Here are Corporate Income Tax and VAT questions from MSNA’s accounting client who owns his business in Bangkok, Thailand, about expenses on improvement of leasehold
property. Read on for the answers from THAI ACCOUNTANT.

We prepared ourselves for the flood. In fact, we improved pavements on the
vicinity and neighboring properties of our office and even constructed a wall
to protect our office from floodwaters. However, we are just leasing this
factory building. Can we include the expenses as deduction for our CIT
computation? How about the VAT for the building materials that we bought?

Answers by THAI ACCOUNTANT:

When you build a wall and improve private pavements and connecting pavements on your company’s rented plot of land, you have made an improvement of the company’s leasehold
property from which the benefits cover more than one accounting period; however,
expenses incurred for such improvement are not tax deductible (under Section 65
ter (5) of the Revenue Code). Such expenses would constitute capital
expenditure that is subject to depreciation (see Section 65 bis (2) of the
Revenue Code and Clause 4 (5) of the Royal Decree No. 145). Meanwhile, for
expenses incurred to improve the sections of the pavements that are not owned or
leased by the company, it is not considered as tax deductible expense as it was
not exclusively used for the company’s business according to Section 65 ter
(13) of the Revenue Code.

As for VAT, any input VAT paid by the company for purchasing materials and
services involved in the building of the wall and the improvement of company’s pavements can be offset against the company’s output VAT. However, any VAT paid on purchasing of materials and services involved in the improvement of the sections of the pavements that
are not owned or leased by the company, cannot be offset against the company’s
output VAT since it is not an expense incurred exclusively for the business of
the company.

For Thailand accounting and tax question, contact MSNA.

Today, Thai Business Expert received an inquiry from one of our valued clients
regarding the overtime rates in Thailand.

Our usual working hours starts at 8:30 AM and ends at 5:30 PM, Monday to Friday. We
pay our employees by monthly salary. Please confirm whether my understanding on
the following overtime (OT) rates is correct and it follows the Thai Labour Law.

OT 1: For employees who work after the usual 8 hours, any day during Monday to
Friday, OT rate should be 150% of the hourly rate?

OT 2: For employees who work for a usual 8-hour working time on a day off or holiday (weekends and public holidays), OT rate is 100% of the normal salary?

OT 3: For employees who work before or after his usual working time on a day off
or holiday (weekends and public holidays), OT rate is 300% of the normal salary?

Answer:

Yes, all overtime rates are correct although for Overtime 2 and Overtime 3, rates are to be applied to the normal hourly rates, not monthly.

Thus, for work performed in excess of the maximum number of hours fixed either by regulation or by specific employment 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. However,
certain employees engaged in employment related work on behalf of the employer
and other types of work as prescribed by Thailand Labour Law are not entitled to overtime compensation. The maximum number of overtime working hours is limited to not more than 36 hours a week.

Contact MSNA for your questions and further information on over time computation and employee’s benefits.

If you are an American citizen or a permanent resident (green card holder), living
or doing business in Thailand and you need help with your US tax returns, MSNA
has a solution for you.

MSNA, Thailand accounting company that handles the accounts of the American Chamber of Commerce in Thailand and many of its members, has been helping many American expatriates to prepare their US income tax returns.

We at MSNA together with our American CPA partners can help you ease the burden of filing your US tax returns. You don’t have to fly back to U.S.A. or spend a long time on your computer to study how to file your tax returns with the U.S. Federal tax authorities. No matter which state you came from, our team of US tax professionals will help take care of your US tax returns while you enjoy your comfortable life here in Thailand, the Land of Smiles.

For individual U.S. citizens and/or expatriates tax payers, the rules for filing
income, estate, and gift tax returns and paying estimated tax are generally the
same whether you are in the U.S.A. or Thailand because you are still required
to file your U.S. income tax returns and report your worldwide income with the
U.S. federal and state tax authorities, regardless of where you reside.

U.S. Tax Returns

In the U.S.A., tax returns are the reports filed with the Internal Revenue Service (IRS), with the state or local tax collection agency. These returns are generally prepared using forms prescribed by the IRS or other applicable taxing authorities.

Under the Internal Revenue Code, returns can be either classified as tax returns
or information returns, although the term “tax return” is used often. Tax
returns are reports of tax liabilities and payments, often including financial
information used to compute the income tax or other taxes. This report refers
to the documents filed with the IRS such as Form 1040 which is the standard US
individual tax return form although there are several variations of this form
such as 1040EZ, 1040A and other supplemental forms.

