Thailand BOI Flood Relief Measures

Updated as of January 2012

Here is the summary of the updated flood relief measures implemented by the Board of Investment of Thailand.

Measures to Minimize Business Interruption

1. Factories can be allowed to temporarily relocate elsewhere to continue their production for the period of 6 months from the application submission date. This temporary relocation period can be extended if necessary.
2. Manufacturing process can be allowed to be outsourced partially or wholly on a temporary basis.
3. The BOI, the Ministry of Labor and the Immigration Bureau help facilitate companies to bring in foreign experts and technicians to rehabilitate the factories.

Measures to Reduce Tax Burdens

1. The importation of machinery for replacement is entitled to duty-free. (submission deadline is by the end of June 2012)
2. Raw materials imported damaged by the flooding can be counted as part of the waste allowance without any tax burden.
3. Additional years of corporate income tax exemption are offered to BOI-promoted companies directly affected by the recent flooding that are still during their tax holidays.
4. Industrial estates that invest in flood prevention systems are also offered 8-year tax holidays with the corporate income tax exemption ceiling of 200% of their investment excluding land cost and working capital.

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

The Thai Revenue Department (RD) has recently released a Departmental Regulation which allows a VAT operator to issue and deliver tax invoices electronically.

It can be noted that in the past, the RD does not accept the issuance and use of electronic tax invoice whereas a VAT operator is therefore required to deliver original tax invoice in hard copy to its customer. Thus, the delivery of tax invoice electronically via the internet or email does not comply with the VAT requirements.

Although still subject to the approval of the Director-General of the RD, this recently announced regulation can allow a VAT operator to prepare, deliver and keep its tax invoices or receipts in an electronic form. In this respect, a VAT operator can decide to use the electronic tax invoices for all its activities or only for selected activities as the VAT operator sees fit. The selected activities must be clearly identified in the VAT operator’s application submitted to the RD for approval.

In the case of recipients of electronic tax invoices who have already notified and undergone inspection by the RD for the purpose of maintaining their documents in electronic form in accordance with the Department Instruction No. Paw. 121/2545, they are no longer required to maintain the hard copy of the electronic tax invoices.

Required qualifications:

– Government agency or a limited company or public company which has a paid-up capital of THB 10 million or more on the day that the application is submitted.

– The applicant has a secure and reliable status, such as a good track record of tax payment, no prior tax evasion record or with net assets greater than net liabilities etc.

– Accounting records connecting the issuance of electronic tax invoices must be in electronic form.

– The applicant has good internal control and reliable process to prove that the electronic tax invoices and electronic receipts will contain the same accurate details when they are created, delivered and received. When an amendment has been made, the system must show all amended information to indicate the information prior to and after amendment.

For the RD’s consideration, the applicant’s accounting software system would need to be appropriately configured with the RD’s electronic tax invoice software since the implementation of the electronic tax invoicing system requires the use of secure and reliable system. Prior to submitting an application, a VAT operator who is interested to apply for and implement this electronic tax invoicing process should approach the Bureau of Electronic Processing Administration team to discuss the general technical requirements in further details.

Contact MSNA for your accounting and tax questions.

The Revenue Department of Thailand has recently announced a new regulation whereby tax payers will be required to use a new 13-digit Tax ID, instead of the current 10-digit numbers. Guidelines given are as follows:

1. Personal income tax payers are to use the Identification Number issued by the Ministry of Interior as their Tax ID number.
2. Juristic persons incorporated or licensed by the Ministry of Commerce are to use the registration number issued by the Ministry of Commerce as their Tax ID number.
3. Other tax payers are to use a 13-digit Tax ID number issued by the Revenue Department.

Use of the 13-digit Tax ID numbers is effective from 1 February 2012, and is to be used for tax return filing, tax payment, withholding deduction and remittance, and in all other contact with the Revenue Department and tax documentation. However, withholding tax certificates, tax invoices, receipts and invoices which have already been prepared using a 10-digit Tax ID number can continue to be used until 31 January 2013.

Contact MSNA for your Thailand taxation and accounting questions.

THAI ACCOUNTANT answers a question regarding VAT tax point.

