Software industry continues its strong growth in Thailand due to strategic government policies, an increasingly high-technology infrastructure and an expanding technical labor force. The Thai government offers many benefits for firms engaged in software development, data center management and the production of animation and games. Inventors benefit from the country’s central location in Southeast Asia with competitive labor costs, educated and experienced workforce and domestic market with high growth potential.

Thailand is helping companies to grow through sound policies that provide critical infrastructure, ongoing training for IT professionals, and internship experience for recent software and animation graduates and access for financing for investors to undertake capital and labor upgrades.

There are great opportunities for investment in software, animation and gaming and data centers in Thailand due to strong government and private sector support which includes:

1. Business software
2. Animation and computer-generated imagery
3. Web-based applications and interactive applications
4. Entertainment software for mobile platforms, online games or Windows-based games
5. Multimedia video conferencing applications
6. E-learning content via broadband or multimedia
7. Embedded software
8. Data centers

The Thai government is committed to promoting the software, animation and gaming and date center sectors through incentives for foreign investment, direct support of software start-ups, ongoing professional training for developers and engineers and flexible loan programs that allow digital content firms to expand without capital constraints. This includes a range of fiscal and non-tax incentives for investors offered by the Board of Investment of Thailand.

Interested in setting up a software business in Thailand, contact ThaiLawyers Ltd. for Thailand BOI company registration.

Today, Thai Tax Expert answers a question from one of our accounting clients.

Question:

Our Thai company issues Purchase Order to a company overseas but everything will be manufactured in Thailand. In this instance, there will be invoice from overseas company to our Thai company but there will be no physical documentation of shipment from overseas to Thailand. Do we need to pay taxes in Thailand? What are the taxed and tax rates involved?

Answer:

Normally when you buy goods for use or sale in Thailand from an overseas supplier, you will have to import it and pay 7% VAT at the Customs.

In your case, because the goods will be produced in Thailand and sent to you domestically, you will have to submit to the Thai Revenue Department 7% VAT with Form PP.36 within the 7th of the following month. This is to pay VAT on behalf of your overseas vendor. This VAT becomes your input VAT in the month that you submit it and it will be used to offset the Output VAT that you have to submit normally. If your company is not VAT registered, you will still need to submit Form PP.36, but you will not be able to use that VAT. It becomes part of your product cost.

And the producer in Thailand should invoice your overseas vendor for the price of the product plus 7% VAT. However, it will be your concern whether or not they treat the transaction correctly.

Contact MSNA for your accounting, tax and other business needs.

Foreign companies operating in Thailand as a Branch Office or Representative Office of a company incorporated under the laws of a foreign country, or as a Thai limited company incorporated under Thai laws (but with majority shares owned by foreigners), need to have the minimum capital required by Thailand Foreign Business Law. This article only talks about non-American companies. For American companies, please read Minimum Capital Requirement for Treaty of Amity Companies in Thailand.

Minimum Capital

If the foreign companies operate businesses that are not in the schedules annexed to the Foreign Business Act B.E. 2542 (thus it is not required to obtain a Foreign Business License), the minimum capital is Baht 2 M.

If the foreign companies operate businesses that are in the schedules annexed to the Foreign Business Act B.E. 2542 (thus it is required to obtain a Foreign Business License before it can operate the businesses), the minimum capital must be no less than 25% of one-year average of the three-year expenditure forecast (that was submitted when applying for the foreign business license) and no less than Baht 3 M per business.

Time frame

A. For foreign companies that are not incorporated in Thailand (thus operate as a Branch Office of a Representative Office) must bring in the minimum capital from the day they have been approved of the Foreign Business License within the following time frame:

(1) If the approval to operate the business is for less than 3 years, the minimum capital must all be brought into Thailand within 6 months.

(2) If the approval to operate the business is for 3 years or more, the minimum capital must be brought into Thailand as follows:

– Within the first 3 months, at least 25% of the minimum capital

– Within the first year, a total of 50% of the minimum capital

– In the 2nd and 3rd year, at least 25% of the minimum capital within each year

100% of the minimum capital must be brought in within the three-year period.

The way to comply with this regulation is to bring in the capital by sending the money in a foreign currency within the above time frame and inform the Director of Good Governance Office of the Department of Business Development within 15 days from remittance.

B. For foreign companies that are Thai limited companies incorporated in Thailand, they must have their registered capital equal to the minimum capital required by the foreign business law before they will be approved of the Foreign Business License.

Contact MSNA for Foreign Business Law.

In general, some companies that receive Thailand BOI promotion get only non-tax incentives. Among those companies which can get both tax and non-tax incentives is ROH or Regional Operating Headquarters.

