Today, THAI ACCOUNTANT answers a question from one of our payroll clients regarding the Workmen’s Compensation Fund contribution.

Question:

We have just received a letter from the Social Security Office regarding the Workmen’s Compensation Fund submission. Our Thai staff told us that they are forms to be submitted for this year and for the previous year’s workmen’s compensation fund contribution. Why do we have to pay for both years now?

Answer:

Companies in Thailand who have employees normally receive some forms from the Social Security Office in December or early January of each year.

1. Form “Kor Tor 26 Kor” is the form that the Social Security Office estimates the amount of Workmen’s Compensation Fund contribution for the new year (2012) for your company to pay. It is estimated from 2011 salaries that the official has seen from the Social Security form filed monthly throughout 2011. In this form, it says the amount you have to pay for the fund of 2012. The payment must be made to the Social Security Office within this month (January 2012).
2. Form “Kor Tor 20 Kor” which appears on the same paper under Form Kor Tor 26 Kor of the year 2012, is for the company to fill out the total figure of 2011 payroll (but for each employee, the maximum annual salary for workmen’s compensation fund calculation purpose is not more than Baht 240,000 only). The figure is obtained from the worksheet we will talk about in no.3 below. This form is to be compared with the amount you paid in Form “Kor Tor 26 Kor” of the previous year and make you pay the difference within the end of February (in case you paid too little in 2011) or give you the refund (if you paid too much in 2011).
3. The third form which is a separate sheet of paper is the worksheet to show the calculation of the annual salaries to attach to Form “Kor Tor 20 Kor”.

Contact MSNA for further assistance and information on Workmen’s Compensation Fund and Thailand Labour matters.

To record such costs on replacing damaged machinery covered by insurance, the following should be considered:

The carrying value of the damaged machinery should be written off as a loss if it cannot be sold. However, if the machinery can be sold, an allowance for impairment loss should be made to bring down the damaged machinery to its saleable value.

For the newly purchased machinery, it should be recorded at the acquisition cost.

Meanwhile, insurance claims or compensation for the damaged property, plant and equipment should be recorded as income when it is virtually certain that such compensation will be received; for example, when there is a letter from the insurer confirming the amount of compensation or claims.

Contact Thailand accountant, MSNA for your Thailand accounting and tax questions.

Today, THAI ACCOUNTANT answer a question from one of our avid readers. How to account restoration expenses of real estate development? See our answer below and how you can account the cost of the company for real estate restoration of your company here in Thailand.

Question:

We have real estate development projects located in the flood affected areas. How should we record project restoration expenses due to floods?

Answer:

Thank you for your inquiry. For the accounting treatment of the restoration expenses, my advice depends on the status of your project as classified as below:

Status 1: If your project has already been sold out, the restoration expenses should be charged to the income statement when incurred.

Status 2: If your project has been partly sold, the restoration expenses should be apportioned between the “sold” part and “unsold” part (inventory). Costs relating to the sold part should be recorded as expenses, while those relating to the unsold part should be recorded as a cost of inventory.

Contact Thailand accountant, MSNA for your Thailand accounting and tax questions.

As a continuation of the previous discussion on how to account loss of assets due to recent flooding, today, Thai accountant discusses how to treat such loss on damaged inventories.

To record a loss on diminution in value of inventories, one should consider the following:

If the inventory is completely damaged by floods and is no longer salable, the full amount of the inventory should be recorded as a loss in 2011.

However, if the inventory is partly damaged and can be repaired for sale at a discount, its net realizable value should be determined based on the estimated selling price less the repair cost and costs to sell. If the carrying value of the inventory is higher than the net realizable value, an allowance should be set aside to bring down the inventory to the net realizable value.

For your Thailand accounting and tax questions, contact Thailand accountant, MSNA.

With the recent flooding in Thailand, many businesses suffered from loss or damage of
assets, some of which are compensated by insurance companies, others are not
covered. Today Thai Accountant discusses how to account such transactions.

Based on generally accepted accounting principles, the loss of assets due to floods
or other natural disaster will be dealt with through two separate transactions:

STEP 1. Estimate the damage to the assets and set aside an allowance for impairment
immediately in the year when the flooding or disaster occurred (i.e. in 2011),
so that the carrying value of the assets is not higher than their recoverable
amount.

STEP 2. Record compensation from the insurer only when it is virtually certain
that such compensation will be received; for example, when there is a
letter from your insurer confirming the amount of the claims that will be paid.

Given the above steps, three scenarios are anticipated as follows:

Scenario 1: The impairment loss and insurance compensation are recorded in the same
year.

Under this scenario, the net effect of the flooding to the entity’s operating results
would be minimal if insurance compensation is definitely receivable in the same
accounting year and the loss from impairment is receivable from the insurance
company.

Scenario 2: The insurance compensation is recorded in the year after the entity records
the impairment loss.

Under this scenario, which is more likely under the current circumstance, the entity
will record an impairment loss in the year of flooding (2011) while the
insurance compensation will be recorded in subsequent year, if recoverable.
There will be a timing difference.

