CHAPTER
14
CORPORATE
INCOME TAX
Juristic persons In Thailand, a business entity that has a legal personality separate
from those who own or manage it is referred to in English translations as a juristic
person.
Examples of juristic persons are:
public companies, private companies, limited partnerships and registered
ordinary partnerships. Foreign corporations and partnerships and contractual
joint ventures, are also juristic persons for tax purposes.
Most forms of business organization
existing under Thai law and foreign business organizations doing business in
Thailand or deriving income from Thailand, whether they do business in Thailand
or not, are subject to juristic person income tax, which will be referred to
below as corporate income tax.
Foreign companies Foreign companies namely corporations, limited companies or
partnerships doing business in Thailand through branch offices or otherwise,
are subject to income tax. Foreign companies are deemed to be doing business in
Thailand if they have in Thailand an employee, agent, representative or go‑between
and thereby gain income. In such cases, the employee, agent, representative or
go‑between may be held personally liable for the foreign company's income
taxes. In some cases 'income' that is subject to taxation may include
the proceeds from the sale of goods to Thailand from abroad. (See discussion
below on foreign companies deemed to be doing business in Thailand.)
Sole proprietorships and
unregistered partnerships Individuals, sole
proprietorships and ordinary (unregistered) partnerships existing under Thai
law are not subject to corporate income tax as juristic persons, but are
subject to income taxa as natural persons and pay tax at progressive natural
person rates of 10% - 37%.
Tax rates With effect from the tax year commencing in 2003, the basic corporate
income tax rate is 30% of net profits.
Lower tax rates apply as follows:
|
Taxable income (Baht) |
Tax rate |
|
Up
to 1,000,000 |
20% |
|
1,000,001
– 3,000,000 |
25% |
|
3,000,001
or more |
30% |
1. Companies listed on the SEC before the Operative Date, will pay 25% tax
on net profits up to 300 million Baht and 30% tax on net profits above that.
2. New companies that list on the Securities Exchange of Thailand or the
Market for Alternative Investments, will pay tax at 25% and 20% respectively.
3. The reduced rates above apply for five accounting periods only.
4. Only
companies that list on the SEC within three years of the Operative Date (i.e.
before 6 September 2004) qualify for the lower rates.
The deadline in #4 above was
extended to 6 September 2005.
International transportation of
passengers and goods Companies engaged in the
international transportation of passengers, pay income tax at the rate of 3% of
gross income collected in Thailand. Those engaged in the international transportation
of goods pay income tax at the rate of 3% of gross income collected anywhere
with respect to the transportation of goods from Thailand.
Inter-company dividends Dividends paid from one Thai company to another are subject to special
rules. If the recipient owns 25% or more of the shares in the payor and has so
held the shares for not less than three months before the dividend is paid and
for not less than three months after the dividend is paid (the "Holding
Period"), and the payor does not hold shares in the recipient, then
the dividend is completely tax free.
Thai listed companies are exempt
from taxation on all dividends received, provided that they comply with the
Holding Period rules.
All other Thai limited companies may
take a deduction of 50% on all dividends received provided that they comply
with the Holding Period rules.
Dividends paid to a foreign company
are subject to withholding tax of 10%.
Petroleum companies Companies engaged in petroleum business that hold concessions from the
Department of Mineral Resources, are subject to the Petroleum Income Tax Act,
as amended, rather than to the provisions of the Revenue Code. Currently the
rate of taxation under the Petroleum Income Tax Act is 50% of net income, but
the Act permits a rate of up to 60% to be imposed.
A concessionaire's contractors and
subcontractors, including those receiving benefits under the Petroleum Act, pay
their taxes under the ordinary provisions of the Revenue Code and not under the
Petroleum Income Tax Act.
Tax year Though many juristic persons choose the calendar year as their fiscal
period, they are in fact free to choose any 365-day consecutive (366 day for a
leap year) period.
Estimated and final returns Two corporate income tax returns must be filed each year, the first
return is due two months after the end of the first six months of the company's
tax year. One half of the estimated tax due for the whole year must be paid
with this return.
The final return must be filed
within 150 days of the end of the company's tax year at which time the total
tax remaining must be paid.
Penalties are imposed for companies
that underestimate the tax due on their half‑year tax return by more than 25%,
and which do not have a valid excuse for such underestimation.
Domestic withholding tax Companies in Thailand that pay taxable income to others in Thailand may
be required to withhold income tax and pay the same to the Revenue Department.
Companies are required to keep on hand a current register of all taxes they
withhold and this register is subject to audit without notice. Credits are
granted for taxes withheld. The most common domestic withholding taxes for
payments made by companies to companies are:
2. 1% of interest paid by a bank,
finance or credit foncier company to a company. (The rate is 15% if paid to a
natural person.)
3. 2% of the gross amount paid for
advertising.
4. 3% of the gross amount paid to
contractors and others such as lawyers, accountants, medical practitioners and
engineers who perform services.
