One of our accounting clients, a Thai company which is a software and computer dealer, has to pay a German company for software. The software can be installed only once on one computer with a specific period of usage. The transaction is considered permission to use or right to use the software pursuant to the double taxation treaty between Thailand and Germany. The company has a duty to withhold 5% tax from the software price when paying to Germany.

If the company has withheld the tax and paid to the authority higher than the amount required by law, the company has the right to file a claim for a refund within three years from the last day that the company had to submit the tax.

The law requires that all companies publish their notice for their shareholders’ meeting in a local newspaper and send to their shareholders a copy of the notice by returned receipt registered mail at least 7 days before the meeting date. Failure to do so may result in a fine of up to Baht 20,000.

One of the shareholders’ meetings that all companies are required by law to hold is called the Annual General Meeting (AGM), where the company has to have its shareholders approve the Financial Statements of the previous fiscal year and appoint the auditor for the current year. This meeting must be held within 4 months from the accounting year-end. The Ministry of Commerce issued some announcement to stress that companies need to really follow the AGM procedures prescribed by law or they will face some penalties.

If the company’s accounting year-end is 31 December 2010, then the AGM must be held within 30 April 2011. The last day to publish the Notice for AGM is AGM date minus 8 = 22 April 2011. This is also the last day the company can send the copy of the notice for AGM to your shareholders by returned receipt registered mail at the post office.

Usually most companies use cheap newspapers that are in circulation specifically for this purpose of publishing notices for AGM only.

If your company does not have the manpower to take care of the notice for AGM, MSNA can handle it for you for a minimal fee.

Thailand accountants are busiest during the first 5 months of the year. The accounting period (12 months or in case of newly set up companies, less than 12 months) of most companies in Thailand falls on 31 of December of each year. If your company’s accounting year-end is 31 December 2010, then your Thai accountants should close the accounts of 2010 by now and have an auditor or certified public accountant audit the accounts. You need to have the audited financial statements ready by end of April. The laws require that these things need to happen:

1. The company needs to hold an AGM (annual general shareholders’ meeting) within four months after the year-end, which is by 30 April 2011, to approve the audited financial statements of 2010.
2. The company needs to file the 2010 audited financial statements with the Ministry of Commerce within 30 days from the AGM date.
3. The company has to file the 2010 corporate income tax return and the audited financial statements with the Thai Revenue Department within 150 days from the accounting year-end, which is 29 May, 2011.

Failure to do any of the above will result in a fine and a possible jail term for the company’s directors in some serious cases.

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.