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.

A tax incentive to encourage use of trusts for transactions in Thailand’s capital
market has recently been approved by Thailand cabinet. The measure exempts
trust settlers, trustees and trust beneficiaries from income tax, VAT, specific
business tax and stamp duty in income, receipts or instruments executed derived
from transactions performed in relation to an agreement establishing a trust in
accordance with the laws on using trusts for transactions in the capital market
(“in some cases”),

Further details on rules/regulations relevant to the measure have yet to be announced
by the Thai government.

For Thailand accounting and taxation, contact MSNA, Thailand accountant.

Under Section 65 bis (10) of the Thai Revenue Code, dividends received from companies
or mutual funds incorporated under Thai law are exempted from income tax if the
recipient of the dividend is:

(a) A listed company; or

(b) A company holding at least 25% of total shares/units with voting rights in the
dividend payer, provided that the dividend payer does not have a directly or indirectly held shareholding interest in the dividend recipient.

In other case, the recipient of dividends is allowed to treat only one half of the
dividend revenue as assessable income for corporate income tax purposes.

However, the dividend recipient must hold the shares/investment units for at least three
months before and after the date the dividend is received (the so-called 3+3 rule).

Recently the Thai cabinet approved a draft Royal Decree that included dividend income
tax exemption / reduction for new companies formed by amalgamation or transferees
under an entire business transfer scheme.

Under a measure approved by the cabinet, when the dividends are received from new
companies formed by amalgamation or from the transferee under an entire
business transfer scheme, the period of time that the dividend recipient held
shares or units in the amalgamating companies or the transferor of business
before the amalgamation or business transfer can be taken into account in
determining the length of the shareholding.

For Thai taxation and accounting, contact MSNA, Thai accounting company in Bangkok.

Question:
We usually give gratuities to our employees every year but for this year, we also provided some assistance due to recent flooding. Can we treat the financial support we provided to those who were affected by the floods as
expenses for corporate income tax purposes?

Answer:

A support in the form of financial assistance or accommodation offers that your company provided to your employees who were affected by the flooding can be treated as expenses for corporate income tax purposes.

You mentioned that you usually give gratuities to your employees but you also provide some assistance for this year due to recent flooding. In this case, your company should set guidelines and criteria for providing support to all employees affected by the flooding, and the employee support fund should be reasonable and appropriate. It is advisable to have a resolution by the company’s board of directors, indicating that the assistance is available to all and not to a specific group of persons.

Meanwhile, for the employees who were affected by the recent flooding, who may be wondering if they have to treat the assistance provided by the employer as taxable income, here is the answer.

The assistance, in a form of financial support or accommodation offers that your employer provided to you and other employees affected by the flooding should be treated as “financial support provided under a moral obligation”, and thus is exempted from personal income tax. Therefore, the company should not withhold personal income tax in respect of the financial assistance provided to affected employees.

Moreover, financial assistance provided by employers to employees as compensation for damage is exempted from income tax to the extent that it does not exceed the actual damage; but the actual damage has to be proven.

However, please note that it is possible that some tax officials may interpret the above issues differently and this has yet to be resolved among various organizations and the Revenue Department.

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

Does financial support we received for the company has to be treated as taxable income and subject to VAT?

Answer:

In general, financial support received as a donation or reward must be treated as taxable income.

However, financial supports provided by the following parties are exempted from corporate income tax:

A. Financial support from the government

Financial support from the government are exempted from corporate income tax on condition that the recipients comply with conditions and procedures imposed by the Director-General of the Revenue Department (yet to be announced). Companies are encouraged to register as a flood-affected party with any government centers or agencies assigned to assist flood victims in their locality.

B. Financial support from parties other than government

Financial support from parties other than government in an amount “not exceeding the actual damage” will be exempted from corporate income tax.

Meanwhile, financial support or assistance received without obligation is not subject to VAT because they are not regarded as a consideration for the sale of goods or provision of services.

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

Losses or damage to goods and assets are not regarded as sales of goods and assets and therefore, no VAT is payable.

Claims paid by insurers for lost or damaged goods and assets, as well as for business interruption, are not subject to VAT because they are not regarded as consideration for sales of goods or provision of services.

However, if damaged goods or assets are sold to others, including the insurer, VAT must be paid on the proceeds.

Contact MSNA, Thailand Accounting firm, for your tax and accounting questions.

Businesses that suffered losses from the recent flooding in Thailand are asking if they can use the losses to lower their income tax.

If your company is insured and the losses are covered by the insurance policy, they cannot be treated as expenses immediately and you must wait until the issue of the insurance claim is resolved. Once the amount of the insurance claim is agreed, the losses (net of the insurance compensation) can then be treated as tax-deductible expenses.

However, if your company is not insured, losses incurred can be treated as expenses immediately. But if assets or goods are not totally lost and were only damaged, then these must be destroyed or sold before they are expended. Necessary evidence of destruction should be established and retained for future reference. This is because if the Revenue Department requests to see the evidence in the future, the details and evidences will not be forgotten or lost.

On the other hand, when there is compensation received from insurers, if the compensation exceeds the net book value of lost fixed assets, the excess is exempted from corporate income tax (a concession granted by the authorities as a consequence of the previous floods and of benefit to the current floods).

However, compensation received from insurers in excess of the cost of goods (not fixed assets) and any compensation received for business interruption are taxable income since no concession was granted specifically for these two categories.

Contact MSNA, Thailand Accounting firm, for your tax and accounting questions.

The Revenue Department has made an announcement regarding the extension of deadline for tax filing.

For taxpayers with business located in certain areas in the flooded provinces, the tax filings of personal income tax, corporate income tax, value added tax,
specific business tax, withholding tax and payment of stamp duty in cash for
the month of period ended at July, August, September, October and November is extended to December 30, 2011.

We recommend checking with the Revenue Department in your area where your business is located to see if your area got an extension of tax filing deadline.

Contact MSNA for your tax and accounting questions.

What to do in case of loss of tax and accounting documentation due to flooding?

Today, THAI ACCOUNTANT answers a timely question from one of our accounting clients.

Our office has been flooded for months and our files and office stuff including
accounting and tax documents were totally damaged. What should we do?

Answer:

The taxpayers who lost books and accounts need to report to the police stations.

To protect your claim, you should report the loss due to the flood along with a list of all damaged or lost documents to the local police station as a future
reference.

Need advice in filing a report with the local police station in your area? Contact MSNA for further assistance.