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

If your business in Thailand is registered in the VAT system, you and your Thai accountant need to pay attention to the tax invoice you receive from vendors.

When you buy goods from someone who is also registered in the VAT system, they need to issue a tax invoice right when the goods are delivered. The “tax invoice” may or may not be on the same paper as “invoice” or “delivery note” or “receipt”. If they are not registered in the VAT system, they cannot issue a tax invoice and must not collect VAT from you.

When you buy services, the vendors do not need to issue a tax invoice until you pay them. If you get a credit term on the transaction, they may send you an “invoice” to let you know how much you owe them. When they get paid, they need to issue a receipt and a tax invoice, which could be on the same paper.

A tax invoice must at least contain the following particulars-

(1) the word “tax invoice” at a prominent place;

(2) the name, address and taxpayer identification number of the business issuing the tax invoice;

(3) the name and address of the purchaser of goods or service;

(4) serial number of the tax invoice;

(5) description, type, category, quantity and value of goods or services

(6) the amount of value added tax calculated on the value of goods or services which is clearly separated from the value of goods or services;

(7) the date of issuance;

(8) any other particulars as prescribed by the Director-General of the Revenue Department.

Please make sure there is no correction made anywhere in the tax invoice even if someone has initialed it. THAI ACCOUNTANT recommends you ask the issuer to issue a new one for you if there are any mistakes on the tax invoice.

As a Thai accounting firm that handles accounting clients who are foreigners doing business in Thailand, we see a lot of frustrated clients who do not know what constitutes a legitimate payment that will not get added back to their bottom line profit if they get audited by the Thai Revenue Department. Here is some general advice of what you should do. When you have a business operating in Thailand, you need to make sure when you make a payment for goods and/or services, you need to get a legitimate receipt from the vendor otherwise that payment may not be tax deductible. A legitimate receipt should have at least these particulars:

(1) taxpayer identification number of the receipt issuer,

(2) name or label of the receipt issuer,

(3) serial numbers of the book and of the receipt,

(4) date of issuance of the receipt,

(5) amount of payment received,

(6) type, description, quantity and price of the goods

A lot of times, the payment recipient would tell you that they are not in the VAT system. Some vendors are individuals or small partnerships or small companies and it is possible that they really are not registered in the VAT system for some reasons. As long as you get them to issue a legitimate receipt, you will be okay. Please insist that they issue a receipt in your business’s name and make sure the receipt you get has the above particulars. If they are not in the VAT system, they must not collect VAT from you and they must not issue a tax invoice, but it is their duty to issue a legitimate receipt whenever they get paid. And if they are registered in the VAT system, now they will ask for 7% VAT from you. You need to pay for the goods and/or the services and the VAT amount. Remember that if the tax invoice they give you contains all the particulars prescribed by law, you will be able to claim back the VAT you pay them.

What if some vendors are just individuals and do not have a company like people who are not your employees, a part-time messenger, a part-time maid, an electrician who is your maid’s boyfriend, etc. They would tell you they cannot make a receipt for you. This is what we hear very often. Sometimes you procure services from such people. When you pay them, you can make a payment voucher putting the date, their name, the description of goods or services and the amount you pay them and have them sign as the recipient of the payment. Then ask for their Thai ID card copy, make them sign it as to certify true copy and attach it with the payment voucher signed by them. This set of papers can be used as a legitimate proof of the recipient of the payment and therefore, is acceptable to the Thai Revenue Department.

Tomorrow, THAI ACCOUNTANT will talk about the particulars a legitimate tax invoice should contain.

When your company in Thailand renders services for overseas clients, if the service’s end product will be used in Thailand, you need to charge VAT on your service fee. If the service’s end product will not be used in Thailand, there is no VAT involved whether or not the services are performed in Thailand.

THAI ACCOUNTANT wants to emphasize that you should consult with a knowledgeable Thai accountant before you assume the above is applicable to your business. This is because there may be more factors involved.

When your Thai business has surplus cash and chooses to lend it to the directors or other companies in the group, it has to charge an interest. The tax officials will tell you to adjust your corporate income tax return to reflect the interest income from such lending. Usually they are fine with the rate of interest of not less than the interest the company will get if it deposits the money in a fixed account.

When the company receives interest income on the money lent to its directors and other companies, it has to file a Specific Business Tax Return (PT 40) and submit 3.3% on the interest received within 15^th of the following month.

THAI ACCOUNTANT suggests you always accrue the interest income when you lend money to other people, but file the SBT form PT 40 only when you have received the interest money.

THAI ACCOUNTANT gets this question very often.

There are vendors in Thailand (or outside Thailand) that will not let your Thai company withhold taxes from them saying that their prices do not include taxes. Well, the Thai tax law makes it your duty to withhold some taxes when you pay for certain things. If you do not withhold the tax, you will have to still submit it to the Thai Revenue Department using your own money.

THAI ACCOUNTANT has 3 choices for you to consider:
1. Withhold taxes from those vendors anyway. If any of them do not let you, then you may want to find other vendors to work with.
2. You may choose to submit the taxes on behalf of the vendors (because you did not withhold from the vendors). The taxes you pay on behalf of the vendors who are juristic persons (companies and registered partnerships) will become an add-back expense, which you cannot use to lower your corporate income tax liability. Only the taxes paid on behalf of individuals can be tax deductible expense.
3. You may choose to let your vendors increase their prices by the amount of tax that you have to withhold. This way, the tax you withhold is officially not paid by you. So the tax amount will not be an add-back expense.

