Corporate Income Tax Categories

Corporation are taxed in one of two ways, depending on weather the company is considered to be conducting business in Thailand “onshore” or “offshore”. The definition contained in the Revenue Code of “conducting business in Thailand” is very broad and stipulates that:

“If a juristic company or partnership incorporated under a foreign law has, in Thailand, for carrying on its business, an employee, a representative or a go-between and thereby derives income or gain in Thailand, such juristic company or partnership shall be deemed to be carrying on business in Thailand….”

A company operating “onshore” pays the normal spectrum of corporate income tax and must withhold certain amounts at source on account of income tax on some transaction. An offshore entity receiving income from Thailand must pay income tax only at fix percentage of gross income, and the party in Thailand who pays the income is generally required to withhold the tax at source.

Corporate Income Tax

Corporate income tax applies to companies and juristic partnerships that are registered under Thai law or that conduct business in Thailand, even if formed under foreign laws. This tax also applies to members of an unincorporated joint venture, registered partnership, foundations, and associations engaged in business activities. If the taxable entity is incorporated or established under foreign laws, but is conducting business in Thailand, then only income derived or gained in or from Thailand is taxable. 

Corporate Income Tax Rates

All companies and registered partnerships regardless of whether they are listed on the SET pay flat rate of 30% of net profits.

There are special provisions for standard deductions for foreign-incorporated companies or partnerships that conduct business in Thailand but cannot prove their expenses for the tax year. Standard deductions are allowed depending on the type of business activity that gives rise to income. The resultant net profits are taxed at the normal rate of 30%. 

Any Thai for foreign-incorporated company or registered partnership conducting business in Thailand that fails to the file a return in accordance with the law may, with the approval of the Director-General, be assessed income tax at a rate of five percent of the aggregate of either its gross  receipts or total sales, without any deductions.

Certain types of business are subject to corporate income tax on their gross receipts or gross sales instead of net profits. For example companies engaged in the business of international transportation of passengers or goods, pay at three percent corporate income tax on gross receipts collected on gross freight or passengers carried out of Thailand. Foundations and associations pay corporate income tax at a rate of two percent or 10% of gross income, depending on the type of business activity in which they are involved.

Small- and medium-sized enterprises (“SMEs”) with registered capital not exceeding Baht 5,000,000 are subject to progressive corporate income tax at the rate of 15% for their first net profit of Baht 1,000,000, 25% for net profits over Baht 1,000,000 but up to Baht 3,000,000, and 30% for net profits over Baht 3,000,000. However, in 2005, the 20% tax rate on any SME’s first Baht 1,000,000 net profits will be reduced to 10%.

In order to stimulate the growth of investment in the Stock Exchange of Thailand (“SET”) and the Market for Alternative Investment (“MAI”), the normal corporate income tax has been reduced to 25% for existing SET-listed companies and newly SET-listed companies and to 20% for newly MAI-listed companies. However, eligible listed companies must satisfy certain conditions.

* Determination of Net Profit for Corporate Income Tax

          Corporate tax is usually imposed on net profits of the business for the tax year. The tax year can be any 12-month period selected by the company.

Net profits are ascertained according to the conditions imposed in the Revenue Code An all-inclusive concept of income is used and all realized economic gains are treated as income (including capital gains) whether they occur regularly or only occasionally. Corporate income tax is generally computed on an accrual basis, i.e. income accruing in any accounting period is included as income in that period, whether or not it has been received, and expenses may be deducted as they accrue whether or not they have actually been paid out.

A general matter, expenses incurred for the purpose of acquiring profits or from conducting business in Thailand (other than those specifically excluded) are deductible for determining net profit. Therefore, normal business expenses, qualifying bad debts and depreciation at maximum rates ranging from five to 20% per annum (depending on the item) are allowed as deductions. Any accounting method may be used to calculate depreciation, as long as the resulting depreciation is not faster than that provided by using the straight-line method at the rate prescribed in the Revenue Code. The following items among others are not allowed as deductions:

• Reserves (other than those required by law);
• Private expenses, including gifts for customers;
• Gift to charitable institutions exceeding two percent of net profit;
• Non-maintenance capital expenditure; and
• Corporate income tax, penalties, surcharges and criminal fines.