Question:

We are going to sign a contract with a Thai government agency and they asked us not to date the service quotation and the invoices that we will send to them until they tell us to. Can we do it that way? Will it affect our taxes?

Answer:

I think you can do it that way if it just only for services. However, you need to make sure your invoice is NOT a Tax Invoice. (When they are going to pay, then you will issue a tax invoice). This is because if you send your tax invoice to the client without a date, it is very risky and your company will be fined if the Revenue Department finds out. And you need to submit the VAT too far in advance even though you don’t need to yet. It affects the cash flow of the company.

The tax point of VAT for a service business is when we get paid not when we invoice the client. Normally, you need to issue a tax invoice when you get paid. However, if part of the business of the Thai company is to sell goods, the tax invoice of the sale transaction must be issued when delivering the goods or getting paid whichever comes first.

Contact MSNA for your accounting and tax questions.

Today, THAI ACCOUNTANT answers a question about VAT Refund for Exporters.

Question:

I would like to make sure that if we export goods and can work with a 0% VAT, it doesn’t necessarily mean that we cannot claim recoverable VAT right? I mean the VAT we pay when purchasing goods?

Answer:

When you export goods, whatever it is, you don’t have to pay VAT (because VAT on export is 0%) and you can claim back your purchase VAT. However, it may take months before the Thai Revenue Department refunds the purchase VAT to you (assuming that all the purchase VAT amounts that you have are refundable).

Contact MSNA for your Thailand tax and accounting questions.

Today, Thai Business Expert summarizes the steps on how we can set up an American owned company in Thailand taking advantage of the Treaty of Amity between USA and Thailand.

Step 1. We will set up a new company in Thailand for you, with all 3 American shareholders (or two Americans and one Thai) with a registered capital of THB 3 M. This is because the foreign business law dictates the minimum capital to be THB 3 M for a company with majority foreign shareholders. Please note that all 3 shareholders will have to be in Thailand at the time of signing the registration papers. Once the papers are signed, the company will be registered the next day, only if the registered address is in Bangkok.

Step 2. We will apply with the US Commercial Service for a letter certifying that the shareholders of the company are American and so the company is entitled to the right (per Thailand – USA Treaty of Amity) to operate the business in Thailand. This step usually takes 1-2 weeks for the US Commercial Service to issue the certification letter.

Step 3. We will submit all the papers to the Office of Foreign Business Committee, Ministry of Commerce, to get the Foreign Business Certificate. It usually takes 3-4 weeks for the certificate to be issued. Please not that the director who will be responsible for Thailand operation has to have a non-immigrant business visa to enter Thailand and we will need the copy of this visa.

Step 4. We will register the new company into the Thai tax system (including VAT). We need only one day to do this step.

Step 5. We will assist in getting a work permit for an authorized American director so that he can be authorized signatory for the bank accounts and he can sign any papers to bind the company. This takes 10 days to process.

IMPORTANT POINTS:

You can use your US company (if its majority shareholders and directors are American) to do business in Thailand without setting up a new company in Thailand and that means we can skip step 1 and save on the related professional fee and government fees. If you choose to go that route, we will need to draft an affidavit for your US Company and you will need to have the US Company’s documents and affidavit notarized before we can start step 2.

Also if you choose to register a new company (which means we need step 1), but want your US company to be the major shareholder, we will need to draft an affidavit for your US company and you will need to have the US company’s documents and affidavit notarized. Then we can continue on to step 2.

Contact MSNA for your business needs and questions on Treaty of Amity and Thailand company registration.

As of January 2012, below is the summary of tax relief measures which the Thai government has implemented for flood-affected persons and companies:

I. Personal income tax allowance for expenditure on repair of damage to houses and cars due to flooding;

II. Additional expense deduction for expenditure on replacement of machines due to flooding and a special depreciation method, for corporate income tax purposes.

I. Here is the summary of personal income tax allowance for expenditure on repair of damage to houses and cars due to flooding-conditions:

1. For immovable properties, including buildings, condominiums, and assets attached to such properties damaged by flooding (‘The properties’)

1.1 Eligible expenses

• Expenditure on repairing buildings, condominiums and assets attached to such properties, including on equipment and materials used for repair
• The properties above must have been damaged by the flooding between 25 July 2011 and 31 December 2011 and located in flood-affected areas as announced by the government.

