In Thailand Provident fund is the fund voluntarily established by agreement of
the employees and employer and registered under the Provident Fund Act B.E.
2530 to encourage savings and serve as security for employees and their
respective families in the event of employees’ termination of employment, resignation
from the company or from the provident fund, retirement, disabilities and death.
A fund may be set and registered as a single fund for employees with sole
employer or a pooled fund for employees with more than one employer and/or multiple
investment policies. Thus, as required by law, the investment policy of the
provident fund to be registered must comply with the Security and Exchange
Commission’s (SEC) rules and regulation.

Once the provident fund has been registered with the Ministry of Finance, it is
considered as a juristic person, a legal entity separated from both the
employer and the fund manager. None of them has the right to claim on the fund
because it is the Registrar appointed by the Ministry of Finance who has the
authority and duties to supervise the management of the fund and has the power
to order the fund manager to give statement and provide reports on the
management of the fund. In the case of the fund manager or the company having
financial problems or has to end its operation, it is guaranteed that the
employees will still receive their money from the fund upon their resignation
or retirement in accordance to their entitlement and the fund regulations.

As specified in the Provident Act B.E. 2530, the provident fund must consist of
percentage of both employees’ and employers’ contributions. The contribution
rate starts from 2% – 15% of the employee’s salary. Normally, it depends on the
company’s policy on how much rate to be used as long as the employee’s
contribution rate will not exceed the employer’s contribution rate and the
employer’s contribution rate must be more than or equal to the employee’s
contribution but not more than 15% of the salary.

Benefits of Provident Fund to Employees

– Tax deductible on employee’s contribution

– Tax exemption on earnings of the fund

– Deferred tax payment until resignation

– Receive higher welfare benefits upon resignation or retirement

– Secure more savings for oneself and family

– Future security for family in the event of disability or death

– Tax exemption on the lump sum received in the event of retirement, death or
disability

Benefits of Provident Fund to Employer/Company

– Tax benefits. Company’s contribution to the provident fund can be used as company’s
expenditures of not more than 15% of the company’s annual salary expenses of
that year

– Reduce the burden of company administrative works

– Maximize the company’s cash flow

– Another means of employee fringe benefit; employees will feel more loyal to the company which can result to more efficiency and productivity of the workforce

Read the law here, Provident Fund Act.

One of the measures to boost energy efficiency in Thailand has just been approved by
the Thai Cabinet which is income tax exemptions of up to 25 % on acquisition of
certain assets. Such measures are summarized as follows:-

– Qualified persons are natural persons, limited companies, public limited companies and juristic partnerships.

– The tax exemption applies to expenditures on purchase of assets such as materials,
equipment or machinery which results in energy saving.

– The measures applies on the acquisition of assets made between 1 January 2011 and
31 December 2012 in accordance with rules, procedures and conditions to be
prescribed by the Director-General of the Revenue Department.

– Expenditures for vehicles and materials, equipment or machineries which are to be used with vehicles are not applicable for income tax exemption.

In addition to these measures, the assets must have the following criteria:-

– The assets must be unused.

– The assets must be purchased in a ready for use condition between 1 January 2011
and 31 December 2012.

– The assets must be certified as materials, equipment or machinery which results in
energy saving by the Department of Alternative Energy Development and
Efficiency within 31 December 2012.

– The assets must not be the types disqualified under this prescribed Decree. (Such
details have yet to be made known).

Moreover, deduction of depreciation of the assets must be made over a period of not less
than 5 years from the date that the assets are ready for use.

Thailand tax and accounting questions? Contact MSNA.

If your company in Thailand gives a loan to the director(s) of the company, or to another company or individuals, it is considered as regularly conducting lending activities in a way that is similar to commercial banks. Your company is subject to Specific Business Tax (SBT) on interest income received on the loan. If you use a cash basis in computing SBT, the SBT amount will be computed based on the actual interest income received. In the
event that a borrower failed to pay the loan, the lender is not responsible to
pay SBT on the accrued interest income of the defaulted loan amount. Read more
on Thailand specific business tax.

What if you do not charge interest on the loan? The Revenue Department upon auditing your accounts will assess the interest income for you using the market rate, or at least the rate that you should have got from a fixed deposit account at a commercial bank had you not loaned the money to the people. However, if your company has a loan from someone else or a bank, the interest to be assessed will be at least the rate you have to pay your creditor for the loan you got from them.

Interest income, recognized by you or assessed by the Revenue Department is part of operating income and it makes your net profit (if any) higher and thus your corporate income tax higher.

Contact MSNA for your questions on Specific Business Tax and Thai taxation.

Specific Business Tax (SBT) – a kind of tax you need to know in case your company has an interest income.

Today, THAI ACCOUNTANT discusses a case of Thailand Specific Business Tax (SBT) on interest income received from guarantee deposits.