Entertainment expenses, up to a maximum of between 0.3% of gross revenue or paid-up capital of the company, whichever is higher, are deductible if they are generally necessary for that type of business, but such entertainment expenses can be deductible only up to 10 million Baht.

Certain bad debts can generally be written off if reasonable efforts have been made to recover them or if such action is clearly impractical, such as in the case of the bankruptcy or death of the debtor.

Net losses may be carried forward for five consecutive years. However, there is no provision for the carry-back of losses.

* Remittance Abroad of the Profits of a Branch Office

This tax generally applies only to profits transferred overseas from a Thai branch. It is levied at the rate of 10% of the amount to be remitted and must be paid by the Thai remitting office of the company within seven days of the date of remittance.

* Withholding of Income Tax on Payments to Offshore Companies

The Revenue Code requires that most payments to an “offshore” company or juristic partnership paid either from or in Thailand, be subject to income tax. It is the responsibility of the payer to withhold the tax at source. The rate ranges from 10 to 15 percent, depending on the source of the income. If payments are made to an offshore company or juristic partnership incorporated in a country which has a double taxation agreement with Thailand, then the rate of withholding may be reduced or waived under the terms and conditions of the agreement.

* Dividends

Generally, if a Thai limited company pays dividends to another Thai limited company, 50% of the dividends paid are exempt income in the recent company. If the company receiving the dividend payment is listed on the Securities Exchange of Thailand (“SET”), then the whole dividend is exempt income if the company receiving the payment holds at least 25% of the voting shares and the company paying the dividend does not hold any shares in the receiving company.

In order to qualify for either the 50% or the 100% exempt income status, the receiving company must have held the shares for at least three months prior to the dividend declaration and must have continued to hold them for three months after the dividends were declared.

Dividends paid by Thai limited company, whether to an onshore or offshore corporate shareholder, are generally subject to 10% withholding at source, unless it is exempt income. For these purpose, the dividend can be treated as exempt income even if the receiving company does not hold the shares for three months before and after the dividends are declared.

* Other Taxes Withhold on Account of Income

 In addition to foregoing, the Revenue Code requires the payer of certain income to another company conducting business in Thailand to withhold additional sums on account of corporate income tax at source. These rates vary from 0.75% to 5% depending on the type of income. The amount withheld can be credited against the corporate income tax of the recipient company.

* Filling Returns and Payment of Corporate Income Tax

Corporate income tax is payable twice a year. The first installment is 50% of total tax based on estimated net profit for the year. This is due within two months after the close of the first half of the financial year of the company.

An annual income tax return must be filed within 150 days of the close of the company’s financial year; in case of the failure, a penalty of twice the amount of the tax due is imposed. If tax is to be paid on the basis of the net profits, then the return must be accompanied by an audited balance sheet and a profit and loss account. If tax is to be paid on a gross receipts basis, then a statement of gross receipts must be filed along with the return. Currently, filing can be done either in paper-form or electronic-form (“e-filing”).

Personal Income Tax

Every person, resident or non-resident, who derives assessable income from employment or business conducted in Thailand, is subject to personal income tax, whether such income is paid in or outside of Thailand. Exemptions are granted to certain persons (UN officers, diplomats and some visiting experts) under the terms of international and bilateral agreements.

An individual who is present in Thailand for at least 180 days in any tax year (calendar year) is treated as a resident of Thailand. Residents are also subject to income tax on any income from foreign sources that they bring into Thailand.

* Personal Income Tax

Taxable income includes any payment for services and any other money, property, or benefits derived from hire of service or employment. It also includes dividends, interest, and any royalties or technical assistance fees. Capital gains are considered to be normal income except in the case of the sale of movable property acquired with no intention to trade or make a profit.

Personal income tax paid and absorbed by the employer (in effect giving the employee a net salary) is also considered taxable income to the employee, leading to a “tax pyramid” effect. Also include in taxable income are living allowances, the monetary value of rent-fee accommodation, school fees paid by the employer, travel allowances for annual leave, and the monetary value of any other benefit provide by the employer.

* Income Exempt from Personal Income Tax

Certain types of income are excluded from assessable income, including business travel expenses, work-related moving expenses, interest on savings deposited with banks in Thailand, insurance benefits, inheritances and scholarships.

* Deductions of Allowances and Expenses for Personal Income Tax

There are various kinds of allowances (subject to certain limitations) authorized by the revenue Code, including allowances for personal, life insurance premiums, provident or pension funds, interest payment and charitable donations.