1.2 Tax allowance

• THB 100,000

1.3 Eligible persons

• Owner, lessee or person using such properties for residential or business purposes or other benefit, who made payment of such expenses between 25 July 2011 and 31 December 2012.

1.4 Conditions

• If payment was made for repair of property in more than one place, the tax allowance can be claimed for expenditure on all properties, but in total is capped at THB 100,000.
• In cases where damage is covered by property insurance, the tax allowance is granted for expenditure in excess of the compensation received from the insurance company, but in total is capped at THB 100,000.
• The right to the tax allowance must be exercised in the tax years 2011 or 2012, or both, but in total is capped at THB 100,000.

2. Cars under Motor Vehicle Act damaged by flooding

2.1 Eligible expenses

• Expenditure on car repair, including on equipment and materials used in the repair.
• The cars must have been damaged by the flooding between 25 July 2011 and 31 December 2011.

2.2 Tax allowance

• THB 30,000

2.3 Eligible persons

• Owner or lessee under the hire purchase agreement for the repaired car, who resides in a flood-affected area as announced by government agencies and makes payment of such expenses between 25 July 2011 and 31 December 2012.

2.4 Conditions

• If payment was made for repair of more than one car, the tax allowance can be claimed for expenditure on all cars but in total is capped at THB 30,000.
• In cases where damage is covered by property insurance, the tax allowance is granted for expenditure in excess of the compensation received from the insurance company, but in total is capped at THB 30,000.
• The right to the tax deduction must be exercised in the tax years 2011 or 2012, or both but in total is capped at THB 30,000.

II. Meanwhile, additional expenses deduction for expenditure on replacement of machines due to flooding and a special depreciation method for corporate income tax purposes-conditions are as follows:

a. Additional tax deduction for machine replacement costs

– Tax exemption at 25% of amount paid to acquire machines used for manufacturing or providing subcontract manufacturing services

– The newly acquired machines must have been available for use between 25 July 2011 and 31 December 2012

– The newly acquired machines are to be depreciated over as period of at least 5 years.

b. Special depreciation method for the replacement machines

– Companies or partnerships affected by flooding between 25 July 2011 and 31 December 2011 and located in flood-affected areas as announced by the government, that buy or receive transfer of ownership in machines for use in their business can deduct 40% of the value of the machines on the date of acquisition

– The residual value is to be deducted in accordance with the conditions of the tax code. Hence, 52% of the value will be deducted as depreciation in the first year and 12% in each of the second to fifth years.

– Such machines must have been available for use between 25 July 2011 and 31 December 2012.

Note that the tax measures under a. and b. above are not available to taxpayers who are already entitled to other tax privileges.

Further details of rules/regulation relevant to these measures should be sought.

Contact MSNA for your accounting and tax questions.

Tax on Monthly Pension in Thailand received from overseas by foreigners living in Thailand.

Question:

I am residing here in Thailand with a retirement visa. I receive monthly pension from my home country. Am I required to file my taxes here in Thailand given the fact that this pension has already been taxed in my country?

Answer by THAI ACCOUNTANT:

The money earned overseas is considered as personal income subject to income tax in Thailand only:

1. if you lived here for at least 180 days in the year and;

2. the income was earned and brought into Thailand in the same year.

If you brought the part of income earned in 2011 into Thailand in 2012, that money will not be subject to Thai income tax. So if you put your entire monthly pension in a saving account and only bring some when needed, that is a good way to do it. If you happen to be checked by the Thai Revenue Department, you just need to be able to prove that the income was brought in on first-in first-out basis. Basically, during 2012, you should bring in the money that was earned before 2012.

Contact MSNA for your Thailand tax and accounting questions.

For the accounting year that began 1 January 2011 onwards, the Federation of Accounting Professions of Thailand (FAP) requires all companies in Thailand to use either the new Thai Financial Reporting Standards (TFRS) (all of which are based on the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB)) or the Thai Financial Reporting Standard for Non-Publicly Accountable Entities – NPAEs.