A company providing commercial, industrial, marketing and management
consultancy services was required to put cash with its client as a guarantee for
possible damages and liabilities that may arise in the course of providing the
services to the client. In return, the client will pay an interest on the
amount and in the event of damages, the client has the right to make deduction
from the guarantee deposit and related interest. Under this circumstance, such
interest income received by the company is considered as revenue subject to
Specific Business Tax. When the company gets paid for the interest, it has to
submit 3% of the interest received as SBT using Specific Tax Return (form SBT
40) within the 15^th of the following month. In doing so, another 10%
on top on the SBT has to be included in the SBT return as a municipal tax. In short,
the company has to submit 3.3% of the interest receipt.

Contact MSNA for your accounting and tax questions.

Board of Investment (BOI) of Thailand is the principal government agency which operates under the Ministry of Industry to encourage investors and facilitate their investments in the country. The BOI is very active in assisting investors in numerous ways such as follows:

1. Enhancing competitiveness and facilitating investment

– Offers an attractive and competitive package of tax incentives.

– Imposes no foreign equity restrictions on manufacturing activities or on some service.

– Provides assistance in the provision of visas and work permits to facilitate entry and subsequent operation for a foreign-owned business.

– Waives restrictions on land ownership by foreign entities.

2. Business support services

– Provides comprehensive information and advice on establishing operations in Thailand.

– Arranges site visits.

– Identifies potential suppliers, subcontractors, joint-venture partners.

– Provides useful contacts with key public and private organizations.

– Coordinates between the foreign business community and other public agencies.

The BOI also acts as Thailand’s marketing arm and actively promotes the country worldwide as one of the best investment locations in Asia. It is tasked
with devising and implementing strategies under which promotional activities
are organized around the globe throughout the year.

The BOI’s seven overseas offices (Tokyo, Osaka, Shanghai, Frankfurt, Paris, Los Angeles and New York) serve as Thailand’s front desks in liaising with potential investors.

Thailand BOI Promotion page gives you information about BOI in Thailand.

Aside from flood relief loans and tax incentives, the Thai Government has approved
other relief measures for those individuals and industrial sectors that were
really affected by the recent flooding such as follows:

1. Visa and work permit assistance will be provided to foreign skilled workers or
technicians involved in the repair and restoration of damaged machinery,
equipment and infrastructure of BOI promoted companies affected by the
flooding.

2. Exemption of machine import tariff or import duty on all machinery and equipment imported to replace or repair flood-damaged machinery.

3. Appropriate exemptions or reductions of import duty on imported automobiles and auto parts for assembly for domestic sale.

In addition to the recently approved flood relief loans by the Thai Cabinet, the
Thailand Board of Investment (BOI) has offered tax relief measures to its
promoted companies operating in Industrial Zone 1, Zone 2 and Zone 3 which were
really affected, might be affected or were not affected by the present flooding.

1. For flood-affected BOI-promoted companies

General measures particularly the corporate income tax (CIT) exemptions/reductions are
being granted to BOI-promoted companies that have been affected by floods and for
those who wish to invest in temporary manufacturing facilities or in new
projects to restore their businesses in Thailand. Such tax relief incentives
for each Industrial Zone are as follows:

Customs duty exemption on imported machinery is also being granted to BOI-promoted
companies in all zones. Companies must submit their applications to the BOI
within the year 2012.

2. For new or existing BOI promoted companies not affected by the floods.

In order to maintain and gain more investors, tax incentives are also being
granted to new or existing BOI-promoted companies not affected by the flooding
and who wish to invest in new projects or expand current investment projects in
Thailand. Such corporate income tax (CIT) exemptions/reductions for each Industrial Zone are as follows:

Exemption on customs duty for imported machinery is also being granted for all zones. Companies must submit their applications to the BOI within the year 2012.

3. For specific businesses affected by the flooding

Automotive manufacturers in all zones are exempted from corporate income tax for 5 years with the tax exemption equal to 100% of investment (excluding land and working capital).

Meanwhile, for “eco car” manufacturers, the current corporate income tax exemption scheme already grants the maximum tax incentives and so there is no change.

For other industries, the BOI board will consider relief measures on a case-by-case basis.

4. For BOI promoted industrial estates/industrial zones operators affected by flooding

The BOI-promoted industrial estates/industrial zones operators wishing to invest in flood prevention infrastructure in the future, whether in current areas or zone extensions, will be granted a corporate income tax exemption equal to 200% of the investment (excluding land and working capital), valid for eight years.

Certain types of businesses are subject to Specific Business Tax (SBT) rather than Value Added Tax (VAT). Businesses subject to SBT must pay VAT on their purchases of goods and services but are not entitled to a VAT credit. The SBT ranges from 2.5 – 3.0 per cent on monthly gross receipts. When a monthly return is filed and SBT is paid, an
additional amount of 10% of the SBT payable is levied as a municipal tax.

