Personal Income Tax (PIT) is a direct tax levied on income of a person. A person means an individual, an ordinary partnership, a non-juristic body of person and an undivided estate. In general, a person liable to Personal Income Tax has to compute his tax liability, file tax return and pay tax, if any, accordingly on a calendar year basis.

Taxpayers are classified into “resident” and “non-resident”.

“Resident” means any person residing in Thailand for a period or periods aggregating more than 180 days in any tax (calendar) year. A resident of Thailand is liable to pay tax on income from sources in Thailand as well as on the portion of income from foreign sources that is brought into Thailand.

A non-resident is, however, subject to tax only on income from sources in Thailand.

Talk to your tax consultant like MSNA to find out if your income is subject to personal income tax in Thailand.

Thailand Accounting Standards and Financial Reporting Standards are announced by Thailand Federation of Accounting Professions (FAP) and correspond with the International Accounting Standards (IAS) and the International Financial Reporting Standards (IFRS). The ones that are currently effective as of 1 January 2011 are summarized in the below table. Note that all of Thailand accounting standards and Thailand financial reporting standards have to be employed by all public companies in Thailand. Non-public companies may choose not to employ the accounting standards and financial reporting standards that FAP has exempted them from.

The Thai accounting standards that have been approved and will become effective for accounting periods that begin on or after 1 January 2013 are:

TAS 12 Income Taxes

TAS 20 Accounting for Government Grants and Disclosure of Government Assistance

TAS 21 The Effects of Changes in Foreign Exchange Rate

Source: http://www.fap.or.th/index.php?lay=show&ac=article&Ntype=10&Id=539609025 as of 18 March 2011

The companies that rent out building space and provide water, electricity and security to the tenants within the rented building usually have their tenants sign two separate contracts. One is for rental of space. The other is for purchases of water, electricity and services.

There are a few things related to taxes that need to be addressed as follow:

1. Withholding tax

1.1 The contract for rental of space: when the lessee company pays rent to the lessor company (landlord), it needs to withhold 5% tax from the rental amount.

1.2 The contract of purchases of water, electricity and services can be separately considered as follow:

(1) Payments for water and electricity in accordance with actual monthly usage is considered buying of intangible goods. The tenants are not required to withhold tax.

(2) When the lessee company pays for services (the landlord provides services to the common area e.g. security services, cleaning, toilet provisions and usage of electricity and water), it needs to withhold 3% tax from the service fee amount.

2. Stamp duty

2.1 A contract for rental of space is required to be affixed with stamp duty by the lessor.

2.2 A contract for purchases of water, electricity or services is not subject to affixation of stamp duty.

Furthermore, if the rental agreement is of more than 3 years, the company has to register the lease with the Land Department.

A Thai company paid some service fee to a company in Japan for debt collection service inside Japan on its behalf. The payment is considered as income from work under section 40 (2) of the revenue code. Because the Japanese company does not have a permanent establishment in Thailand (as prescribed in the double taxation treaty, that company is not subject to corporate tax liabilities in Thailand. The Thai company therefore has no duty to deduct tax at source under section 70 of the revenue code (pursuant to Article 5 and Article 7 of the Double Taxation Treaty between Thailand and Japan).

In respect of VAT (Value Added Tax), the nature of the payment for the services rendered in Japan does not fall under the category of services provided outside Thailand for use in Thailand, therefore, the Thai company does not have to submit VAT on behalf of the Japanese service provider pursuant to section 83/6 (2) of the revenue code.

A company registered in the VAT system that wants to issue a tax invoice in a foreign currency needs to get a permission from the Director General of the Revenue Department to do so.

We have a client who receives an order from an overseas buyer for goods to be delivered to the buyer’s customer in Thailand. That is considered a domestic sale because the goods never leave Thailand. Therefore, the company cannot issue tax invoices in a foreign currency.

However, if the company has issued a correct tax invoice as stipulated by law, they can add the foreign currency amounts to that tax invoice in addition to the Thai Baht amounts.

When your company in Thailand buys software for use in the company’s operation, THAI ACCOUNTANT would like to point out that there is some tax implication you need to know.

If you buy it from a vendor in Thailand, you need to withhold 3% from the price (before 7% VAT).

If you buy it from overseas and hand carry it without going through customs, or you buy it online, in order for you to book the cost of the software as the company’s asset, you need to deal with withholding tax and submitting VAT on behalf of the overseas vendor.

How much tax to withhold on software purchase? You need to consult with the double taxation treaty between Thailand and the country you buy it from. Software is considered royalty. You need to withhold 5% – 15% and submit the tax with form PND 54 within the 7^th of the following month.