On the other hand, information returns are reports used to file information about
income, receipts or other matters that may affect tax liabilities. For example,
to report the amount of income of an employer, independent contractor, broker,
or other payer pays to a tax payer, they can use Form W-2 and Form 1099. Meanwhile, a company, employer, or party who has paid income to a taxpayer is required to file the applicable information return directly with the IRS. A copy of the
information return is also sent directly to the payee. These procedures enable
the IRS to make sure that taxpayers report their income correctly.

The following are the sample common US Federal tax returns and information returns:

Transfer taxes

Form 706,U.S. Estate Tax Return;

Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return;

Statutory excise taxes

Form 720, Quarterly Federal Excise Tax Return;

Form 2290, Heavy Vehicle Use Tax Return;

Form 5330, Return of Excise Taxes Related to Employee Benefit Plans;

Employment (payroll) taxes

Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return;

Form 941, Employer’s Quarterly Federal Tax Return;

Income taxes

Form 1040,U.S. Individual Income Tax Return;

Form 1040A,U.S. Individual Income Tax Return;

Form 1040EZ, Income Tax Return for Single and Joint Filers with No Dependents;

Form 1041, U.S. Income Tax Return for Estates and Trusts (for 1993 and prior years, this was known as “U.S. Fiduciary Income Tax Return”);

Form 1065, U.S. Return of Partnership Income (for 1999 and prior years, this was known as “U.S. Partnership Return of Income”) (information return);

Form 1099 series (various titles) (information return);

Form W-2 (information return);

Form 1120, U.S. Corporation Income Tax Return;

Form 1120S, U.S. Income Tax Return for an S Corporation;

In the event of any misinformation, taxpayers may file an amended return with the
Internal Revenue Service (IRS) to correct errors on a previous income tax
return. For the numerical errors, a taxpayer does not need to file an amended
return as the IRS will make the necessary corrections. Thus for individual taxpayers, amended returns are filed using Form 1040X, Amended U.S. Individual Income Tax Return.

When to file US tax returns?

Any tax return must be paid on or before April 15 of any year. However, if you are
living in Thailand or any other country outside U.S.A on that deadline, you are allowed for an automatic 2-month extension to file your return until June 15 to file your previous income tax returns for the previous calendar year. In case you are not
able to file your returns within June 15, you can file for an additional
extension request which extends the due date until October 15. In the event
that you are liable to submit income taxes and you were not able to pay the
estimated tax liability on April 15, you are responsible to pay additional interest
charges and related penalties for any underpayment.

If you file your income tax return each year while residing in Thailand, the
statute of limitations for IRS audits will expire three years after those tax
returns were filed. That means the IRS cannot check back any fraud or
substantial understatement of your income and try to audit or change those
returns at a later date. Thus, U.S. citizens and expatriates should always file their tax return even if they don’t have taxable income and/or any tax liabilities.

If you do not file your U.S. income tax return of a particular year, whether a return
is required or not, the statute of limitations on tax assessments for that year
never ceases. For example, if you reside overseas like Thailand for 10 years and then you return to U.S.A., the IRS may question why you did not file income tax returns for those years. In case it is proven that you intentionally avoided paying U.S.
taxes as a U.S. citizen for 10 years, the IRS has the authority to require you to pay your taxes for additional 10 years. As long as you are a U.S. citizen or expatriate,
you are always responsible to pay your U.S. taxes.

Contact MSNA when you need your prepare US tax returns.

The Thai Cabinet has recently approved the following incentives in corporate income
tax rates in order to boost Thailand’s competitiveness:

1. Incentives in general

For companies or juristic partnerships the applicable corporate income tax rates
will be reduced from 30% to:

– 23% for the accounting period ending on or after 31 December 2012

– 20% for the accounting periods commencing on or after 1 January 2013

For small and medium enterprises (SMEs) with paid-up capital of not exceeding Baht 5 million on the last day of the accounting period and income of not exceeding Baht 30 million from sales of goods or services during the accounting period, the
applicable corporate income tax rates are as follows:

– The first Baht 150,000 of net profit is exempted from tax.

– 15% for the portion of net profit exceeding Baht 150,000 and up to Baht 1,000,000 for accounting periods commencing on or after 1 January 2012

– 23% for the portion of net profit exceeding Baht 1,000,000 for the accounting
period ending on or after 31 December 2012

– 20% for the portion of net profit exceeding Baht 1,000,000 for accounting periods commencing on or after 1 January 2013

If paid-up capital exceeds Baht 5 million or income from sales of goods or services
exceeds Baht 30 million, the normal corporate income tax rates will be applied.