Businesses that are subject to SBT

• Banking, financial and similar business
• Life Insurance
• Pawn Brokerage
• Real Estate
• Any other business specified by the Royal Decree i.e. business engages in repurchasing agreement (REPO) and factoring

Activities of certain entities are exempted from SBT such as:

• Activities of Bank of Thailand, Government Savings Bank, Government Housing Bank and Bank for Agriculture and Agricultural Cooperatives
• Activities of the Export-Import Bank of Thailand, the Industrial Finance Corporation of Thailand, Asset Management Corporation, Small Industrial Finance Cooperation and Secondary Mortgage Corporation
• Activities of National Housing Authority, Government Pawn Brokerage and Pension Fund
• Activities of selling securities listed in the Stock Exchange of Thailand

Specific Business Tax Base and Rates

Filing Specific Business Tax Return and Payment

SBT taxable period is a calendar month. SBT return (Form SBT 40) must be filed (and payment must be submitted) on a monthly basis by the 15^th of the following month
whether or not the business has income.

Contact MSNA for your accounting and tax questions.

The Board of Investment of Thailand offers a wide range of incentives and services to foreign investors that can help them to make their investments more profitable.

Thailand BOI Promotion provides privileges to attract more and more
investors to set up their operations here in Thailand. The privileges are
summarized as follows:

Tax incentives

• Exemption/reduction of import duties on machinery.(section 28/29)
• Reduction of import duties for raw or essential materials.(section 30)
• Exemption of juristic person’s income tax and dividends.(section 31 and 34)
• A 50 percent reduction of the juristic person’s income tax.(section 35(1))
• Double deductions from the costs of transportation, electricity and water supply.(section 35(2))
• Additional 25 percent deduction of the cost of installation or construction of facilities.(section 35(3))
• Exemption of import duty on raw or essential materials for use in production for export.(section 36)

Non-Tax incentives

• Permit for foreign nationals to enter the Kingdom for the purpose of studying investment opportunities.(section 24)
• Permit to bring into the Kingdom skilled workers and experts to work in investment promoted activities.(section 25 and 26)
• Permit to own land.(section 27)
• Permit to take out or remit money abroad in foreign currency.(section 37)

Guarantees

• The State will not nationalize the activity of the promoted person. (section 43)
• The State will not undertake a new activity in competition with the promoted person’s. (section 44)
• The State will not monopolize the sale of products similar to the promoted person’s.(section 45)
• The State will not impose price controls on the products of the promoted person’s.(section 46)
• The State will grant permission to export at all times.(section 47)
• The State will not allow any government agency, government organization or state enterprise to import any kind of the product being produced by the promoted person into the Kingdom by granting import duty exemption.(section 48)

Protection

• To charge extra import fees into the Kingdom on products similar to those produced by the promoted person at a rate not exceeding 50 percent of the price of overseas insurance and freight charges, effective for a period of not more than one year. (section 49)
• In the case of where the Board is of the opinion that Section 49 is inadequate for protecting the activity of the promoted person. it will increase the measure by banning the import of products similar to the local productions. (section 50)
• In the case where the promoted person encounters any problem or obstacles in the course of carrying out the promoted activity, the Chairman will have the power to render any appropriate assistance.(section 51)

We at MSNA together with our team of BOI experts and auditors can guide you to fully understand how to take full advantage of the BOI incentives, guarantees, protection and privileges. Moreover, we can also help you in complying with the BOI standards particularly in terms of reporting requirements.

Contact MSNA for an expert advice regarding Thailand BOI Promotion.

An MSNA’s accounting client has asked us a question about the VAT on purchase of
goods from a company overseas.

We just ordered some products from a US-based company. This US Company contracts a
Thailand-based manufacturer to produce these products and directly deliver to
us on behalf of them. Is there any VAT to be accounted for? How should we
recognize it?

Answers by THAI ACCOUNTANT:

Sales of goods between a Thailand-based company and a company based overseas with the
goods being manufactured and delivered in Thailand by a Thai manufacturer would
be considered as sales of goods in Thailand (under Section 77/2(1) of the Thai
Revenue Code) that is subject to 7% VAT.

For your case, since you ordered from a non-Thai company (US-based), you would be responsible to self assess the VAT on the gross payment, file a VAT remittance return (Form Por Por 36), and remit the VAT to the Revenue Department by the 7^th day of the following month in which the payment was made. Thus, a receipt issued to you by the
Revenue Department after you paid for the VAT can be used as your company’s input
tax invoice which is creditable against your output tax in the tax month when
VAT is remitted.

In the event that you did not account for VAT, both you and US-based Company would
be both liable to pay for the VAT deficit and a surcharge of 1.5% per month on
the tax deficit. Both of you will also be subject to a fine for not submitting
VAT.

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