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.

• A good Thai accountant should be knowledgeable on the Thai tax law and practice. A general knowledge of business law is a big plus.
• A good Thai accountant knows what constitute a valid tax invoice, the tax invoice from which you can claim back the VAT you paid on goods and services.
• A good Thai accountant recognizes when the transaction requires tax withholding.
• A good Thai accountant always meets deadlines for financial reports.
• A good Thai accountant is neat and tidy and makes sure all transactions have proper supporting documentation.
• Smart Thai accountants know that they need to freshen up their knowledge very often by attending training or seminars and reading tax and accounting publications.

It is a good idea to hire another Thai Accountant from a well established Thai accounting firm to check your accountant’s work once in a while.

When your Thai business has surplus cash and chooses to lend it to the directors or other companies in the group, it has to charge an interest. The tax officials will tell you to adjust your corporate income tax return to reflect the interest income from such lending. Usually they are fine with the rate of interest of not less than the interest the company will get if it deposits the money in a fixed account.

When the company receives interest income on the money lent to its directors and other companies, it has to file a Specific Business Tax Return (PT 40) and submit 3.3% on the interest received within 15^th of the following month.

THAI ACCOUNTANT suggests you always accrue the interest income when you lend money to other people, but file the SBT form PT 40 only when you have received the interest money.

An employee terminated without a valid cause as stipulated by law is entitled to receive the following severance pay:

• 30 days’ wages where the employment period is at least 120 days but is less than one year.
• 90 days’ wages where the employment period is at least one year but is less than three years.
• 180 days’ wages where the employment period is at least three years but is less than six years.
• 240 days’ wages where the employment period is at least six years but is less than ten years.
• 300 days’ wages where the employment period is ten years or more.

In the event that the employer relocates its place of business that essentially affects the normal living of an employee or his/her family, the employer must notify the employee of the relocation at least 30 days in advance or pay an amount in lieu of the advance notice equal to 30 days’ wages. In this connection, if the employee refuses to move and work in the new location, the employee has the right to terminate the employment contract and is entitled to receive a special severance pay of not less than the prescribed rates of severance pay.

In the event that the employer terminates the employment of an employee as a consequence of streamlining the work units, production process, distribution service, or the introduction or change of machinery or technology, which thereby results in the reduction of the number of employees, the employer must notify the Labor Inspector and the employee concerned at least 60 days before the date of termination of the employment or pay in lieu of the advance notice to the employee an amount equal to 60 days’ wages. The terminated employee will be entitled to the prescribed rates of severance pay. Moreover, if the terminated employee, has worked consecutively for over 6 years, the employee would be entitled to an additional special severance pay at the rate of 15 days’ wages per one full year of service, calculating from the start of year 7 onwards. However, the total amount of this additional special severance pay is limited to the equivalent of 360 days’ wages.

Read the official version of the Thai Labor Law:

Labour Protection Act B.E. 2541 (A.D. 1998)

Labour Protection Act B.E. (No.2) 2551 (A.D. 2008)

According to the Thai labor law, if an employment contract does not specify any duration, either party can terminate the contract by giving notice at or before any time of payment, to take effect in the next pay period.

In Thailand, an employer does not have to pay severance pay to an employee when employment is terminated upon any of the following conditions:

(1) performing his/her duty dishonestly or intentionally committing a criminal offence against the Employer;

(2) willfully causing damage to the Employer;

(3) committing negligent acts causing serious damage to the Employer;

(4) violating work rule, regulation or order of the Employer which is lawful and just, and after written warning having been given by the Employer, except for a serious case with no requirement for the Employer to give warning.

The written warning shall be valid of not exceeding one year from the date when the employee commits the offence;

(5) absenting himself/herself from duty without justifiable reason for three consecutive working days regardless of whether there is holiday in between;

(6) being sentenced to imprisonment by a final court judgment.

In item (6), if the imprisonment is for offences committed by negligence or a petty offense, it shall be the offense causing damage to the Employer.

Upon termination of employment without severance pay upon the above conditions, the Employer needs to specify the fact which is the cause of termination in a letter of termination of employment or inform the cause of termination to the employee at the time of termination of employment.

Accounting graduates in Thailand usually would surprise anyone when they join the work force after they just got out of school. They have forgotten all accounting debits and credits. They do not remember almost anything from their accounting education. At our Thai accounting firm, we invest a lot of money and time in training each accounting staff. They are our biggest asset. THAI ACCOUNTANT have an observation that the accountants that choose to work with a Thai accounting firm for a few years usually end up being chief accountants at other firms because they have learned every and all tasks in the accounting area. The ones that choose to work in the accounting department of bigger firms in other fields, usually are put in one area of the accounting department, doing only accounts receivable or accounts payable, or as a cashier (prepare checks), etc. They do not get to work on the overall accounting of the company, thus they do not have the experience needed to become a chief accountant or an accounting manager.
Good accountants are not that hard to find, but very difficult to keep. We, at MSNA, are a perfect alternative when you want excellent Thai accountants to take care of your accounts.

Thai Accounting Standards (TAS) are issued by Thailand’s Federation of Accounting Professions (FAP). All Thai Accounting Standards follow the International Accounting Standards (IAS), thus have the same numerical orders and title and content. Thailand, like many other countries in the international accounting community has adopted the IFRS (International Financial Reporting Standards).

FAP plans to fully adopt IFRS as the Thai Accounting Standards for the SET (Stock Exchange of Thailand) listed companies within 2011 through 2015. For the non-listed companies, FAP plans to announce the adoption of Thai Accounting Standards and IFRS to be applied in 2011. However, FAP normally issues its notification to provide exemption for some Thai Accounting Standards that are too difficult to comply by the SME’s.

THAI ACCOUNTANT gets this question very often.

There are vendors in Thailand (or outside Thailand) that will not let your Thai company withhold taxes from them saying that their prices do not include taxes. Well, the Thai tax law makes it your duty to withhold some taxes when you pay for certain things. If you do not withhold the tax, you will have to still submit it to the Thai Revenue Department using your own money.

THAI ACCOUNTANT has 3 choices for you to consider:
1. Withhold taxes from those vendors anyway. If any of them do not let you, then you may want to find other vendors to work with.
2. You may choose to submit the taxes on behalf of the vendors (because you did not withhold from the vendors). The taxes you pay on behalf of the vendors who are juristic persons (companies and registered partnerships) will become an add-back expense, which you cannot use to lower your corporate income tax liability. Only the taxes paid on behalf of individuals can be tax deductible expense.
3. You may choose to let your vendors increase their prices by the amount of tax that you have to withhold. This way, the tax you withhold is officially not paid by you. So the tax amount will not be an add-back expense.

THAI ACCOUNTANT prefers choice 1 because it is the law. They need to let you withhold the tax from the payment and hopefully you are in the field where you do not have to deal with the vendors who do not want to comply with the law.

Good Thai accountants will deal with those tough vendors for you.