2. Incentives for Listed Companies

2.1 For entities listed on the Stock Exchange of Thailand within 31 December 2009
which are entitled to 25% corporate income tax rate, the applicable corporate
income tax rates are:

– 23% for the accounting period ending on or after 31 December 2012

– 20% for the accounting periods commencing on or after 1 January 2013

2.2 For entities listed on the Market for Alternative Investment (MAI) except for
those which are still entitled to 20% corporate income tax rate until the
accounting period ending 31 December 2011, the applicable corporate income tax
rates are:

– 25% on the first Baht 50 million of net profit for accounting periods ending on
or after 31 December 2011.

Eventually, the Cabinet’s resolution does not apply on the applicable tax rates on the sum over Baht 50 million for accounting period ending on or after 31 December 2011.
However, it can be presumed the normal 30% corporate income tax rate should
apply to the sum over Baht 50 million and the reduced tax rates as applicable
to other cases should also apply going forward as follows:

– 23% for the accounting period ending on or after 31 December 2012

– 20% for accounting periods commencing on or after 1 January 2013

Contact MSNA, Thai accounting company, for your Thai tax and accounting questions.

Staffing can be described as the recruitment, careful selection, development and providing proper compensation of personnel to perform their assigned roles in the workforce. Staffing solutions’ main purpose is to achieve the supply of skilled and qualified candidates and meet the organization’s business plans and visions. Thus, continuous staffing is essential for a business organization due to the promotions and career moves that occurs.

As part of MSNA’s services, we are assisting our clients by providing innovative solutions in building their productive accounting team.

We can provide, if required, on-the-job training for selected candidates and focus
on the essence of awareness, competence and professionalism in the areas of bookkeeping, accounting, audit, taxation and English communication in becoming an effective Accounting staff and Accounting Managers to meet the client’s needs and
expectations.

In some cases, prospective candidates will be screened and recommended through the following procedures:

1. Selection of possible candidates

2. Initial interview in Thai and English

3. Evaluation of ability and skills

4. Reference and background check

5. On the job training, if required by the client

6. Introduction to English communication skills (depending on client’s preference)

7. Assessment of over-all performance

8. Recommendation

For your accountant staffing needs, please contact MSNA to know more details on how we can help you.

When your business in Thailand cannot collect a debt from a debtor, if you want to write it off from your books, there are some rules prescribed by the Thai tax laws to follow. If you write it off not following the rules, the amount of the debt written off will be classified as a non-tax deductible expense, which means that it is your company’s expense but needs to be added back to the bottom line profit before calculating income tax on your corporate income tax return.

The Ministerial Regulation No. 186 (1991) defines Bad Debts that are eligible to be written off and the procedure to write them off as follows:

The Bad Debts that can be written off from the company’s accounts must have these characteristics:

(1) The debts arose from carrying on a business operation or in connection with the business operation or have been included as revenue in the computation of net profits, but not including debts owed by a person who is or used to be a director or managing partner whether or not the debts arose before or during the time such person is a director or managing partner; and

(2) The claim for debts is not barred from court action by statute of limitations and is
sufficiently evidenced for the purpose of suing the debtor.

The procedures to write-off Bad Debts:

A. Debt by a debtor exceeding Thai Baht 500,000, the following procedures are required:

(1) Demands for payment have been made and the matter has been pursued
to the extent suitable to the case of such acts and such demands have been
clearly evidenced and yet the debts remain unsettled because

(a) the debtor died, is missing or proved to be missing and
has no property to repay the debts, or

(b) the debtor dissolved his business, and the debts due
from him to the other creditors with preceding preferential rights over his
entire properties exceed the value f his properties.

(2) A civil action has been brought against the debtor and after a court order or
injunction the debtor does not have sufficient property to settle the debts; or

(3) A bankruptcy action has been brought against the debtor and a compromise has been reached with the debtor with court approval or the debtor has been adjudged
bankrupt and the first lot of the debtor’s properties have been shared out.

B. Debt by a debtor of more than Baht 100,000 up to Baht 500,000, the following procedures are required:

(1) Demands for payment have been made and the matter has been pursued
to the extent suitable to the case of such acts and such demands have been
clearly evidenced and yet the debts remain unsettled because

(a) the debtor died, is missing or proved to be missing and
has no property to repay the debts, or

(b) the debtor dissolved his business, and the debts due
from him to the other creditors with preceding preferential rights over his
entire properties exceed the value f his properties.

(2) A civil action has been brought against the debtor and the court has accepted the
plaint; or

(3) A bankruptcy action has been brought against the debtor and it has been accepted by the court.

In case of (2) or (3) above, it is required that the director or managing partner of the
company issue an order approving the write-off of the Bad Debt within 30 days
from the relevant accounting year-end.

