Today, we got a question from one of our accounting clients regarding the import duties in Thailand.

Question:

I have a question that needs your expertise. We are selling a product to a client in Thailand that needs to be imported from the United States from our supplier there, who will issue an invoice to us. We would therefore like to know if there are any import taxes and what they amount to. If there are no such taxes, then the supplier can send directly the invoice to our Thailand Company but if there are, we are considering making the financial transactions via Head Office in Hong Kong, who would then be issuing the invoice to Thailand. Do you have any advice you could give us on this matter?

Answer:

Most likely there will be import duties and VAT to be paid at Customs. You need to consult with the company that provides customs clearance service (the Thai people like call “shipping company”). Some goods may be import duty exempted or even VAT exempted. However, in general, most products are subject to import duties and VAT. Whether you import directly or use Head Office to do it and invoice your Thai company, if the products are subject to import duties and VAT, you cannot avoid it.

The customer can import it themselves too, which bypasses your Thai company on the import duties and VAT because they will have to pay for them at the Customs. If your Thai company does the import, you will have to pass on the import duties and VAT to customer anyway, won’t you?.

Contact MSNA for your questions on Thai accounting and tax.

In addition to the recent implemented measures by the BOI of Thailand, it has been approved that incentives for machinery and technology improvement for increased production capacity will also be extended until the end of this year, 31 December 2012.

This is a part of the government’s efforts to help manufacturers affected by the massive flood last year. Since it will promote machinery and technology improvement to boost production capacity, this policy is viewed as a significant step in enhancing the country’s competitiveness and investment.

With the aim of encouraging entrepreneurs to invest in new machinery for production improvement – automated production systems, for example – the government offers import duty exemption for machinery imported for this purpose. Additionally, participating investors will be entitled to three-year corporate income tax exemption, which is subject to a 70% cap on total investment (not including land and working capital). The tax exemption is based on existing business revenue and it will be effective until 31 December 2012.

Contact MSNA for your Thailand BOI and its flood relief measures questions.

The BOI has recently announced that it would allow 101 companies registered with the Ministry of Labour to continue hiring unskilled foreign workers until 31 December 2012, extended from an earlier announced deadline 31 May 2012. This is a part of the government’s efforts to help manufacturers affected by the massive flood last year.

This measure will also help reduce the impact from the labour shortage in the country although it is just for temporary period only because the BOI also considered Thailand to be moving from labour-intensive to high technology industries so that the need for unskilled labour would be less in the long run. As a result, the board resolved to maintain its policy of not promoting the employment of unskilled foreign workers.

As the BOI had earlier announced its measures allowing the 101 BOI-promoted companies which have registered with Ministry of Labour to hire unskilled labour until 31 May 2012, it further extended this period until the end of this year. The extension was aimed at giving the entrepreneurs sufficient time to prepare for the changes and ease the burden caused by last year flood.

Considering this as a significant agenda for the country, the Board will further discuss this issue with related government agencies in order to prevent or find a solution to possible future labour shortage problems.

Contact MSNA for more information on this recent measure.

When a foreigner has obtained a Thai Work Permit, he or she should always remember that:

1. He/she shall carry the permit with himself/herself, or keep it at the place of work while working, ready at all times, for presenting to the competent official or the registrar. Any permit holder who violates or fails to comply with the foregoing shall be liable to a fine of not exceeding Ten Thousand Baht.
2. He/she shall engage and perform works only in the particular type of work or job description, and with an employer in certain locality or place of work under stipulated conditions as permitted. Any permit holder violates or fails to comply with the foregoing shall be liable to a fine of not exceeding Twenty Thousand Baht.
3. Prior to the expiration of the permit, he/she shall submit an application for the permit renewal to the registrar. Any work permit holder who violates or fails to comply with the foregoing and still continue engaging in the work performance as specified in the permit without permission shall be liable to imprisonment for a term of not exceeding five years or to a fine from Two Thousand Baht to One Hundred Thousand Baht, or to both.
4. In case where it appears that a permit holder violates or fails to comply with the conditions stated in the granted permission, the registrar shall have the power to revoke the work permit.

Contact MSNA for your work permit needs.

In Thailand, the provision of services rendered within the country is generally subject to 7% VAT as Thai VAT rules are concerned. However, zero-rated VAT treatment can be applied if the provision of services is considered as “exported” under Section 80/1(2) of the Revenue Code in line with the procedures and conditions as specified under the following Notifications:

1. Notification of the Director-General on VAT (No. 105) dated 12 July 2000

Prior to 29 March 2011, the export of services must meet the following criteria:

1. The provision of services is performed in Thailand to the recipient of services overseas, and
2. The result of such services is delivered for use entirely outsideThailand.

2. Notification of the Director-General on VAT (No.181) dated 29 March 2011

According to the new Notification that has been effective since 29 March 2011, the service is partially used in Thailand, the VAT operator (i.e. the service provider) is eligible for zero-rated VAT treatment only for the part of service that is used overseas.