 Personal allowances are 30,000 each for the taxpayer and his or her spouse plus Baht 15,000 for each child. There is a Baht 2,000 educational allowance for each child. There is no limit to the number of children born before 1 January 1980 who are eligible for deductions, and only three children born after that time are eligible.

Deductions of allowances for the spouse and children of a non- resident are allowed only if they actually reside in Thailand.

A standard deduction of expense of 40%, but not exceeding Baht 60,000, is allowed against income from employment. Standard deduction of expenses from 10 to 85% is allowed against other categories of income, but for certain types of income, the taxpayer can elect to itemize expenses instead of taking the standard deduction.

 * Income from Dividends and Personal Income Tax

 Dividends income is generally subject to personal income tax. Thai tax residents may choose to have tax withheld at the rate of 10% of the dividend income, without including such dividend payments in their taxable income at the end of the tax year.

Alternatively, Thai tax residents can claim an approximate 42% dividend tax credit if they incorporate such dividend into their taxable income at the end of the tax year. In this case, the corporate income tax rate if the dividend paying company is 30%. The tax credit is determined by dividing the corporate income tax rate of the dividend payer by the output of 100 minus such corporate income tax rate then multiplying the resulting figure by the dividend amount. This tax credit is only available to an individual who is domiciled in Thailand and who has stayed in the country for a minimum of 180 days in tax year.

* Personal Income Tax Rates

Personal income tax rates on net taxable income are as follows:

        Amount                                                         Rate

Baht 0 up to Baht 80,000……………………………………………..exempt

Baht 80,001 up to Baht 100,000………………………………………..5%

Baht 100,001 up to Baht 500,000……………………………………..10%

Baht 500,001 up to Baht one million………………………………..20%

Baht 1,000,001 up to Baht four million…………………………….30%

More than Baht four million………………………………………………...37%

* Tax Exemption on Bonds

In order to promote the country’s Asian bonds, the withholding tax exemption on interest, capital gains, and discounts derived from the bonds are granted to non-tax resident foreign investors (i.e. staying in Thailand less than 180 days in a calendar year) in 2005

* Tax Relief for Mutual Fund Investment

Individual holders investing in a Retirement Mutual Fund (RMF) are allowed to deduct up to Baht 300,000for the amount of purchase in RMF units, as well as granted tax exemption on capital gains derived from the sale of units, provided individual holders have held such units for at least five years. Similarly, individual investors investing in long-term equity funds (LTF’s) are allowed to deduct up to baht 300,000 for the amount of purchase from their taxable income not exceeding 15%, as well as granted tax exemption on capital gains derived from the sale of units held for at least five years in qualified mutual funds. Ultimately, any individual holders investing in RMF’s and LMF’s can deduct the amount of purchase up to a maximum of Baht 600,000.

* Taxes Paid by Another Person

The definition of “assessable income” includes all taxes paid for or reimbursed to the taxpayer by any other person. All such taxes paid by any person other than the taxpayer, at any stage, are in turn subject to tax.

* Filing Personal Income Tax

        Personal income tax returns must be filed and the tax paid by the end of March in the year following that in which the income was earned. Currently, filing can be done either in paper-form or electronic form (“e-filing”).

* Tax Clearance Certificates

Foreigners departing Thailand do not have to obtain a tax clearance certificate unless:

• Their remittance of taxation to the Revenue Department is either in arrears or required to be paid prior to, or at the time of, departing the country; or
• They are responsible for the submission of the returns and payment of income tax for a company or registered partnership established under the law of a foreign country but carrying on business in Thailand; or
• They receive income from being public entertainers in Thailand

* Withholding of Income Tax at Source

* Overseas Payments

Income tax must be withheld at the source by a corporate or individual payer from assessable income paid to non-residents or person not conducting business in Thailand. The rates are the same as those set out above.

* Local Employees

Income taxes must be withheld at source from employee wages as well. In general payers of assessable income to individuals who must pay personal income tax are required to deduct tax at source at the time of payment. Assessable income includes payment for services, value for goodwill, patents, trademarks and copyrights, dividends, interest, bonuses, rental fees etc.

* Local Interest Payments

Income tax must also be withheld on the payment of interest on deposits and bills by commercial banks, finance, securities and credit foncier businesses to:

• Companies or juristic partnerships operating business in Thailand, at the rate of 1%; and
• Prescribed foundations or associations, at the rate of 10%.