C. Debt by a debtor not exceeding Thai Baht 100,000, the following procedures are required:

(1) Demands for payment have been made and the matter has been pursued
to the extent suitable to the case of such acts and such demands have been
clearly evidenced and yet the debts remain unsettled; and

(2) A lawyer has expressed his opinion that the costs associated
with the court proceedings will be higher than the amount expected to be
recovered.

Note that once the creditor has complied with all above mentioned rules and regulations, the creditor must write-off the receivable as a Bad Debt expense in the relevant accounting period. In case of category (B), the Bad Debt must be written off in the accounting period in which the relevant court accepts the civil complaint
or the bankruptcy petition.

Please contact MSNA for your Thai tax and accounting questions.

Today, THAI ACCOUNTANT got a very timely question.

Since last month, we are continuously giving donations to flood victims of Thailand. Can we include it as deductions for computation of our corporate income tax; at what rate we should use?

Answer:

We acknowledge your generosity. Indeed, you can use your expenses as deduction to
compute your Corporate Income Tax.

Donation expenses given to flood victims between 1 September 2011 and 31 December 2011 can be deducted at 1.5 times the actual expense but the valued amount condition at 10% of net assessable income for the purpose of personal income tax computation and 2% of net profit for corporate income tax computation, still applies.

Contact MSNA for your tax and accounting questions in Thailand.

Social Security and Its Benefits

In Thailand, Social Security Office was designated by the government to impose such scheme to ensure that proper social security assistance is provided to its members. The Social Security Scheme is operated according to the Social Security Act B.E 2533 (A.D. 1990) and its Amendment .E. 2537 (A.D. 1994) and B.E. 2542 (A.D. 1999). The Office is responsible to provide financial assistance to its members during the occurrence of sickness, maternity, invalidity, old age and unemployment, death, the provision of medical care and the provision of child allowance.

Its members, so called insured person s are the employees who started working at the age of not under fifteen and not over sixty years old in the company with 1 or more employees. The employers with 1 or more employees have
to submit the Registration Form within 30 days since the employee started working. In case the number of employees increased, the employer will submit for new Employee Registration Form if he or she has not received social security card before. Thus, the employers can submit the Registration Form by themselves or by his agent or any authorized person. Once the employee’s name has been registered, he can receive the Social Security Card within more or less 5 days after registration. The Social Security Office will send the Social Security Card to him so that he can show it when he claim benefits at the Social Security Office and to use it when they fill up the contribution form
for recording of contribution payment. Thus, one insured person can only have one Social Security Card although he may change job in the future. He will also receive the Medical Card after the registration and having paid contribution for 3 months. With this, he must select a hospital where he prefers to claim medical treatment benefits. Once the SSO sent him the Medical Card, he can receive free medical treatment at the registered hospital indicated in the medical card.

The contribution or the Social Security Fund must be submitted and paid to the Social Security Office within the 29^th of each following month. To pay the contribution, employers must deduct a partial amount to be paid from employee’s salary and pay their part at the same amount of employee’s contribution.

The following are the benefits that a registered employee can claim:

1. Sickness or Injuries benefits consist of free medical treatment at the registered hospital and cash benefits due to sick leave. This can be claimed if the contribution is paid for not less than 3 months within 15^th months before the date of receiving the medical treatment.

2. Maternity Benefits consist of cash or lump sum benefit for delivery. This can be claimed if the contribution is paid for not less than 7 months within 15 months before the date of confinement. The Social Security Office will pay maternity benefits at the rate of 50% of wages or salaries for 90 days.

3. Invalidity Benefits consist of free medical treatment and cash benefit.

4. Death Benefits consist of funeral grant and survivors allowance. This can be claimed if the contribution is paid for not less than 1 month within 6 months before death.

5. Child Allowance consists of monthly allowance paid to the first two children of the insured person below 6 years of age. This can be claimed if the contribution is paid for not less than 12 months within 36 months before the
month of receiving benefits.

6. Old – Age Benefits consist of lump sum amount or pension that an insured person will receive upon reaching the old age. This can be claimed if the contribution is paid for not less than 180 months, 55 years of age and cessation of being an insured person.

7. Unemployment benefits. Only private sector employees under Social Security Fund can claim cash benefits if the contribution is paid for not less than 6 months within 15 months before unemployment:

– For unemployment resulted from laid-off, the insured person will receive 50% of
wages up to 180 days within 1 year

– For unemployment resulted from voluntary resignation, the insured person will
receive 30% of wages up to 90 days within 1 year.

In Thailand, employees are entitled to compensation schemes to cover injuries, illness and death both inside and outside of work place. These schemes are called Social Security Fund and Workmen’s Compensation Fund

Social Security

The Social Security Act requires employers to register each employee for Social Security insurance at the Area Office of Social Security, under the Social Security Office.

