How do withholding taxes in Thailand work?
Companies (and some other forms of businesses) in Thailand have the duty to withhold taxes from their employees when paying for their compensation and from their vendors when making payments for most kinds of services.
Here we want to talk more on vendors withholding tax.
There are many rates of withholding taxes, 1% for transportation, 2% for advertising, 5% for rent, 3% for most other services (including legal, accounting, repairs, cleaning, construction, making things to order), etc. Even when you make payment to overseas vendors, you need to submit withholding taxes if the transactions meet the criteria.
For example, you have to withhold 3% from a legal service fee. If the invoice is THB 100 plus VAT of THB 7 = 107, when you pay this invoice, you will pay only (100 – 3 + 7) = 104 and you also give the vendor the withholding tax certificate showing that you withhold the tax from him. So basically the vendor does not get THB 107. He gets only THB 104 and a tax certificate showing that he has paid a tax of THB 3 through you withholding from him. This way, the Thai Revenue Department gets the tax from the vendor in advance instead of having to wait till year-end for the vendor to file his tax return.
Note that because the law makes it your duty to withhold the tax and submit it to the Revenue Department within the 7th of the following month, if you pay any vendors and fail to withhold the tax, you will have to submit the tax anyway using the money from your own pocket.
When your company is new to Thailand, you should always check with your Thai accountant every time you are paying for anything. Knowledgeable Thai accountants know most types of services and rent require the payer to withhold taxes from the payee.
Towards the end of each month, your Thai accountant will prepare Employee Withholding Tax Return (Form PND 1, for taxes withheld from employees), Withholding Tax Return – Companies (Form PND 53, for taxes withheld from vendors who are juristic persons), Withholding Tax Return – Individual (Form PND 3, for taxes withheld from vendors who are not juristic persons).
The fine for late submission (or not filing at all) of each form for the month is THB 200 per form plus 1.5% interest per month on the amount of the taxes owed.
After your Thai accountant files the withholding tax forms for you, good accountants know to fill out the detail of the taxes and the forms that they filed and the detail of the receipts from the Revenue Department into a report called “Special Tax Records for the withholding taxes and the tax submission”.
Contact MSNA for Thailand accounting and tax advice.