This new Notification introduces the concept of apportionment and allows for zero-rated VAT treatment for the portion of the services that is used outside Thailand.

Contact MSNA for tax and accounting questions and services.

A foreign business can operate in Thailand by obtaining a Foreign Business License. Hence, the foreign business applicant that has a good chance to be granted a “Foreign Business License” has to have all these 3 characteristics:

1. Being a juristic person (company) registered overseas or Thailand (for example, a Thai registered company with majority foreign ownership).
2. Going to operate business to provide products or services to the private sector, including the private parties that have contracts with government agencies or with other private parties.
3. Having a service contract or sale contract that specifies the name of the foreign business applicant as the contractual party with another private party and the products or services to be provided must involve high-level technology or require specialized skills.

If the applicant is certain that its business has all the above characteristics, here are some criteria to meet in order to be successful in getting the Foreign Business License:

a. The foreign business products or services should involve high-level technology or require specialized skills, which are beneficial for technology transfer to the Thai people;

b. The foreign business products or services should contribute toThailand’s basic public utilities which are beneficial to its socio-economic development (for example, transportation system, tele-communication system)

c. The foreign business should know what industries will most benefit from its products or services and what industrial sectors will the products or services help to grow and become more competitive and more successful.

d. The foreign business needs to have a sales or service contract with the name of the client as the contractual party with the company, showing the scope of the sales or services, terms and conditions and the length of the sales or service period.

Contact MSNA, your business partner in Thailand to your company a Foreign Business License.

As an accounting firm that provides accounting service to foreign companies in Thailand and also work permit service to foreigners, MSNA gets asked by our clients very often about employing foreigners when they don’t have a work permit. What should they do to be able to expense the salary?

If your Thailand company employed a foreigner who does not have a work permit then your company is hiring an illegal foreign worker, which is against the law. You will not be able to take advantage of the expense. The same applies to the case where he has a work permit with another company, but will work for your company too. If you hire a foreigner, your company must sponsor his work permit so as to be legal for the both of you. Or in other words, his work permit has to have your company as one of the employers.

If you hire foreigners who work outside of Thailand (Some of our clients are software companies and hire foreigners who work outside Thailand), this way, they don’t need to have a work permit. However, you need to withhold 15% when you pay them each time. In this case, you can use their invoice and a copy of their passport as the supporting documents for the expense and you have to submit the withholding tax of 15% to the Revenue Department within the 7^th of the month following the payment.

Contact MSNA for your tax and work permit questions.

When your Thailand company buys a passenger car of not more than 7 seats (cash or installments), the cost of the car allowed to be depreciated over 5 years is not more than Baht 1,000,000. This cost includes VAT, interest paid (in case of installments), registration fee and the car itself. So basically, when you acquire the car, it is booked as a fixed asset with the amount of all the costs previously mentioned combined. If your accountant calculates the depreciation expense of the car for the year using the straight-line method, the depreciation expense allowed by the Thai tax law is not to exceed Baht 200,000 a year (to be prorated to the exact number of days in the first and the last years). Whatever amount exceeding Baht 200,000 becomes non-tax deductible and will be added back to your bottom line profit when filling out the end of year corporate income tax return.

The expenses like a driver, car maintenance, gasoline and yearly vehicle tax can be tax deductible only if they are proven to be related to the business operation.

In case your company leases a passenger car of not more than 7 seats (including leasing with a driver), where the company will not own it at the end of the lease term, the lease expense allowed by law is not more than Baht 36,000 per month (or Baht 1,200 per day). For the expenses like insurance premium, car maintenance, gasoline and yearly vehicle tax can be tax deductible only if they are proven to be related to the business operation and it is advised that there should be an agreement with the lessor that the lessee is responsible to those items otherwise the Revenue Department may view it as the lessor’s responsibility and thus your company should not pay for them so they should become non-tax deductible for your company.

Contact MSNA for your Thailand tax and accounting questions.

The Thai cabinet approved tax measures to promote the development of the capital market in the country. Details of such tax measures are as follows:

1) The tax rate is to be reduced and personal income tax is to be exempted on dividends received by Thai tax residents from a foreign company or partnership in respect of securities listed on the Stock Exchange of Thailand; and

2) Income tax is to be exempted for income from sales of securities listed on stock exchanges in ASEAN member countries, provided that the sale is made through the system of the Stock Exchange of Thailand.

Contact MSNA for your Thai accounting and tax questions.

In an effort to promote the shooting of foreign films in Thailand, the Thai cabinet has recently approved personal income tax exemption for such foreign actors. The draft ministerial regulation specifies that income derived by a film actor who is a foreign tax resident during the period from 1 January 2011 to 31 December 2015 shall be exempted from personal income tax only if:

1. Such income was derived from performance in a foreign film produced by a company or partnership incorporated under a foreign law; and
2. A filming permit has been granted in accordance with the laws relating to film and video.

However, since this is just a newly approved ministerial regulation, further details on the implementation of these measures and associated regulations have yet to be announced.

Contact MSNA for your Thai accounting and tax questions.