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Investment in Thailand

TAX


Preface This booklet provides the prospective investor with an introduction to Thailand and its investment possibilities, as well as basic information on investment incentives, business regulations, and taxes. Details and exceptions have not been included and some regulations may have changed since the time of publication. Unless otherwise indicated, the material contained in this publication is based on information available as of September 2009. All potential investors should seek professional advice before doing business in Thailand. KPMG International has a global network of professional service firms providing audit, tax and advisory services, with an industry focus. The aim of each KPMG firm is to turn knowledge into value for the benefit of its clients, its people and the capital markets. KPMG Phoomchai and its predecessor firms began in the late 1950s, and the firm has contributed towards KPMG’s global success. In Thailand it has played a significant role in providing sound and valuable advice to help businesses manage their risk, grow and succeed in Thailand’s competitive business arena. KPMG in Thailand has a team of over 1,000 professionals and staff committed to providing both local and multinational organizations a complementary range of multidisciplinary services. Our local knowledge, enhanced by international resources including technical and industry awareness via our global network, enables KPMG to provide efficient and comprehensive services. This valuable resource enables our professionals to deliver informed and timely advice that helps clients’ achieve sustainable and superior business performance, and effectively communicate it to stakeholders. KPMG Office in Thailand Empire Tower 48th – 51st Floors 195 South Sathorn Road Yannawa, Sathorn Bangkok 10120 Thailand Tel: +66 2 677 2000 Fax: +66 2 677 2222 Email: tax@kpmg.co.th


Contents Chapter 1

Chapter 2

Chapter 3

Chapter 4

The Business Environment

1

The Country and its People

1

The Government

2

The Mechanics of Investment

3

Forms of Doing Business

3

Corporate Registration Procedures

6

Tax Registrations

7

Licensing a Factory

7

Public Offerings

8

Business Regulations

10

Accounting and Financial Reporting

10

Foreign Participation in Business

12

Labor Regulations

14

Patents, Trademarks, Copyrights and Trade Secrets

19

Import and Export Regulations

21

Taxation

22

General

24

Taxation of Companies

26

Setting up Business

35

Foreign Exchange Controls

37

Tax Incentives

38

International Tax

41

Anti-avoidance Rules

49

Taxation of Individuals

52

Indirect and Other Taxes

58

Glossary

62


Chapter 5

Investment Incentives

63

Incentives under the Investment Promotion Act

63

Incentives under the Industrial Estate Authority of Thailand Act

71

Incentives under the Petroleum Laws

73

Appendix 1

Documents Required for Registration

74

Appendix 2

Types of Business Restricted by the Alien Business Law

76

Appendix 3

Contacts

80


Chapter 1

The Business Environment The Country and its People The Kingdom of Thailand is located on the western side of the Indochina Peninsula. It faces the Andaman Sea and the Union of Myanmar to the west, Laos and Cambodia to the north and east, and Malaysia to the south. Thailand’s four geographical regions make up a total area of 514,000 square kilometers. The mountainous northern region is endowed with natural resources as diverse as forest products, lignite, iron ore, fluoride, tin and gemstones. The northeastern region is a plateau in which cassava, maize, sugarcane, and kenaf are cultivated, and various mineral resources such as potash, rock salt, and copper are exploited. The central region is the most fertile land in the country where vast fields of rice, sugarcane and cassava are grown. The southern peninsula is an isthmus abounding in tin, monazite, barite and gypsum, and encompassing the major rubber, coconut, coffee and palm oil plantations. The southern region also offers beautiful natural attractions, including the sea beaches and islands, which make tourism one of the major activities. These four regions share the tropical climate of Southeast Asia. From November to February, the northeast monsoon winds bring cool months with temperatures as low as 13oC. A dry season, with temperatures up to 38oC, prevails from March to May. Then, during the humid months of June to October, the southwest monsoon brings the rains which are so vital to agriculture. Thailand’s population in January 2009 was approximately 66 million. Bangkok is the largest metropolitan area, with a population of over 10 million. Of a labor force of nearly 38 million people, approximately 43 percent of the labor force is engaged in agriculture, 37 percent in services, and 20 percent in industry.