The Social Security Act also requires employers to withhold social security contributions from each employee’s monthly salary. The employer is required to match the contribution from the employee and both contributions must be remitted to the Social Security Office within the 29^th day of the following month. Thus, the maximum monthly fee is Baht 1,500 or Baht 750 for each party.

This insurance fund provides compensation to employees in case of injury, illness, disability or death that is unrelated to performing work duties. Compensation is also provided for childbirth, child welfare, old age pensions and unemployment.

However, this Social Security Act is not applicable to:

– Government officials and regular employees of the Central, Provincial and Local administration except for monthly temporary employees;

– Employees of foreign governments or international organizations;

– Employees of employers who have offices in the country and being stationed abroad;

– Teachers or headmasters of private schools under the Private School Law,

– Students, nurse students, undergraduates, or apprentice doctors who are employees of
schools, universities or hospitals;

– Other undertakings or employees as may be prescribed in the Royal Decree

Read the laws:

Social Security Act – English

Workmen’s Compensation

The Workmen’s Compensation Act states that the employer must provide compensation or benefits at minimum rates prescribed by the law for employees who suffered injuries and illness or death during or as a result of performing their work duties. There are four types of compensation benefits:

1. The compensation amount or indemnity

In general, the compensation amount is paid in case of injuries, disability or death at a rate of 60% of monthly wages, from 3 days to 15 years depending on the case.

2. The medical expenses

Actual and necessary medical expenses must be paid up to Baht 45,000 to 300,000 depending on the severity of the cases as prescribed in the Ministerial Regulations. (Read on for the Thai version of Ministerial Regulations prescribing the medical expenses B.E. 2551)

3. Industrial rehabilitation expenses

Employment rehabilitation expenses must be paid as necessary, up to Baht 20,000.

4. Funeral expenses

In the event of death or disappearance, funeral expenses will be paid at a minimum amount equal to 100 times the minimum daily wage rate.

However, this Compensation Act is not applicable to:

– Employees or government official of the Central, Provincial and Local administration;

– Employees of non-profit organizations;

– State enterprises employees;

– Private school teachers and headmasters (under the Private School Law)

– Other employees as specified in the Ministerial Regulation.

Read the laws:

Workmen’s Compensation Act – English

Workmen’s Compensation Act – Thai

A foreigner who owns a company here in Thailand has asked THAI BUSINESS EXPERT some questions regarding dormant company status.

I own a newly set up limited company here in Thailand but I’ve decided not to
continue its operation for a while as I am planning to go back home to focus on
my existing business. However, I’m a little confused because I heard from
someone that it is impossible in Thailand just to register a company and not to
have any activities. Do I need to close down this company and register anew
when I get back here? But, I also heard from somebody that I can continue my
business later and put it in dormant for the time being. How does it really
work here in Thailand? I would appreciate if you could advise me on this matter.

Answer:

A dormant company refers to a registered company with no trading activities and
accounting transactions for a certain period. It is possible to register a limited
company then keep it inactive since there is no time limit for keeping a
company in dormant status. Thus, you may choose to put your company inactive for
some time as long as you perform some administrative duties each year such as closing
of the accounting books, having them audited by a Thai CPA and filing of the
audited financial statements and corporate income tax returns by 150 days from
the accounting year-end even when you are not trading. Failure to file the
audited financial statements to Department of Business Development, Ministry of
Commerce, may result in a criminal penalty up to Baht 50,000 for the company
and Baht 50,000 for the Director.

In case your company upon its incorporation has registered with VAT and you prefer
to put it in dormant status, the company is still responsible to file its NIL
monthly VAT return. If you are planning to go back home, you should assign
somebody to assist you in filing this monthly return within the 15^th
of each month. Failure to submit it on time would have a penalty of 500 per
return to be paid to the Revenue Department. However, filing NIL monthly VAT
return for many months may be the reason for the Revenue Department to visit
your company. You may choose to file Por Por 09, VAT registration form to inform
the Revenue Department of temporary cease of operation. Usually this is good
for a year. The Revenue Department may choose to erase your company from the VAT
system if you have ceased your operation for more than one year.

Eventually, if you would like to put your newly registered company limited into dormant
status for certain reasons (e.g. you are not ready to trade yet or would like
to take a break for some time), MSNA can help you on how to make it possible. Rest assured that you can always continue your trading activities later and you would not need to close down your company. We can also assist you in filing NIL monthly VAT returns if you have VAT registration. And if you decide to close it down, MSNA is the best
people you should talk to.