A Regional Operating Headquarters (ROH) can be incorporated in Thailand provided that it will provide the following services as well as other supporting services to ROH’s foreign branches or associated enterprises:

• General administration, business planning and coordination
• Procurement of raw materials and components
• Research and development of products
• Technical support
• Marketing and sales promotion planning
• Personnel management and regional training
• Financial advisory services
• Economic or investment research and analysis
• Credit control and administration
• Any other activities stipulated by the Director-General of the Revenue Department

A ROH can apply for BOI promotion. The criteria for ROH in order to qualify for tax privileges under the old scheme are as follows:

1. Minimum 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 from outside of Thailand for the use of ROH’s Research and Development (R&D). The criteria can be mitigated to one-third of the total revenue 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. Notify the Revenue Department of its incorporation as ROH. The benefits will be given starting from the notified accounting period onwards

ROH incorporated in Thailand can receive the following tax privileges under the old scheme:

1. Corporate income tax at the rate of 10 % of 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 of net profits for royalties derived from ROH’s foreign branches or associated enterprises for the use of 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% of net profits on 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 exemptions for dividends paid out of ROH’s concessionary profits to its shareholders not carrying on business in Thailand;
6. Accelerated depreciation for buildings at the rate of 25% on the date of acquisition. The residual value can be depreciated within 20 years.

Privileges for foreigners working for ROH under the old scheme:

1. Foreigners may opt to be taxed at 15% 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 foreigners 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, foreigners have to discontinue employment with any ROH in Thailand for more than 365 days.
2. Foreigners 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.

Interested in setting up a Regional Operating Headquarters in Thailand, contact for Thailawyers further consultation.

Treaty of Amity companies operating in Thailand, whether as a branch office of a company incorporated under USA laws or as a Thai limited company with American majority shareholders, incorporated under Thai laws, have to comply with the Ministerial Regulations regarding minimum capital and timeframe to bring the minimum capital into Thailand issued on 30 August 2009 under the Foreign Business Act B.E. 2542.

Minimum Capital Amount

If the Treaty of Amity company operates businesses that are not in the schedules annexed to the Foreign Business Act B.E. 2542 (thus it is not required to obtain a Foreign Business Certificate), the minimum capital is Baht 2 M.

If the Treaty of Amity company operates businesses that are in the schedules annexed to the Foreign Business Act B.E. 2542 (thus it is required to obtain a Foreign Business Certificate before it can operate the businesses), the minimum capital must be no less than 25% of one-year average of the three-year operating expense forecast (that was submitted when applying for the foreign business certificate) and no less than Baht 3 M per business.

Time frame

For the Treaty of Amity companies that started their business operation or received their Foreign Business Certificate before 30 August 2009, they must bring in the required minimum capital in foreign currency to Thailand within 29 August 2019.

For the Treaty of Amity companies that started their business operation or received their Foreign Business Certificate on or after 30 August 2009, they must bring in the required minimum capital in foreign currency to Thailand within 29 August 2024.

Method of Compliance

For the Treaty of Amity companies that operate in Thailand as a branch office of a US company, the way to comply with this regulation is to bring in the capital by sending the money in a foreign currency within the above time frame and inform the Director of Good Governance Office of the Department of Business Development within 15 days from remittance.

For the Treaty of Amity companies that are Thai limited companies incorporated under Thai laws, when they apply for the Foreign Business Certificate, they will get it without reference to the level of their registered capital. The way to comply with this regulation is whenever they wire an amount of money in a foreign currency, intended to be part of the minimum capital per this regulation, they need to increase their registered capital, but they do not have to inform the Director of Good Governance Office of the Department of Business Development. The remittance of the required minimum capital (and thus, increase of the registered capital) must be completed within the above time frame.

Contact MSNA for information about Treaty of Amity companies.

If you are a foreigner who has been approved a foreign business license or foreign business certificate according to Thailand Foreign Business Act B.E. 2542, you need to pay attention to the following issues which are your duties/responsibilities:

1. Foreign Business License / Certificate

1.1 The license / certificate must be on display at the place of business operation.

1.2 If the license / certificate is damaged or lost, an application for a replacement must be filed with the Registrar within 15 days.

2. Conditions accompanying the approval of foreign business operation

2.1 The total loan utilized in the permitted business operation must not exceed seven times of the total amount imported for use in the permitted business.

2.2 At least one of the persons responsible for the business operation in Thailand must have a residence in the Kingdom of Thailand.

3. Bringing the minimum capital into Thailand to start the business operation

3.1 Time frame: The licensee who is a natural person or a juristic person who is not registered in Thailand must bring in the minimum capital from the day he has been approved or starts the business operation within the following time frame:

(1) If the approval to operate the business is for less than 3 years, the minimum capital must all be brought into Thailand within 6 months.

(2) If the approval to operate the business is for 3 years or more, the minimum capital must be brought into Thailand as follows:

– Within the first 3 months, at least 25% of the minimum capital

– Within the first year, a total of 50% of the minimum capital

– In the 2^nd and 3^rd year, at least 25% of the minimum capital within each year

100% of the minimum capital must be brought in within the three-year period.

The minimum capital must be converted into Thai Baht using the exchange rate on the date it is brought into Thailand.

Note that the above time frame does not apply to a Treaty of Amity company.