Because the IFRS and by extension, TFRS, are intended for publicly accountable entities (stock exchange listed companies, etc.) and very complicated, especially applying the concept of “Fair Value” in preparing Financial Reports, it will be too costly and burdensome for SMEs or non-publicly accountable entities to adopt those standards. It is estimated that 95% of entities in the world are SMEs and SMEs often produce financial statements only for the use of owner-managers or only for the use of tax authorities or other governmental authorities.

Therefore the IASB developed and published a separate standard intended to apply to small and medium-sized entities (SMEs), private entities, and non-publicly accountable entities. That standard is called the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). And Thailand’s FAP published the Thai Financial Reporting Standard for Non-Publicly Accountable Entities- NPAEs for the same purpose.

A non-publicly accountable entity is an entity that is not one of the following:

(a) Its debt or equity instruments are traded in a public market or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets),

(b) An entity that holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses, such as financial institutions, insurance companies, securities brokers/dealers, mutual funds and Agricultural Futures Exchange of Thailand,

(c) Public companies,

(d) Other entities that may be specified in the future.

Some entities may also hold assets in a fiduciary capacity for a broad group of outsiders because they hold and manage financial resources entrusted to them by clients, customers or members not involved in the management of the entity. However, if they do so for reasons incidental to a primary business (as, for example, may be the case for travel or real estate agents, schools, charitable organizations, co-operative enterprises requiring a nominal membership deposit, and sellers that receive payment in advance of delivery of the goods or services such as utility companies), that does not make them publicly accountable.

It is worth noting that a subsidiary whose parent uses full TFRSs, or that is part of a consolidated group that uses full TFRSs, is not prohibited from using the Thai Financial Reporting Standard for Non-Publicly Accountable Entities – NPAEs in its own financial statements if that subsidiary by itself does not have public accountability. If its financial statements are described as conforming to the TFRS for NPAEs, it must comply with all of the provisions of this TFRS.

If any non-publicly accountable entities choose not to adopt the Thai Financial Reporting Standard for Non-Publicly Accountable Entities – NPAEs, they have to comply with each and every TFRS.

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

As a part of an initiative to promote competitiveness, below is the summary of the recently enacted Royal Decree No. 530 by the Thai government in relation to the Thailand’s Corporate Income Tax Reduction.

• Companies or juristic partnerships (including companies listed on Stock Exchange of Thailand):

– Accounting period commencing on/after 1 January 2012, tax rate = 23%

– Accounting period commencing on/after 1 January 2013, for the next 2 accounting periods, tax rate = 20%

• Companies or juristic partnerships, with fully paid up capital not exceeding Baht 5 million on the last day of the accounting period and revenue of no more than Baht 30 million from sales of goods or services during the accounting period:

– The portion of net profit of THB 1 – 150,000, tax rate = 0%

– The portion of net profit of THB 150,001-1,000,000, tax rate = 15%

– The portion of net profit over THB 1,000,000: tax rate = 23% for the accounting period commencing on or after 1 January 2012 and 20% for the accounting period commencing on or after 1 January 2013 onwards.

It should be noted that the income tax reduction to 20% for SMEs (companies or juristic partnerships, with fully paid up capital not exceeding Baht 5 million on the last day of the accounting period and revenue of no more than Baht 30 million from sales of goods or services during the accounting period) does not have any limited period as opposed to other companies or juristic partnerships.

In addition, the Royal Decree No. 531 has been enacted to reduce the corporate income tax for the companies listed on the Market for Alternative Investment (MAI), except those for which are still entitled to 20% corporate income tax rate. The applicable corporate income tax rate of 25% on the first Baht 50 million of net profit for the accounting period commencing on or after 1 January 2011 shall be applied to the following:-

(i) The company that has been listed prior to 1 January 2010 and entitled to the tax reduction under the Royal Decree No. 467 (20% corporate income tax rate), and then completed the utilization of the 20% rate for 3 consecutive accounting periods before 31 December 2011;

(ii) The company that has been listed prior to 1 January 2010 and never been entitled to the 20% corporate income tax rate under the Royal Decree No. 467;

(iii) The company that has been listed during 1 January 2010 to 31 December 2011.

Contact MSNA for your Thailand accounting and tax questions.