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.

As a Thai accounting firm that handles accounting clients who are foreigners doing business in Thailand, we see a lot of frustrated clients who do not know what constitutes a legitimate payment that will not get added back to their bottom line profit if they get audited by the Thai Revenue Department. Here is some general advice of what you should do. When you have a business operating in Thailand, you need to make sure when you make a payment for goods and/or services, you need to get a legitimate receipt from the vendor otherwise that payment may not be tax deductible. A legitimate receipt should have at least these particulars:

(1) taxpayer identification number of the receipt issuer,

(2) name or label of the receipt issuer,

(3) serial numbers of the book and of the receipt,

(4) date of issuance of the receipt,

(5) amount of payment received,

(6) type, description, quantity and price of the goods

A lot of times, the payment recipient would tell you that they are not in the VAT system. Some vendors are individuals or small partnerships or small companies and it is possible that they really are not registered in the VAT system for some reasons. As long as you get them to issue a legitimate receipt, you will be okay. Please insist that they issue a receipt in your business’s name and make sure the receipt you get has the above particulars. If they are not in the VAT system, they must not collect VAT from you and they must not issue a tax invoice, but it is their duty to issue a legitimate receipt whenever they get paid. And if they are registered in the VAT system, now they will ask for 7% VAT from you. You need to pay for the goods and/or the services and the VAT amount. Remember that if the tax invoice they give you contains all the particulars prescribed by law, you will be able to claim back the VAT you pay them.

What if some vendors are just individuals and do not have a company like people who are not your employees, a part-time messenger, a part-time maid, an electrician who is your maid’s boyfriend, etc. They would tell you they cannot make a receipt for you. This is what we hear very often. Sometimes you procure services from such people. When you pay them, you can make a payment voucher putting the date, their name, the description of goods or services and the amount you pay them and have them sign as the recipient of the payment. Then ask for their Thai ID card copy, make them sign it as to certify true copy and attach it with the payment voucher signed by them. This set of papers can be used as a legitimate proof of the recipient of the payment and therefore, is acceptable to the Thai Revenue Department.

Tomorrow, THAI ACCOUNTANT will talk about the particulars a legitimate tax invoice should contain.

In Part 2 and Part 3, THAI ACCOUNTANT explained about Regional Operating Headquarters or ROH and its tax privileges, old scheme and new scheme.

Again Regional Operating Headquarters or ROH is a company registered in Thailand providing managerial, administrative and technical services as well as other supporting services to ROH’s foreign branches or its associated enterprises.

What does “Associated enterprise” mean?

The Revenue Department has the following criteria in determining whether a company is an ROH’s associated enterprise.

1. Shareholding basis. A company shall be regarded as ROH’s associated enterprise if:

i. ROH holds at least 25 percent of that company’s issued capital; or

ii. The company holds at least 25 percent of ROH’s issued capital; or

iii. The company holds at least 25 percent of ROH and other company’s issued capital. In this case, ROH and the other company are regarded as associated enterprises.

2. Control basis. A company shall be regarded as ROH’s associated enterprise if:

i. ROH has control over that company; or

ii. The company has control over ROH; or

iii. The company has control over ROH and the other company. In this case, ROH and the other company are regarded as associated enterprises.

“Control” in this context is used in accordance with General Accepted Accounting Principles.

The services provided by Regional Operating Headquarters or ROH to its associated enterprises or its branches that qualify for tax privileges are as follows:

Managerial services, administrative services, technical services, and supporting services. Supporting services include:

1. General administration, business planning and coordination
2. Procurement of raw materials and components
3. Research and development of products
4. Technical support
5. Marketing and sales promotion planning
6. Personnel management and regional human resource training
7. Financial advisory services
8. Economic or investment research and analysis
9. Credit control and administration
10. Any other activities stipulated by the Director-General of the Revenue Department

If you have any questions regarding tax and accounting, please contact MSNA, a Thai accounting firm that provides accounting services to SME’s in Bangkok Thailand.

Today THAI ACCOUNTANT wants to explain more about Regional Operating Headquarters or ROH and its tax privileges. This is Part 2 of 3. In part 1, THAI ACCOUNTANT talked about the old scheme ROH. In this Part, we will look at the new scheme ROH which was officially enacted on 6 November 2010. The new scheme is in addition to the old ROH incentives scheme. An ROH company has to choose only one from the two schemes in order to get the tax benefits from the selected tax incentive scheme.

New Scheme Regional Operating Headquarters

Tax privileges

ROH Company

1. Exemption of corporate income tax on qualifying income earned from the services provided to associated enterprises outside Thailand
2. 10% corporate income tax on qualifying income earned from the services provided to associated enterprises in Thailand
3. 10% corporate income tax on interest income and royalty income for the use of R&D products developed by the ROH in Thailand received by the ROH from Thai and/or overseas associated enterprises
4. Corporate income tax exemption on dividends received from Thai and/or overseas associated enterprises
5. Withholding tax exemption on certain dividends of the qualified ROH company distributed to overseas corporate shareholders

The tax privileges under items 1, 2, 3 and 4 will be granted for 10 consecutive accounting years and extendible to 15 consecutive accounting years if the qualified ROH is continuously entitled to corporate income tax exemption/reduction for 10 accounting years and at the end of the tenth accounting year, it has accumulated operating expenses paid in Thailand of more than THB 150 million.