5. 5% of all rental payments.
6. 5% of all payments made to foreign
companies who perform work in Thailand but which do not have a permanent
establishment in Thailand (as defined in the Revenue Code).
In addition, companies that purchase
certain commodities must withhold a specified amount of tax from payments made
to sellers.
Accounting basis Except as indicated above for branch offices and foreign transportation companies,
corporate income tax is based on net income, that is, gross income less
expenditure, However, juristic persons must use the accrual basis of accounting
so that income earned during a year is taxed in the year earned, regardless of
when it is received. Expenditure is deductible when the obligation to pay the
expenditure is incurred, not when the expenditure is actually paid. Except for
smaller debts, income earned but not received (bad debts) may be written off,
only where there is evidence of substantial collection efforts or the debtor is
bankrupt.
Company formation expenditure is
deductible when the company commences operations. Capital goods may be
depreciated in accordance with rates fixed by the Revenue Department, normally
ranging from 5 to 20% per year. Accelerated depreciation may be allowed for
equipment used in research and development.
Operating losses incurred in one
year may be treated as expenditure for up to five subsequent years. Such losses
may not be carried back to previous years.
Foreign companies not carrying on
business in Thailand Foreign companies not
carrying on a business in Thailand, that is, having no branch office, employee,
representative or go‑between in Thailand, but deriving income in Thailand,
usually in the form of interest, dividends, lease payments on movable property,
professional fees (such as legal or architectural services performed outside
Thailand for a Thai client), capital gains, service income or brokerage fees,
are currently subject to Thai income tax in the form of a flat withholding tax
based on gross income.
Payment of the remittance tax is due
within seven days of the end of the month in which the remittance is made,
except that the payment of tax on remittance of dividends and profits must be
made within seven days of remittance.
Withholding tax rates Withholding tax rates are as follows:
2. Dividends and profits: The current rate for remittance tax on dividends paid to foreign
companies is 10% of the
dividend.
This rate applies when one legal entity (a Thai limited company) declares a
dividend and pays the dividend to a foreign company that is a shareholder.
Payments made to non‑resident natural persons are currently subject to a flat
rate 10% withholding tax.
Remittance of profits
from a branch office to the head office of the same corporate entity, or the
retention of profits
abroad where the head
office has received abroad a payment for services rendered in Thailand, is
subject to
remittance tax of 10% of the amount
actually or deemed remitted.
As tax treaties
generally provide for withholding tax rates of between 10% - 15%, the tax
treaties do not provide any
particular benefits as
far as the rate of taxation for dividends or shares of profit.
2. Rent:
Currently, rental payments paid to a company abroad for the use of movable
(personal) property is taxed at the rate of 15%. Most tax treaties (but not the
Thai‑Japanese tax treaty) exempt these rental payments from the withholding
tax. Since in the absence of a tax treaty the withholding tax rate is quite
high, most leasing is done with or through tax treaty countries.
3. Professional fees: Currently, professional fees such as legal, accounting and
architectural fees paid to a company abroad are subject to a withholding tax of
15% of the gross payment. Special care must be used in order to determine
whether fees paid for architectural work are professional fees or royalty
payments in the nature of copyright fees. Royalty payments, although entitled
to reduced rates of taxation under the various Thai tax treaties, are not
entirely exempt as are professional fees.
4. Other service fees (including
brokerage commissions): Currently, remittances
sent abroad to companies to pay for services rendered abroad, or brokerage
commissions, are subject to a withholding tax of 15% of the gross payment.
Payments
made to tax treaty countries are usually exempt from this withholding tax.
5. Royalties Royalty payments
made to companies abroad for the use of a trademark, trade name, copyright,
goodwill or any other similar right, are subject to a withholding tax of 15% of
the gross payment.
As
payments made to most tax treaty countries are subject to rates of 15% to 20%,
there are no particular tax treaty benefits. However, some countries have a 5%
royalty tax rate for royalties for copyright of literary works.
Grossing up It is permissible and in many cases usual to provide that payments will
be made net of income tax, or in other words, the payor of the income will pay
the income tax for the person receiving the payment. In such cases, the income
tax is subject to withholding taxes at the same rate as that applied to the
base income. For example, where the withholding tax is 15% of gross, the rate
that must be applied where the payor pays the tax is 17.647%. The grossed up
rate would not apply to the remittance tax on dividends or profits, since the
payor never pays the remittance tax on these types of income.
Foreign companies deemed to be
carrying on business in Thailand
For taxation purposes, a foreign company may be considered to be doing business
in Thailand by formally establishing a branch office or by simply having in
Thailand an employee or agent or other person, who acts on its behalf.
Forms of doing business for
foreigners Legally, a foreign company that
conducts business in Thailand should either:
2. Conduct a restricted business with
a Foreign Business Act license.
3. Have treaty protection under the
Treaty of Amity between the United States and Thailand.
