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.

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.

The Thailand’s Social Security contribution rates for 2012 has announced the following rates to deduct from the employees’ salary for monthly social security contribution and the company will have to pay the same amount to the Social Security Office:

For January to June 2102, the social security deduction rate is 3% with the maximum deduction of Baht 450. (That means if the employee makes more than 15,000 a month, the company only has to deduct 450 from his salary).

For July to December 2012, the rate is 4% with the maximum deduction of Baht 600.

It should be noted that the rate used in 2011 was 5% with the maximum deduction of Baht 750.

Contact MSNA for further assistance and information on Social Security 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.