When you pay an overseas vendor for their service (in this case, it is royalty), you also need to submit 7% VAT on their behalf (with form PP 36) and the VAT becomes your input VAT of same the month you submit the PP 36. The reason behind this is that if all the vendors in Thailand charge you VAT and if you can buy goods or services from overseas and you don’t have to pay VAT, then who will want to buy from the Thai vendors. So the law has to make everyone submit VAT on behalf of the overseas vendors. (When you buy goods in Thailand you have to pay VAT to the vendors and when you import goods, you pay VAT at the Customs.)

Questions about tax or accounting, please contact MSNA for answers.

It’s time for foreigners in Thailand to file their personal income tax. MSNA is always chosen by expats living in Thailand to help prepare and file their tax returns for the income they earned the previous year. We have worked with foreign tax payers from all over the world to determine what income must be included as their taxable income in their Thai tax returns, what and how much expenses are allowed by law, what tax related deductions they are allowed to take, and how much tax they have to pay while considering the double taxation treaty their home country has with Thailand.

If you were in Thailand more than 180 days in 2010, you are considered a tax resident and need to find out if you must file your income tax for 2010 within 31 March 2011. Please contact us for consultation.

Today THAI ACCOUNTANT would like to talk about VAT and Withholding Tax When Getting Services from Overseas.

As a company operating in Thailand, if you need to procure services from overseas, there are two things important to know:

1. Very likely, you need to withhold some tax and submit it to the Thai Revenue Department within the 7^th of the following month using form PND 54. In case you did not withhold the tax, you will have to pay from the company’s pocket. By the way, the tax you pay on behalf of another company (domestic or overseas) is a non-tax-deductible expense. Usually the withholding tax rate is 15% for most cases, but make sure you consult first with the double taxation treaty between Thailand and the country where the vendor is. MSNA is a Thai accounting company that is familiar with double taxation treaties because we deal mostly with international clients and we can give you an accurate advice. If you withhold the tax from the payment you make to the vendor, then the tax you submit is not part of your cost. If the vendor wants a withholding tax certificate so that they can use the amount of tax withheld by you as their prepaid tax, you will have to get the withholding tax certificate in English from the Thai Revenue Department. It takes many papers and forms and a few months to get the withholding tax certificate from the RD.
2. Once you pay an overseas service provider, you need to submit 7% VAT on their behalf by the 7th of the following month using VAT return form PP 36. When you submit it, you will get a tax receipt from the Revenue Department. The VAT amount in the receipt is considered a purchase VAT or input VAT in the month that you submit it. You will claim it back in the same manner as all other purchase VAT you pay to Thai vendors. The reason behind the fact that you have to submit 7% VAT on behalf of the overseas vendors is that all the vendors in Thailand charge you VAT and if you can buy goods or services from overseas and you don’t have to pay VAT, then no one will want to buy from the Thai vendors. So the law has to make it fair to the Thai vendors. When you buy goods in Thailand you have to pay VAT, so to be fair to the Thai vendors, when you import goods, they make you pay VAT at the Customs too. The same idea applies to buying services from overseas; you need to pay VAT by submitting it on behalf of the overseas vendor.

If you have any Thai taxation questions, please consult with MSNA, the Thai accounting firm based in Bangkok.

Most companies in Thailand choose their accounting year-end to be 31 December of each year. They need to close their books and file the Corporate Income Tax Return with the Revenue Department within 150 days after the accounting year-end.

THAI ACCOUNTANT would like to point out that the profits per accounting books are not the same as the profits per corporate income tax return. This is because there are many expenses that are included in the companies’ accounting but are not allowed by the Thai tax law, thus have to be added back to the profits in the tax return.

Good Thai accountants and Thai accounting firms should be knowledgeable on this matter.

According to Thailand Revenue Code, Section 65 Ter, the following items shall not be allowed as expenses in the calculation of net profits:

(1) Reserves except:

(a) Insurance premium reserves for life insurance set aside before calculation of profit, but only the amount not exceeding 65% of the amount of insurance premiums received in an accounting period after deducting premiums for re-insurance.

In a case where money is paid out on an amount insured on any life insurance policy whether in full or in part, only the paid amount which does not exceed the reserves under Paragraph 1 for such policy shall not be allowed as expense.

In a case where any life insurance policy contract is terminated, the amount of remaining reserve under Paragraph 1 for such policy shall be calculated in the calculation of income in the accounting period in which the contract is terminated.

(b) Insurance premium reserves for any other insurance set aside before the calculation of profit, but only the amount not exceeding 40% of the amount of insurance premiums received in an accounting period after deducting premiums for re-insurance and this amount of reserves set aside shall be income in the calculation of net profit for tax purposes in the following accounting period.

