The main body of tax law in Thailand is the Revenue Code. Taxes listed under the Revenue Code are primarily collected via a self-assessment system of taxation, whereby taxpayers take responsibility for correctly filing their tax returns and paying taxes. The Revenue Department administers the Revenue Code and enforces compliance with the law through regular tax audits. Taxpayers can ask the Revenue Department for a ruling to clarify the department’s viewpoint in advance of a tax audit.
Companies or juristic partnerships established under Thai law are subject to corporate income tax on net profits from their worldwide activities. Those established under a foreign law carrying out business in Thailand are subject to corporate income tax on the net profits arising from their activities in Thailand only. The term company or juristic partnership includes entities such as limited partnerships, registered partnerships and unincorporated joint ventures.
Net profit for tax purposes is calculated by taking into account all revenue arising from or in consequence of the business carried on in a tax year, and deducting there from all allowable expenses. Revenue and expenses are computed on an accruals basis. Dividends received by Thai companies, either from another Thai company or from a foreign company, may qualify for an exemption from corporate income tax if certain conditions are met. In general, expenses incurred for the purpose of acquiring profits or for conducting business in Thailand are deductible. Accordingly, usual business expenses, qualifying bad debts and depreciation are deductible for tax purposes. Deductible expenses must be claimed in the tax year in which they are incurred.
A number of incentives are contained in the tax law that allow for accelerated depreciation and capital write-offs in respect of certain types of assets. If an asset is acquired during a tax year, the depreciation allowance must be pro-rated. Tax losses may be carried forward for a maximum of five years. Companies promoted by the Board of Investment (BOI) that receive exemption from corporate income tax can carry forward tax losses and deduct them as expenses for up to five years after the end of the income tax holiday period.
The Revenue Department has the power to decide whether a company has received market value consideration for the sale of goods, provision of services or the lending of money, where it considers that the actual consideration received was less than market value without justifiable grounds. The Revenue Department also has the power to deny a deduction for any expenditure that is not exclusively expended for the purpose of acquiring profits or for the purpose of the business.
Transfer pricing guidelines exist for determining the market price of transactions between related parties. The guideline’s definition of market price is consistent with the arm’s length principle used in the OECD’s transfer pricing guidelines.
Draft legislation was introduced in May 2015 that would make the guidelines law and is currently under consideration. The Cabinet approved the draft act, which will add specific transfer pricing provisions to the Revenue Code. The proposed legislation will also provide clearer guidelines on implementation and enforcement of the transfer pricing regime. A central pillar of the act is a requirement for taxpayers to prepare and file a disclosure statement with descriptions of related-party relationships and the transfer pricing methods used with the Thai tax authorities within 150 days from the end of the tax year. Failure to comply with the requirement could potentially result in monetary penalties not exceeding BT400,000 ($11,300).
Under the proposed tax legislation, the Revenue Department would be granted authority to make adjustments to taxable income and deductions to related-party transactions that were not at arm’s length. Furthermore, in order to reduce double taxation, taxpayers who overpaid on related-party transactions as a result of transfer pricing adjustments can file a tax refund claim within:
• 60 days if after receiving notification of tax assessment; or
• Three years from the due date for filing of a tax return. The statement must include a description of the related parties and the method used in calculating transfer prices on related-party transactions.
Thai tax law currently has limited general anti-avoidance provisions pursuant to which the Revenue Department may deny a tax deduction for artificial or fictitious expenses, or expenses not exclusively expended for a business purpose or for acquiring profits.
Filing Returns & Payment
A company may choose any 12-month period as its accounting period. Subsequent changes in accounting period must be approved by the director-general of the Revenue Department. An annual corporate income tax return must be filed within 150 days of the end of the accounting year. A mid-year tax return must also be filed and tax paid on half of either the actual or estimated profit for the year, depending on the business of the taxpayer. The tax paid on the mid-year return, as well as domestic withholding tax deducted from income during the year, is allowed as a tax credit against the tax payable on the annual tax return. Thai companies are also entitled to claim a foreign tax credit for tax paid in a foreign country on income which is subject to corporate income tax. The foreign tax credit cannot exceed the amount of corporate income tax payable on the income.