3.2 The evidence showing the amount of minimum capital brought into Thailand must be presented within 15 days from the date of transfer.

4. Changes in the registered information

4.1 If the company discontinues its operation, it must inform the Registrar within 15 days.

4.2 If the company moves its address or place of operation, it must inform the Registrar within 15 days.

4.3 It is advised that the company inform the Registrar in case it changes the person responsible for its operation in Thailand.

4.4 It is advised that the company inform the Registrar in case it changes its name.

4.5 It is advised that the company inform the Registrar in case it has a branch office.

5. Compliance when the competent officials send letters to ask questions or summon documents or evidence

The licensee has the duty to report the result of business operation and report the result of the technological transfer when the competent officials send letters to question or summon documents or evidence necessary for audit .

6. Preparing of accounts and filing of financial statements

Juristic persons set up under the laws of foreign countries have to file their audited financial statements within 5 months from the accounting year-end. Thai companies have to file them within 1 month from the date they were approved by the general shareholders’ meeting.

Penalties

1. Failure to comply with 1, 4.1, 4.2 and 5 may result in a fine of not more than Baht 5,000 (Sections 39 and 40)
2. Failure to comply with 3 may result in a fine of Baht 100,000 to Baht 1,000,000 and Baht 10,000 to Baht 50,000 daily until compliance (Section 38)
3. Failure to comply with 6 may result in a fine of not more than Baht 50,000
4. The foreigner who has been punished according to the Foreign Business Law will lack the qualification per section 16, which may result in the revocation of the license / certificate.

Contact MSNA for any questions about foreign business law in Thailand.

Tourism business in Thailand is a kind of industry that provides or gives services in return for remuneration in connection with tourism activities within and outside the Kingdom as follows:

– Tour business

– Tourist hotels business

– Business relating to restaurants, service places and resorts for tourists

– Business relating to the sale of souvenirs or other goods for tourists

– Business related to sports for tourists

– Exhibitions, shows, trade fairs, promotional advertisement or any other activities with the aim of encouraging and promoting tourism.

In doing tourism business in Thailand, one needs to comply with the rules and procedures as prescribed by Tourism and Tourist Guide Business Act B.E. 2551 (2008).

Once your company registered as a tourism business with the Department of Business Development of the Ministry of Commerce, you have to apply for tourism business license with the registrar at Bureau of Tourist Business and Guide Registration of the Department of Tourism. It is advisable to set up a juristic entity as a limited company because of its limited liabilities and professional acts. However, in order to qualify as a tourism licensee, a limited company must meet the following conditions:

1. Being a limited company registered under Thai laws having objective of running tourism-related business and the office shall be located in Thailand
2. At least 51% of its registered capital shall be held by one or more natural persons of Thai nationality.
3. Majority of its directors shall be natural persons of Thai nationality.
4. The authorized director(s) must be at least 20 years old on the application date, Thai nationality and has domicile or residence in the Kingdom of Thailand.

The registrar will notify you in writing within 30 days as from the date of receiving your application and documents. Such notification shall specify the amount of tourism business fee and bond to be provided.

After your application form and necessary documents have been approved, you are required to provide one or more of such bond as cash, bank guarantee, Thai government bond or State enterprise bond which both principal and interest guaranteed by the Thai government to the registrar as security deposit in an amount as stated below:

Tourism business license: Specific area THB 10,000

Tourism business license: Domestic THB 50,000

Tourism business license: Inbound THB 100,000

Tourism business license: Outbound THB 200,000

The rate of fee for each tourism business license is THB 3,000. The registrar will issue you the tourism business license within 7 days as from the date of receiving such fee and bond. Please note that the tourism business fee may be determined at different rates in accordance with the category or nature of the tourism business entrepreneur.

The tourism business license will be invalid when the tourism business entrepreneur dies or the business ceases to be a juristic person. A desire to end the tourist business is subject to an order to revoke the tourism license.

Interested in doing tourism business in Thailand, contact MSNA for company registration and further information.

Some companies that receive Thailand BOI promotion get only non-tax incentives. The following are non-tax incentives given by the BOI (Board of Investment):

1. Under Section 25, BOI promoted companies can bring in foreign technicians or experts, spouse and person under the guardianship of such foreign technicians or experts, into Thailand. The number of foreign technicians or experts and the period to work and stay in Thailand will be fixed as the BOI Committee deems appropriate.
2. Under Section 27, BOI promoted companies are permitted to own land according to the criteria approved by the BOI Committee.
3. Under Section 37, BOI promoted companies are allowed to transfer money to overseas in foreign currency.

For more information on BOI in Thailand, contact MSNA.

Question:

Is there any tax involve when a foreign company overseas got paid by a Thai-based company?

Answer:

Yes. A foreign company that does not carry on business in Thailand but received income from Thailand will be subject to withholding tax on certain categories of income derived from Thailand. The withholding tax rates may be further reduced or exempted depending on types of income under the provision of Double Taxation Treaty.

Contact MSNA for your accounting and tax questions.