(c) A reserve set aside for bad debts or suspected bad debts from liability arising from the provision of credit which a commercial bank, finance company, securities company or credit foncier company sets aside under the laws governing commercial banks or laws governing the finance business, securities business and credit foncier business, as the case may be; but only the amount set aside which increases from such type of reserve appearing in the balance sheet of the previous accounting period.

For the increased reserve set aside under paragraph 1 and treated as expense for the purpose of calculating net profit or net loss in any accounting period, if afterwards, there is a reduction of such reserve, such reduced reserve which was already used as expense shall be included as income in the accounting period in which the reserve is reduced.

(2) Fund except provident fund under the rules, procedures and conditions prescribed by a Ministerial regulations.⁷

⁷M.R.No.183

(3) Expense for personal, gift, or charitable purpose except expense for public charity, or for public benefit as the Director-General prescribes with the approval of the Minister, shall be deductible in an amount not exceeding 2% of net profit. Expense for education or sports as the Director-General prescribes with the approval of the Minister shall also be deductible in an amount not exceeding 2% of net profit.⁸

⁸N.DG.ITNo.44

(4) Entertainment or service fees that are not in accordance with the rules prescribed by a Ministerial Regulation.⁷

⁹M.R.No.143

(5) Capital expense or expense for the addition, change, expansion or improvement of an asset but not for repair in order to maintain its present condition.

(6) Fine and/or surcharge, criminal fine, income tax of a company or juristic partnership.⁸

¹⁰R.CT.No.10/2528

(6 Bis) Value added tax paid or payable and input tax of a company or juristic partnership which is a VAT registrant except value added tax and input tax of a registrant paid under Section 82/16, input tax not deductible in the calculation of value added tax under Section 82/5(4) or other input tax as prescribed by a Royal Decree. ¹¹

¹¹R.D.No.243

(7) The withdrawal of money without remuneration of a partner in a juristic partnership

(8) The part of salary of a shareholder or partner which is paid in excess of appropriate amount.

(9) Expense which is not actually incurred or expense which should have been paid in another accounting period except in the case where it cannot be entered in any accounting period, then it may be entered in the following accounting period.

(10) Remuneration for assets which a company or juristic partnership owns and uses.

(11) Interest paid to equity, reserves or funds of the company or juristic partnership itself.

(12) Damages claimable from an insurance or other protection contracts or loss from previous accounting periods except net loss carried forward for five years up to the present accounting period. ¹²

¹²N.RD. Re: Computation of Net Profits and Net Loss of Companies or Juristic Partnerships that are Granted Investment Promotion.

R.CT.No.35/2540

(13) Expense which is not for the purpose of making profits or for the business.

(14) Expense which is not for the purpose of business in Thailand.¹³

¹³R.CT.No.13/2529

(15) Cost of purchase of asset and expense related to the purchase or sale of asset, but only the amount in excess of normal cost and expense without reasonable cause.

(16) Value of lost or depleted natural resources due to the carrying on of business.

(17) Value of assets apart from devalued assets subject to Section 65 Bis

(18) Expense which a payer cannot identify the recipient.

(19) Any expense payable from profits received after the end of an accounting period.

(20) Expense similar to those specified in (1) to (19) as will be prescribed by a Royal Decree.¹⁴

¹⁴R.D.No.315

If your business in Thailand is registered in the VAT system, you and your Thai accountant need to pay attention to the tax invoice you receive from vendors.

When you buy goods from someone who is also registered in the VAT system, they need to issue a tax invoice right when the goods are delivered. The “tax invoice” may or may not be on the same paper as “invoice” or “delivery note” or “receipt”. If they are not registered in the VAT system, they cannot issue a tax invoice and must not collect VAT from you.

When you buy services, the vendors do not need to issue a tax invoice until you pay them. If you get a credit term on the transaction, they may send you an “invoice” to let you know how much you owe them. When they get paid, they need to issue a receipt and a tax invoice, which could be on the same paper.

A tax invoice must at least contain the following particulars-

(1) the word “tax invoice” at a prominent place;

(2) the name, address and taxpayer identification number of the business issuing the tax invoice;

(3) the name and address of the purchaser of goods or service;

(4) serial number of the tax invoice;

(5) description, type, category, quantity and value of goods or services

(6) the amount of value added tax calculated on the value of goods or services which is clearly separated from the value of goods or services;

(7) the date of issuance;

(8) any other particulars as prescribed by the Director-General of the Revenue Department.

Please make sure there is no correction made anywhere in the tax invoice even if someone has initialed it. THAI ACCOUNTANT recommends you ask the issuer to issue a new one for you if there are any mistakes on the tax invoice.