A refund of tax overpaid may be requested within three years, and a request will generally be subject to tax audit before the refund is made. The Revenue Department has the power to issue a summons to conduct a tax audit within two years from the date the return is filed. The two-year prescription period can be extended to five years where there is documentary evidence or reason to suspect the taxpayer had an intention to evade payment. If tax deficiencies are found, the Revenue Department can assess additional taxes, provided that the assessment is made within 10 years of the date the tax was required to be paid.
Corporate Tax Rates
The corporate income tax rate is generally 20%. For Thai small and medium-sized enterprises (SMEs) the tax rates are:
• 0% on net profit not exceeding BT300,000 ($8450);
• 15% on net profit between BT300,001 ($8450) and BT3m ($84,500); and
• 20% on net profit of more than BT3m ($84,500). A foreign company carrying on business in Thailand is also subject to 10% tax on the disposal of profits out of Thailand. This tax may be exempted under an applicable double-taxation agreement. There are other tax rates available for firms that meet certain requirements. A regional operating headquarters company may obtain a tax exemption on income derived from foreign operations and a concessionary tax rate of 10% on other qualifying net profits.
An international headquarters company is exempt from tax on qualifying net profits deriving from a foreign-associated company or branch and is taxed at a rate of 10% on qualifying net profits derived from a Thai-associated company or branch. An international trade centre company is exempt from tax on qualifying net profits derived from the procurement and sale of goods abroad, provided that the goods are not imported into Thailand, and from services provided to foreign companies related to international trade. Qualifying businesses located in special economic zones on Thailand’s borders are taxed at a rate of 10% on net profits.
Foreign companies engaged in international transportation are subject to a 3% tax on gross receipts. The petroleum income tax, rather than corporate income tax, is levied on the net profits and the disposal of profits out of Thailand of businesses engaged in petroleum exploration and production.
Personal Income Tax
The tax year for individuals is the calendar year. Tax residents are subject to tax on assessable income from sources in Thailand and on assessable income derived from sources outside of Thailand if remitted into Thailand in the same year. A person who resides in Thailand for one or more periods totalling 180 days or more in a tax year is deemed to be a tax resident for that year.
Non-residents are subject to tax only on income earned from sources in Thailand, regardless of whether such income is paid in or outside of the country. Expatriate employees working outside of Thailand for a regional operating headquarters, international headquarters or international trade centre company may be able to claim tax exemption.
For some classes of income, standard deductions will apply, whereas for others, actual expenses incurred in connection with the derivation of the income may be deductible. For employment income, a standard deduction of 50% of an individual’s gross income, up to a maximum of BT100,000 ($2820) per annum, may be claimed as an expense. In addition to the itemised or standard deductions, individuals are also entitled to deduct a number of allowances.
Personal income tax will be calculated based on a person’s net income after deduction of expenses and allowances. The tax rates range from 5% to 35% for both resident and non-resident tax individuals. They are listed below:
• 0% for BT1-150,000 ($0.03-4230);
• 5% for BT150,001-300,000 ($4230-8450);
• 10% for BT300,001-500,000 ($8450-14,100);
• 15% for BT500,001-750,000 ($14,100-21,100);
• 20% for BT750,001-1m ($21,100-28,200);
• 25% for BT1m-2m ($28,200-56,300);
• 30% for BT2m-5m ($56,300-141,000); and
• 35% for more than BT5m ($141,000). Expatriate employees of a regional operating headquarters, international headquarters or international trade centre company may elect to be taxed at a flat rate of 15% on their taxable remuneration.
Returns & Payment
Personal income tax returns must be filed on or before March 31 in respect of the preceding calendar year. Tax due on the return must also be paid on or before this date.
Employment income and certain other categories of income are subject to withholding tax.
The taxpayer can claim a credit for the tax withheld in their personal tax return. Mid-year returns must be filed for certain types of income, such as rents and income from liberal professions and businesses.
