event. The best practice is to attach such supporting documents to the payment voucher in which you reimbursed for the travelling expenses.

Now to prove that the expenses paid for the trip are legitimate expenses, the general rule is that you need to have original receipts for each expense item.

– For air ticket, the safest way is to have the travel agent (if you buy the ticket from a Thai travel agent) issue a receipt in your company’s name. If you buy the ticket online or it is impossible to get a receipt issued in your company’s name, then the E-receipt sent by the online vendor may suffice. I use “may” because some Revenue Department officials are more difficult than others.

– For meals and accommodation, the Revenue Department officials that we talk to advised that you need to get receipts for those expenses from the vendors. And the safest way is for the receipts to be in the company’s name. In case of overseas trips, if it is not possible to have the company’s name of the receipts, just get the receipts.

– For taxi fares and any other expenses whose nature is that the vendors do not issue receipts for the customers, then in your travelling expense report (or expense reimbursement form), you should specify the reason why you had to pay for the expense. Like taxi fares, write down that you took the cab from where to where for what business.

– Please note that if the company just gives the employee a daily allowance for meals and taxi for example, it will likely be treated as part of the employee’s income and thus needs to be included in his personal income tax calculation. If the employee reimburses for the expenses at cost, it will not be part of his income.

– What happens if the expenses do not have receipts for is that the Revenue Department officials will very likely add them back to recalculate the corporate income tax.

For tax questions, contact https://msnagroup.com/contact-us/.

Usually when an employer fires an employee, there are two kinds of payment that the employer is required by the Thai labor law to pay the employee for termination of employment.

1. Payment in lieu of advance notice

If an employment contract does not specify any duration, either party can terminate the contract by giving an advance notice in writing before or at the date the wage payment is due, to take effect on the following wage payment due date. If the employer terminates an employee and wants the termination to take effect right away, the employer has to pay the employee all the wages that should have been owed if the termination would take effect on the following wage payment due date. This is called payment in lieu of advance notice.

1. Severance pay

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.

Tax implication:

The payment in lieu of advance notice is considered the employee’s income from work. If the employer is a juristic person (limited partnerships, companies, etc.), which normally has to withhold tax from employees’ income, it has to include this payment to the withholding tax calculation to determine if there is any more tax to withhold from this employee.

Severance pay is tax exempt for the employee if the amount is not more than Baht 300,000 and not more than 300 days’ wages. The portion over Baht 300,000 or the portion that is more than 300 days’ wages has to be included in the withholding tax calculation by the employer.

Note for employees: If you worked for more than 5 years, when you prepare your personal income tax return of the year, you can claim more deductions on the severance pay’s portion over Baht 300,000 or the portion that is more than 300 days’ wages.

If you want to ask us questions on Thailand labor law, please visit https://msnagroup.com/contact-us/ for more information.

Today MSNA wants to discuss Annual or Paid Vacation Leave in Thailand Labour Law.

“Section 30: An employee who has worked for an uninterrupted period of one year is entitled to annual holidays (or paid vacation leave) of not less than 6 working days in one year and the employer is obliged to fix the annual holidays in advance for the employee or as agreed by the employer and the employee.

In the following years, the employer may fix the annual holidays for the employee of more than 6 working days.

The employer and the employee may agree in advance to accumulate and postpone any annual holiday that has not yet been taken in a year to be included in the following years.

For the employee who has not yet completed one year of service, the employer may set the annual holidays for the employee on a pro rata basis.”

MSNA’s notes:

– The employer can agree with the employee when he wants to take his holidays. It can be 1, 2, 3 or 4 days at a time or the whole 6 days at once. The company may have a policy that the employee has to submit the request to take his annual holidays and get the employer’s approval for how long in advance before the dates of the intended holidays.

– The number of days of paid vacation leave (annual leave) can be increased (or not) for the following years.

– The employer may choose to allow the employee to take his unused annual holidays in a particular year to roll forward to the following year.

– For the employee who has not completed one year of service, the company may choose to allow (or not) paid vacation leave on a pro rata basis.

– The employer may choose to pay the employee (or not) for the unused paid vacation leave (annual holidays).