1. Only 15% personal income tax imposition for 8 consecutive years for qualified expatriates registered with the Revenue Department as top executives or specialized professionals
2. Personal income tax exemption for qualified expatriates assigned to work overseas

To qualify for the above tax privileges, ROH must meet the following criteria:

1. ROH must have a paid-up capital of at least THB 10 million.
2. Services must be provided to its associated enterprises in at least 3 foreign countries whereby ROH must provide services to at least one foreign country in the first and second accounting years, at least two foreign countries in the third and fourth accounting years, and at least three foreign countries from the fifth accounting year onwards.
3. ROH must incur operating expenses or have capital expenditure paid to Thai nationals of at least THB 15 million or THB 30 million per accounting year, respectively.
4. All associated enterprises must have real operations with physical presence and staff.
5. ROH must have skilled staff with minimum knowledge as prescribed by the Director-General of the Revenue Department.
6. Starting from the third accounting year onwards, the ROH must have at least 75% skilled staff and pay annual staff benefits of at least THB 2.5 million per person to at least 5 staff
7. To be eligible for the corporate income tax benefits under items 3, 4, and 5 and the personal income tax benefits, at least 50% of the total income of the ROH company must be generated from qualifying service income or qualifying royalty income from overseas.
8. ROH must register with the Revenue Department within 5 years from the date to be announced by the Director-General of the Revenue Department.

If the ROH cannot meet one of the above conditions in any accounting year, it will be disqualified for tax incentives retroactively starting from the first accounting year.

In Part 3, THAI ACCOUNTANT will talk about the definition of associated enterprises and the definition of qualifying services by Regional Operating Headquarters.

Today THAI ACCOUNTANT wants to explain about Regional Operating Headquarters or ROH and its tax privileges. This is Part 1 of 3.

Regional Operating Headquarters or ROH is a company registered in Thailand providing managerial, administrative and technical services as well as other supporting services to ROH’s foreign branches or its associated enterprises.

Regional Operating Headquarters or ROH incorporated in Thailand will enjoy certain tax privileges. Currently Thailand has 2 schemes of ROH tax privileges. An ROH company has to choose between the old scheme (which was granted on 16 August 2002) and the new one (enacted on 6 November 2010).

Old Scheme Regional Operating Headquarters

Tax privileges

ROH Company

1. Corporate income tax at the rate of 10 percent on net profits for income derived from services provided to ROH’s foreign branches or associated enterprises;
2. Corporate income tax at the rate of 10 percent on net profits for royalties derived from ROH’s foreign branches or associated enterprises for the use of Research and Development (R&D) done by ROH in Thailand. This benefit is also extended to royalties received from a third party providing services to ROH’s branches or associated enterprises using ROH’s R&D;
3. Corporate income tax at the rate of 10 percent on net profits and interest received from ROH’s foreign branches or associated enterprises for loans granted, provided that such loans are made from other sources and extended to ROH’s branches or associated enterprises;
4. Tax exemption for dividends received by ROHs from associated enterprises;

5. Tax exemption for dividends paid out of ROH’s concessionary profits to its shareholders not carrying out business in Thailand;
6. Accelerated depreciation for buildings at the rate of 25 percent on the date of acquisition. The residual value can be depreciated within 20 years.

Expatriates working for ROH

1. Expatriate may opt to be taxed at 15 percent of gross income. By doing so, the income received must not be calculated together with other income and cannot claim for refunds. This privilege is available only to expatriates employed by ROH and are limited to their first four years of employment in Thailand. It does not matter how extensively the beneficiaries have to travel abroad during the employment period. To be entitled for the benefits once again, expatriates have to discontinue employment with any ROH in Thailand for more than 365 days.
2. Expatriates who are sent to work in another country by ROH will receive a tax exemption in Thailand on their income paid by the foreign company for services rendered abroad, provided that such income is not directly or indirectly deducted as ROH’s nor its associated enterprise’s expenses in Thailand.

To qualify for the above tax privileges, ROH must meet the following criteria:

1. Its paid-up capital must not be less than 10 Million Baht at the end of each accounting period;
2. Provide services to its branches or associated enterprises in at least 3 countries;
3. Half of its total income is derived from administrative, technical and other supporting services provided to its branches or associated enterprises in other countries and royalties received outside Thailand for the use of ROH’s R&D. This criterion can be mitigated to one-third of the total income in the first three accounting periods of its operation as ROH. In the case of force majeure, the Director-General of the Revenue Department may lower the income threshold for one accounting period; and
4. It must notify the Revenue Department about the incorporation as ROH. Benefits will be given once the accounting period has been notified.

In Part 2, THAI ACCOUNTANT will talk about the new scheme ROH.

A few weeks ago, the Thai cabinet approved certain tax privileges on International Procurement Center as follows.

1. IPC’s Corporate income tax is reduced to 15% (on taxable profits) for 5 consecutive accounting periods from the following revenues.

a. Revenue from purchase and sale of goods to overseas affiliates and such goods is not imported to Thailand

b. Revenue from sale of raw materials and parts to overseas affiliates’ manufacturing plants

2. Personal income tax for expatriates (maximum 3 persons) in management levels is reduced to 15% for 5 consecutive years. In order for an IPC to be qualified under this privilege, it must have a qualified revenue of at least 50% of the total of qualified revenue and revenue from sale of raw materials and parts to affiliates for manufacturing in Thailand.

This tax privilege is granted for the purpose of promoting an investment in manufacturing business and promoting Thailand as a center of both manufacturing business (under IPC scheme) and service business (under Regional Operating Headquarters scheme).

If you have any questions about Thailand taxation, please contact MSNA, an English Speaking Thai Accounting firm servicing SME’s in Bangkok Thailand.

When your company in Thailand renders services for overseas clients, if the service’s end product will be used in Thailand, you need to charge VAT on your service fee. If the service’s end product will not be used in Thailand, there is no VAT involved whether or not the services are performed in Thailand.

THAI ACCOUNTANT wants to emphasize that you should consult with a knowledgeable Thai accountant before you assume the above is applicable to your business. This is because there may be more factors involved.