Under certain conditions, assessable income may be excluded from the personal tax return, including:
• Certain types of interest that has been subject to 15% withholding tax;
• Gains from the sale of immoveable property acquired by way of bequest or as a gift, which would have been subject to a withholding tax at the time of transfer; and
• Dividends or mutual fund distributions subject to a 10% withholding tax.
Thailand has a comprehensive withholding tax system that applies to both domestic and international payments. Withholding tax applies to many domestic payments that are not for the sale of goods, such as service fees, royalties, commissions, transport fees, interest, dividends, rents and the sale of immoveable property. Rates generally range from 1% to 5%. The tax must be deducted at the time of payment and a certificate issued by the payer as evidence of the tax deducted. The withholding tax deducted can be used by the income recipient as a tax credit on their return.
Certain payments made to foreign companies not carrying on business in Thailand, including interest, capital gains, rents, royalties and service fees are subject to 15% final withholding tax.
Dividends are subject to a 10% rate, but exemptions apply in some cases, such as dividends paid out of profits subject to tax holidays. An exemption or reduction of the withholding tax may be obtained under an applicable double-taxation treaty.
Service fees are usually exempted and the rate on interest is generally reduced to 10% if paid to a financial institution.
Companies that receive BOI promotion may obtain special taxation incentives. Foreign investors typically establish a Thai company if they wish to seek BOI promotion for their business. Depending on a project’s characteristics, eligible projects may obtain tax incentives that include:
• Exemption or reduction of import duties on imported machinery, raw materials and components;
• Exemption from corporate income tax for three to eight years;
• Double deduction of transportation, electricity and water supply costs;
• Additional 50% reduction of corporate income tax for five years after the tax holiday period;
• Exclusion from taxable income of dividends received from promoted enterprises during the corporate income tax holiday; and
• 25% deduction from net profit for facility installation and construction costs, in addition to normal depreciation. Tax incentives are specified for each type of promoted activity. Additional incentives are granted based on the merits of the project, considering three factors: competitive enhancement, decentralisation and industrial area development.
Additional tax incentives, such as longer tax holidays, are being considered to promote investments in core technologies in which Thailand has potential, and new technologies and high-impact investments which cannot be attracted via other incentives.
Industrial operators in export processing zones under the Industrial Estate Authority of Thailand are granted numerous tax incentives and privileges, including exemptions from import duty and VAT. A bonded warehouse can be established with approval from Thai Customs. Under a bonded warehouse scheme, the imported goods stored in a bonded warehouse for the purpose of re-export shall be exempted from payment of import/export taxes and duties, regardless of being exported in the same nature as imported, or in the nature of having been produced, mixed or assembled as other goods. Various types of bonded warehouse can be established under the Customs Act.
Most persons that sell goods or provide commercial or professional services in Thailand will have to register with the Revenue Department to pay VAT. Suppliers with a sales turnover not exceeding BT1.8m ($50,700) per annum are exempt from paying VAT. Foreign businesses may also be exempt from VAT registration if they only carry out business activities in Thailand temporarily.
The law provides that certain sales, services and imports are exempt from VAT, such as the sale or import of unprocessed agricultural products, the sale or import of books, transport services and rental of real estate. A trader engaged in exempt transactions need not collect VAT, but at the same time cannot claim a refund of VAT paid to suppliers. The trader can, however, claim a corporate income tax deduction for the VAT paid.
Taxable supplies attract VAT rates at either the standard 7% or 0%. Imports are subject to a 7% rate that will be collected at the time of import by the Customs Department. Transactions that are zero rated include:
• Exported goods;
• Services performed in Thailand and used in a foreign country; and
• Services of international transportation by air and sea. Under the zero rate, a supplier may obtain an input credit for VAT incurred on purchases.
VAT registrants are required to add VAT to the price of their goods and services, and collect VAT from their customers or clients. A VAT registrant must prepare and issue a tax invoice in the prescribed format for every sale or service provided that is subject to VAT. Businesses that sell goods or provide services to a large number of customers shall have the right to issue an abbreviated tax invoice instead. VAT registrants that wish to claim a credit for the VAT on their purchases must receive a full tax invoice to support their claim.