* Government Payments

 Central government and local government organizations that pay assessable income to companies or partnerships conducting business in Thailand must withhold income tax at the rate of one percent of the total tax due for the period in which the deduction is made.

* Tax credits

Certain taxes withheld may be used by the recipient of the net income as a credit against year-end taxes. If the credit cannot be utilized, then it is refundable.

* Treaties for the Avoidance of Double Taxation

Thailand has agreements and conventions usually referred to as Double Tax Agreements or DTA’s for the avoidance of double taxation and fiscal evasion with 47 countries: Armenia, Australia, Austria, Bahrain, Bangladesh, Belgium, Bulgaria, Canada, China (People’s Republic), Cyprus, Czech Republic, Denmark, Finland, France, Germany, Hungary, India, Indonesia, Israel, Italy, Japan, Korea (South), Laos, Luxembourg, Malaysia, Mauritius, Nepal, the Netherlands, New Zealand, Norway, Oman, Pakistan, the Philippines, Poland, Romania, Singapore, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, United Arab Emirates, United Kingdom, U.S.A., Uzbekistan, and Vietnam. The provisions of DTA(s) may reduce, exempt, or allow credit or deduction of income tax paid in the respective jurisdictions.

An organization is regarded as a resident of a country if under the laws of that country it is subject to taxation because of domicile. The DTA(s) provide additional procedures for dealing with individuals or entities with deal residency.

DTA(s) cover income derived from a range of sources, including immovable property, business profits, dividends, royalties, interest and personal services. The taxation treatment varies with the source of income. Thus income arising from immovable property is likely to be taxed in the country in which the property is located. However, business profits are taxable only in the country where the entity is a resident, unless it conducts business in the other country through a permanent establishment.

A “permanent establishment” generally means a fixed place in which the business is either wholly or partially undertaken and usually includes a branch, office, factory, warehouse or mine.

Treatment given to income such as dividends, royalties, and interest differs under the various DTA(s). Dividends, for example, may be taxable only in the country from which payment is made, or may be taxable in both but with credit or deduction allowed in the receiving country.

Each DTA also contains provisions for obtaining a credit in one country where tax has been levied on the other country. The types of income which qualify vary among DTA(s).

Value Added Tax (VAT)

VAT is essentially a broad-based consumption tax on goods and services operating at each stage of protection and distribution. A “trader” is defined as a natural or juristic person or group of persons selling goods or rendering services in Thailand, and includes the agents of foreign entities. In effect, VAT covers all retailers, manufacturers, wholesaler, producers and importers of goods, as well as service providers, other than those excluded by the Revenue Code.

* VAT Rates

VAT is currently levied at a standard rate of 7% (10% from 1 October 2005) and 0% on exported goods and services under the terms and conditions of the Revenue Code.

* VAT Exemptions

Certain businesses are exempt from VAT, including the followings:

• Small enterprises with annual sales of less than Baht 1,200,000;
• Businesses producing food or agriculture products other than for the purpose of export;
• Domestic transportation;
• Private and government health care service;
• Educational service;
• Religious and charitable organizations; and
• Leasing of immovable property.

* Zero Percent Rate for VAT

A zero percent VAT rate applies to certain businesses, including the following:

• Export of goods;
• Provision of services performed in Thailand but used in a foreign country; and
• International transportation services by air or sea

* VAT Tax Invoice

Each VAT taxpayer must issue a tax invoice to each customer and must retain copies of the tax invoices. Generally, the VAT taxpayer is responsible for collecting and remitting the VAT to the Revenue Department. A trader residing outside Thailand who sells goods or renders services in Thailand on a temporary basis or provides an offshore service that will be used in Thailand, is subject to VAT. The receipt issued by the Revenue Department for the remitted VAT will be deemed as a tax invoice.

The original tax invoice is evidence of the input VAT, which may be claimed back from the Revenue Department or taken as a credit by VAT trader.

* VAT Registration and Returns

If it is envisioned that a new business will gross more than Baht 1,200,000annually, the business operator must apply to be registered as a VAT trader within 30 days of commencing operation. In 2005, the minimum revenue required to be registered as a VAT operator will be increased from Baht 1,200,000 to Baht 1,800,000 per yesar.