Scenario 3: An insurance claim has been lodged by the entity but it is subject to
dispute by the insurer.

Under this scenario, the entity will book an impairment loss in 2011 but cannot
recognize the insurance compensation until the dispute has been settled. A note
to account describing such fact is needed if the sum is significant.

How to account it in the financial statements?

If both transactions are recorded in the same accounting period, the net amount of
both transactions will be presented under one line in the income statement.

However, if the two transactions are recorded in different accounting periods (timing
difference), the impairment loss will be presented as an expense in one year
and the compensation as income in another year.

Contact MSNA, Thailand accountant, for your Thailand accounting and tax questions.

Question:
We usually give gratuities to our employees every year but for this year, we also provided some assistance due to recent flooding. Can we treat the financial support we provided to those who were affected by the floods as
expenses for corporate income tax purposes?

Answer:

A support in the form of financial assistance or accommodation offers that your company provided to your employees who were affected by the flooding can be treated as expenses for corporate income tax purposes.

You mentioned that you usually give gratuities to your employees but you also provide some assistance for this year due to recent flooding. In this case, your company should set guidelines and criteria for providing support to all employees affected by the flooding, and the employee support fund should be reasonable and appropriate. It is advisable to have a resolution by the company’s board of directors, indicating that the assistance is available to all and not to a specific group of persons.

Meanwhile, for the employees who were affected by the recent flooding, who may be wondering if they have to treat the assistance provided by the employer as taxable income, here is the answer.

The assistance, in a form of financial support or accommodation offers that your employer provided to you and other employees affected by the flooding should be treated as “financial support provided under a moral obligation”, and thus is exempted from personal income tax. Therefore, the company should not withhold personal income tax in respect of the financial assistance provided to affected employees.

Moreover, financial assistance provided by employers to employees as compensation for damage is exempted from income tax to the extent that it does not exceed the actual damage; but the actual damage has to be proven.

However, please note that it is possible that some tax officials may interpret the above issues differently and this has yet to be resolved among various organizations and the Revenue Department.

Contact MSNA, Thailand accountant, for your Thailand tax and accounting questions.

Does financial support we received for the company has to be treated as taxable income and subject to VAT?

Answer:

In general, financial support received as a donation or reward must be treated as taxable income.

However, financial supports provided by the following parties are exempted from corporate income tax:

A. Financial support from the government

Financial support from the government are exempted from corporate income tax on condition that the recipients comply with conditions and procedures imposed by the Director-General of the Revenue Department (yet to be announced). Companies are encouraged to register as a flood-affected party with any government centers or agencies assigned to assist flood victims in their locality.

B. Financial support from parties other than government

Financial support from parties other than government in an amount “not exceeding the actual damage” will be exempted from corporate income tax.

Meanwhile, financial support or assistance received without obligation is not subject to VAT because they are not regarded as a consideration for the sale of goods or provision of services.

Contact MSNA, Thailand Accountant, for your tax and accounting questions.

Businesses that suffered losses from the recent flooding in Thailand are asking if they can use the losses to lower their income tax.

If your company is insured and the losses are covered by the insurance policy, they cannot be treated as expenses immediately and you must wait until the issue of the insurance claim is resolved. Once the amount of the insurance claim is agreed, the losses (net of the insurance compensation) can then be treated as tax-deductible expenses.

However, if your company is not insured, losses incurred can be treated as expenses immediately. But if assets or goods are not totally lost and were only damaged, then these must be destroyed or sold before they are expended. Necessary evidence of destruction should be established and retained for future reference. This is because if the Revenue Department requests to see the evidence in the future, the details and evidences will not be forgotten or lost.

On the other hand, when there is compensation received from insurers, if the compensation exceeds the net book value of lost fixed assets, the excess is exempted from corporate income tax (a concession granted by the authorities as a consequence of the previous floods and of benefit to the current floods).

However, compensation received from insurers in excess of the cost of goods (not fixed assets) and any compensation received for business interruption are taxable income since no concession was granted specifically for these two categories.

Contact MSNA, Thailand Accounting firm, for your tax and accounting questions.

The Revenue Department has made an announcement regarding the extension of deadline for tax filing.

For taxpayers with business located in certain areas in the flooded provinces, the tax filings of personal income tax, corporate income tax, value added tax,
specific business tax, withholding tax and payment of stamp duty in cash for
the month of period ended at July, August, September, October and November is extended to December 30, 2011.

We recommend checking with the Revenue Department in your area where your business is located to see if your area got an extension of tax filing deadline.

Contact MSNA for your tax and accounting questions.

What to do in case of loss of tax and accounting documentation due to flooding?

Today, THAI ACCOUNTANT answers a timely question from one of our accounting clients.

Our office has been flooded for months and our files and office stuff including
accounting and tax documents were totally damaged. What should we do?

Answer:

The taxpayers who lost books and accounts need to report to the police stations.

To protect your claim, you should report the loss due to the flood along with a list of all damaged or lost documents to the local police station as a future
reference.

Need advice in filing a report with the local police station in your area? Contact MSNA for further assistance.