Each month the VAT liability is calculated by taking the difference between the VAT on sales and the VAT on purchases that are allowed as a credit under the law. In the case where a credit balance arises, the taxpayer may carry forward the VAT credit to the following month or request a refund from the Revenue Department. However, the latter action will most likely result in an audit. A person that pays for services from a foreign supplier to use in Thailand shall be liable to remit the VAT on the services to the Revenue Department.
Specific Business Tax
Businesses that are not subject to VAT may be subject to specific business tax instead. This tax is levied on the gross receipts of a business. Businesses subject to specific business tax and the applicable tax rates include:
• 3% for sale of immoveable property;
• 3% for factoring;
• 3% for securities repurchase agreements;
• 3% or 0.01% for banking and similar businesses;
• 3% or 0.01% for finance, securities and credit foncier;
• 2.5% for life insurance; and
• 2.5% for pawnbroking business. In addition, a 10% municipal tax is imposed on top of the applicable specific business rate. The levy is payable to the Revenue Department on a monthly basis. The specific business tax on the sale of property, such as land, condominium units or buildings, will be paid to the Land Department at the time the sale is registered. A number of exemptions from specific business tax are provided under the law.
Customs duties are imposed on certain imports and exports. Export duties are generally imposed on only two groups of commodities, those comprising rawhide and wood.
Import duties are imposed on a specific, ad valorem, or compound basis. The compound basis is a combination of the specific and ad valorem basis, whichever is higher. The duty rates generally range from between 5% and 20% and may be reduced or eliminated under Thailand’s free trade agreements, such as those with Australia, China, India, New Zealand and the 10 member countries of ASEAN.
Generally, under current Thai Customs regulations the import value for the calculation of import duty is based on the cost, insurance and freight model. Meanwhile, the calculation for exports is based on the free on board model. The Customs valuation is made under the international General Agreement on Tariffs and Trade, which primarily uses the transaction value based on prices actually paid or payable.
Excise tax is imposed at ad valorem or specific rates on certain commodities and services, including liquor, tobacco, motor vehicles and certain kinds of electrical appliances. The tax liability arises on locally manufactured goods when the products are shipped from the factory or upon importation. In addition to excise duties, an interior tax at the rate of 10% may be imposed.
Stamp duty is imposed under the Revenue Code on certain documents including:
• Real estate leases;
• Share transfers;
• Loan agreements; and
• Hire of work contracts. The rate of stamp duty applicable depends on the type of document. In general rates are between 0.05% and 1%, although for certain instruments the stamp duty is capped, such as for loan agreements, for which stamp duty is capped at BT10,000 ($282). Flat rate duties range from BT1 ($0.03) to BT200 ($5.63) per instrument.
A number of exemptions from stamp duty are provided under the law. Documents subject to stamp duty which have not been stamped cannot be used as evidence in a civil case.
Other Taxes & Fees
Inheritance tax applies to certain assets inherited, including real estate, securities, registered vehicles and deposits, among others. The first BT100m ($2.8m) is not subject to inheritance tax. Parents or descendants are taxed at a rate of 5%, while other heirs are taxed at 10%.
Certain heirs such as the deceased’s spouse and state organisations are exempt from inheritance tax. A 5% gift tax applies to gifts over BT20m ($563,000) to a spouse, parents or descendants, and to gifts over BT10m ($282,000) in other cases.
Fees are imposed under the Land Code for the registration of certain rights and acts. The transfer of land, buildings or condominium units are subject to a 2% fee based on the official appraised value of the property set to by the government. These prices are currently reviewed every four years.
Real estate leases longer than three years are subject to a 1% registration fee. House and land tax is collected annually on the annual rental value of commercial buildings at a rate of 12.5%. If land is not subject to the house and land tax, it may be subject to local development tax. The draft of a new property tax law has recently been approved by the Cabinet and will see these two taxes replaced by a tax imposed on the official appraised price of the property. A tax applies to signboards that is collected annually.
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