THAI ACCOUNTANT prefers choice 1 because it is the law. They need to let you withhold the tax from the payment and hopefully you are in the field where you do not have to deal with the vendors who do not want to comply with the law.

Good Thai accountants will deal with those tough vendors for you.

Today THAI ACCOUNTANT talks more about Thailand VAT. What kind of VAT we cannot claim back.

Some VAT invoices are abbreviated tax invoice, like the ones we get from 7 Eleven, cash registers of department stores and small shops, etc. These tax invoices have the word “TAX ABB” and we cannot claim back the VAT included in the amount we paid for these invoices. That means we will not include these tax invoices in our Input VAT Report, thus we cannot claim it back. However, with this kind of tax invoice, if we buy a significant amount worth our time, we can ask the seller to issue a full tax invoice for us. They must issue one for us. And with the full tax invoice, we will be able to claim back the VAT.

Some expenses, like gasoline for passenger cars (not trucks) or gifts or meals and accommodation that seems to be entertainment type of expense, cannot be included in the Input VAT Report. Usually we need a full receipt from the seller/service provider so that we can book the expenses in our accounts, but the law does not permit us to claim back the VAT we paid for these expenses.

For the expenses that we pay for, if their tax invoices are not correct (as THAI ACCOUNTANT talked about yesterday), we will not be able to claim back the VAT and also the VAT we paid will be classified as “Add-back expense”, which means we have to add back this VAT portion to the bottom line profit when calculating the corporate income tax at year-end. (But we can still use the expense portion as the expense of the company.) So please always try to get the correct form of tax invoices.

There is much more to Thailand VAT. It helps to have a good Thai accountant handle your Thai accounting and tax.

Today THAI ACCOUNTANT gives a brief explanation of VAT in Thailand for the purpose of giving you a general idea of VAT that you need to know doing business in Thailand.

VAT (Value Added Tax) is the amount we collect from our customers when they buy our goods or services and we have to submit it (using the form PP.30) to the Thai Revenue Department within 15th of the following month. When we have registered our company into the VAT system, we need to file this form every month even the months we do not have any sales or income. If we fail to file the form, there is a fine of Bath 500 per form, plus the fine and interest on the amount of VAT owed.

Before we can submit PP.30, we need to prepare 2 reports; Output VAT Report and Input VAT Report (explained in detail down below). Then we take the month’s totals of these reports to fill into the form PP.30. If the amount of Output VAT is higher than the Input VAT (that means the sales VAT that we collected from our customers is more than the purchase VAT that we paid to our suppliers) then we have to pay the difference to the Revenue Department when we submit the form PP.30. If the Output VAT is less than the Input VAT, then we can choose to get the refund in cash (but it takes a lot of time and effort to try to get the refund because the Thai Revenue Department will have to check a lot of papers) or choose to take the difference to offset with the Output VAT of the following month. THAI ACCOUNTANT highly recommends you choose the latter.

Output VAT Report is the detailed summary of all the tax invoices we issue for the month for the sales of our goods (whether or not we have been paid) and for the services we provided and got paid for.

Note:
1. The law says that for goods, we have to issue a tax invoice when we receive a deposit (issue a tax invoice just for the deposit amount) or when we deliver the goods (issue a tax invoice for the whole amount of the sale minus the deposit received earlier, if any) whether or not we have been paid.
2. For services, we have to issue a tax invoice when we get paid (a deposit or the whole amount of service fees).

Input VAT Report is the detailed summary of all the tax invoices we get for the month from our suppliers when we buy goods and services from them (because they have to collect 7% from us too).

The tax invoices that can be filled into the Input VAT Report (thus the VAT can be claimed) are the ones that have the following particulars specified by law, i.e. the word “TAX INVOICE” (not “Tax Invoice Copy”), date of the tax invoice, tax invoice number, name and address of the tax invoice issuer, their tax ID number, name and address of the customer, description of the goods or services (and in case of goods, quantity and unit price) and the Thai Baht amount of the VAT separated from the total amount of the invoice. Please make sure there is no correction made anywhere in the tax invoice even if someone has initialed it. THAI ACCOUNTANT recommends you ask the issuer to issue a new one for you if there are any mistakes on the tax invoice.

When a company in Thailand pays travel insurance premium for their employees, the premium will be considered the employees’ assessable income, which needs to be included in their personal income tax calculation unless all the following conditions are met:

1. Only the premium covering medical expenses is allowed.
2. The premium is paid to an insurance company operating in Thailand.
3. The premium is for a group insurance policy (not for individual employees) with coverage of not longer than one year.

For Thai accountants who want to refer to the Thai tax law, the Ministerial Regulations No. 126 (1966), section 2 (77), specifies the conditions of insurance premiums if paid by an employer on behalf of the employee, that will be exempt from the tax calculation purpose. If not all of the conditions are met, the paid premium has to be added to the employee’s personal income (to calculate his withholding tax) at the end of the month since the Thai tax law consider the insurance premium an added benefit derived from work.

Experienced Thai accountants know that the Thai Revenue Department has a more lenient practice. If the company has a written policy that it will pay for the travel insurance for its employees when travelling for the company’s business, the premium will not become the employee’s assessable income (even though not all of the above conditions are met). This policy should be signed by the authorized signatory and kept in the company main document file. Good Thai accountants know to attach one copy to the insurance premium payment voucher.

Doing business in Thailand, you want to work with good Thai accountants. MSNA can help with your Thailand tax and accounting needs.