Please visit www.msnagroup.com for more information on doing business in Thailand and Thai labor law.

Thai Labor Law prescribed different kinds of leave that an employee is entitled to.

Section 32: An employee is entitled to sick leave as long as he is actually sick. For sick leave of 3 days or more, the employer may require the employee to produce a certificate issued by a first class physician or an official medical establishment. If the employee is unable to produce such a certificate, he shall give an explanation to the employer.

If a physician is provided by the employer, the physician shall issue the certificate except where the employee cannot be examined by the physician.

The day on which an employee is unable to work on account of an injury or illness, arising out of employment or on maternity leave under section 41 shall not be regarded as sick leave under this section.

Note: The employer has to pay wages to the employee on sick leave equivalent to the wages of a working day throughout the leave period, but not more than 30 days a year.

Section 33: An employee shall be entitled to leave for sterilization and leave as a result of sterilization for a period determined and with a certificate issued by a first class physician.

Note: The employer has to pay wages to the employee on leave for sterilization equivalent to the wages of a working day throughout the leave period.

Section 34: An employee shall be entitled to leave for necessary business in accordance with the work rule of his workplace.

Section 35: An employee shall be entitled to leave for military service for inspection, military drilling or for readiness testing under the law concerning military service.

Note: The employer has to pay wages to the employee on leave for military service equivalent to the wages of a working day throughout the leave period, but not more than 60 days a year.

Section 36: An employee shall be entitled to take leave for training or the development of his knowledge and skills in accordance with the rules and procedures prescribed in the ministerial regulations.

Section 41: A female employee who is pregnant shall be entitled to maternity leave of not more than 90 days for each pregnancy.

Any leave taken under paragraph one shall include holidays during the period of leave.

Note: The employer has to pay wages to the employee on maternity leave equivalent to the wages of a working day throughout the leave period, but not more than 45 days a year.

For questions about Thai labor law, contact us at www.msnagroup.com.

Sometimes you set up a company in Thailand to handle only marketing, or servicing clients, or any other functions for the head office overseas. You do not think that the Thai operation is big enough to justify having an accounting and financial department in the Thai company. MSNA is an excellent answer to your business needs.

Some of our clients in Bangkok have their headquarters outside Thailand, with their HR, accounting and finance in Hong Kong, Singapore, the US, Australia or Europe. They have MSNA handle the payroll of their staff in Bangkok, process their vendors’ payment requests and take care of the invoicing and issuing receipts and tax invoices for their Bangkok operation.

Payroll: Usually, MSNA processes payroll calculation for the client’s employees, taking into account the allowances and deductions allowed by the Thai tax law, then sends the month’s payroll summary and detailed calculation of payroll taxes and social security to the client for approval. Then we send the data to the client’s bank to process the deposits into the employees’ accounts. With some clients, they send the money into our account for us to issue our checks to deposit into the employees’ accounts. Then we send the confidential payroll slip to each employee.

Processing vendors’ invoices: We gather all the invoices from the client’s suppliers, make sure the invoices have been approved by the client’s authorized person and prepare payment vouchers with accounts coding and withholding tax certificates for the transaction. We then send everything with supporting documents via email to the client’s finance department overseas to approve. With some clients, the clients send the money to us and we issue our checks to pay the suppliers. With others, the clients let us log on to their bank’s website to process the checks online and the authorized person overseas logs on to approve them. Later we pick up the checks from the bank and distribute them to the vendors at our office.

Invoicing and issuing receipts and tax invoices for the client: We issue invoices with the details supplied to us by the client, send them to their clients, follow up to check if the payment has been processed, then we issue receipts and tax invoices and send them to exchange for the client’s checks. We then deposit the checks into the client’s account.

Accounting service: I believe it is the most important thing that a Bangkok company with overseas headquarters needs. You need your accounts to be done in compliance with the Thai accounting standards and the Thai tax laws. Your accounts need to be signed off by a qualified and licensed Thai accountant. Also your accounts need to be audited by a Thai CPA.

For your Thai accounting needs in Bangkok, please contact www.msnagroup.com.