4. Bring itself within special
legislation, such as the Investment Promotion Act, the Petroleum Act, etc.
which would permit the company to conduct business as a foreign entity.
For tax purposes, these requirements
are often overlooked, so long as the company involved pays the applicable
taxes.
Subsidiaries not doing business in
Thailand A foreign company may have a
subsidiary in Thailand. This in itself does not mean that the foreign company
is doing business in Thailand unless that subsidiary is acting as an agent for
the parent company.
Where foreign companies are deemed
to be doing business in Thailand
Section 76 bis of the Revenue Code subjects foreign companies who do business
in Thailand to corporate income tax. Foreign companies are deemed to be doing
business in Thailand if they have in Thailand an employee, agent,
representative; or go‑between and thereby gain income.
In such cases, the employee, agent,
representative or go‑between may be held personally liable for the foreign
company's corporate income tax.
Assessment of Section 76 bis Most businesses consider it bad or even disastrous to be assessed with
Section 76 bis tax. Many have been put out of business when so assessed. But
occasionally one can use Section 76 bis to good advantage. This is so in cases
where businesses not doing business in Thailand would be subject to a
withholding tax that is higher than they would be subject to under Section 76
bis and related provisions.
Business activities affected Section 76 bis applies to many types of business situations. It would
apply, for example, to:
2. Branch offices of foreign
companies, because they are operated by an appointed attorney in fact, who is
either an employee or agent of the foreign company.
3. Representatives of foreign
companies who come to Thailand for short visits and sign contracts whilst in
Thailand.
4. Where a company sends an employee
to Thailand to perform work, such as to install a machine.
Definition of an agent An agent is a person or company that takes orders on behalf of another and
usually receives income in the form of commission. The Revenue Department may
discover such relationships by noticing that the agent records 'commission'
income. Sometime the status of a person is not clear, and it may be difficult
to determine whether a foreign company has an agent (including a representative
or go‑between) in Thailand.
If a person or company takes orders
for a foreign company, the person or company may be considered to be an agent.
But under Revenue Department notifications, a person or company of truly
independent status who merely points out the opportunity to enter into a
contract, is not considered an agent so as to subject the foreign company to
corporate income tax in Thailand.
Comparison with distributors Normally an agent does not make purchases. If the relationship is that
of buyer and seller, there should not be any problem. If, however, the company
takes orders for the principal and does not act as buyer itself, then the issue
of agency arises.
Distributors Where the situation so permits, a business in Thailand may be
designated as a distributorship where a Thai business buys goods from the
foreign company for its own account, and then resells them in the local market.
In such a case, the distributor would not be classified as an agent.
The use of distributorships instead
of agencies is a prime method of avoiding Section 76 bis tax.
Exemptions to Section 76 bis There are, however, exceptions to this rule. Under various tax
treaties, including the Singapore‑Thai tax treaty which provides (indirectly)
that the mere fact that one company has a agent in Thailand does not mean that
the company has a permanent establishment in Thailand, unless the agent acts wholly
or almost wholly (exclusively or almost exclusively) for the
principal. In such cases, but not otherwise, the principal is deemed to have a
permanent establishment in Thailand and thus subject to taxation.
If the agent acts for several
principals, the 'wholly or almost wholly' provisions would not apply.
This may be a question of fact, but the Revenue Department may also look at the
names of companies represented. If the agent in Thailand works for several
subsidiaries of the same parent company, the Revenue Department may deem them
to be one entity.
Other provisions of tax treaties
normally exempt foreign companies from taxation if they do not have a permanent
establishment, including an agent, as defined above, in Thailand. There are
several exceptions: interest, dividends, royalties, etc.
Present situation The issue of Section 76 bis has become of less concern because there
are far more double tax treaties, and as a reaction to the Revenue Department
enforcing this section more rigorously, businesses tend to structure their
transactions differently.
Calculation of Section 76 bis tax While any company subject to taxation under Section 76 bis may file a
balance sheet and pay normal corporate income tax on net profits, often is not
possible to accurately calculate net profits and therefore there are
alternative ways of calculating the tax, based on gross income.
The 5% method Some branch offices of foreign companies and others that are subject to
taxation under Section 76 bis, but are unable to determine their net income in
Thailand (because of the difficulty in allocating overseas overhead
expenditure, etc.) may, with Revenue Department approval, be permitted to pay
corporate income tax equal to 5% of gross income.
Other methods If approval is not granted to use the 5% rate, the Revenue Department
may assess corporate income tax using other rates prescribed by the Revenue
Department.
Force of attraction tax
General rule The general rule is that all income earned by a company anywhere in the
world is taxable in Thailand, if the company has a branch or permanent
establishment in Thailand, and the income is derived from Thailand. This is the
case whether or not there has been any involvement of the local branch.
Tax treaties The position may be varied under a double tax treaty. For example, in a
loan transaction it will be necessary to consider where the loan is booked, and
the double tax treaty (if any) between Thailand and the country where the
relevant branch is situated.
Revised 1 December 2006