1


The population of Thailand is relatively homogeneous and largely free of racial tension. Approximately 75 percent of the population are ethnic Thais, and almost 95 percent profess Buddhism. The Chinese form the larger minority community and have remarkably integrated into Thai society. The Government Thailand’s government is a constitutional monarchy which dates back to 1932 when King Rama VII abolished absolute monarchy. Since then, the country has had a series of constitutions that have refined that concept of a constitutional government, with the King as the Head of State. The executive powers of the King are exercised by the Prime Minister and the Council of Ministers; his legislative power, by the National Assembly; and his judicial powers by a judicial system composed of the Courts of First Instance, the Court of Appeals and the Supreme Court. Since 1971, Thailand’s government has experienced numerous changes. Throughout all the changes, policy has remained stable because the bureaucracy has attempted to help maintain continuity in policy formulation and implementation.

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Chapter 2

The Mechanics of Investment Forms of Doing Business In Thailand, it is generally necessary for a foreign investor to have Thai participation in its venture, although 100 percent foreign investment is possible, but only in certain key industries. A person, Thai or alien, may engage in business in the form of a single proprietorship, limited company, partnership, a joint venture, a branch of a foreign corporation, or a representative/regional office. Partnerships Three types of partnerships in Thailand differ principally in the liability attached to each. An unregistered ordinary partnership has partners who are all jointly liable, without any limitation on the partnership’s total obligations. This type of partnership is not a legal entity, and is subject to taxation as if it were an individual. A registered ordinary partnership is a juridical entity having a separate and distinct personality from each of the partners by virtue of its registration with the Commercial Registrar. A registered ordinary partnership is treated as a corporate entity for income tax purposes. A limited partnership is one in which there are one or more partners whose individual liabilities are limited to their respective contributions, and one or more partners jointly liable without any limitation on all the obligations of the partnership. A limited partnership is taxed as a corporate entity. Private Limited Company A Thai private limited company is similar to what is commonly referred to as a corporation. The company may be wholly owned by aliens. However, in those business activities reserved for Thai nationals, aliens’ participation is generally allowed up to 49 percent.

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The liability of the shareholders is limited to the par value of the authorized capital. The liability of the directors, however, may be unlimited if so provided in the company’s memorandum of association or the articles of incorporation. The limited company is managed by a board of directors according to the company’s charter and by-laws. Although there is no established minimum level of capitalization, the private limited company’s capital must be sufficient to accomplish its objectives. All of the shares must be subscribed to, and at least 25 percent of the subscribed shares must be paid up. Both common and preferred shares of stock may be issued, but all shares must have voting rights. Thai law prohibits the issuance of shares with no par value; it also stipulates that only shares with par value of THB5 or above may be issued. Thai corporate law has some features, which may be unfamiliar to foreign business people. Among these is the prohibition on treasury shares, and a rule that a private limited company’s shareholders must never be fewer than three at all times. In addition, nonvoting stock, whether common or preferred, is not permitted; and the original authorized capital stock must be subscribed in full. Public Limited Company The procedure for setting up a public limited company is similar to that for a private limited company. The provisions of the Limited Public Company Act of 1992 allow a private company to be converted into a public company. The major difference between a public and a private company is that a private company is prohibited from offering shares to the public. Certain other differences are shown in the table below.

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Minimum number of natural persons as promoters Minimum number of shareholders required at all times Public subscription of shares by prospectus Public subscription of debentures by prospectus Registration fee per THB1 million of capital

Private Limited Company 3

Public Limited Company 15

3

15

Not allowed

Allowed

Allowed under specified qualifications THB5,500

Allowed

THB2,000

Joint Venture A joint venture may be described in accordance with general practice as a group of persons (natural and/or juristic) entering into an agreement in order to carry on a business together. It has not yet been recognized as a legal entity under the Civil and Commercial Code. However, income from a joint venture is subject to corporate taxation under the Revenue Code, which classifies it as a single entity. Branch of a Foreign Corporation A company incorporated under foreign laws may establish a branch office to do business in Thailand. Branch offices are required to maintain only those accounts relating to the activities of the branch in Thailand. It is important, however, to clarify beforehand what constitutes income subject to Thai tax because the Revenue Department may consider revenues directly earned by the foreign head office from sources within Thailand as subject to Thai tax. As a condition for approval of an Alien Business License for a branch of a foreign corporation, minimum capital amounting to THB3 million must be brought into Thailand. This amount may be changed by subsequent ministerial regulations. A branch office may exist for an indefinite period up to its date of dissolution.

5


Representative Office of a Foreign Corporation A foreign entity may establish a representative office in Thailand to engage in limited non-revenue earning activities. These activities are restricted to:

● ● ● ●

Searching for local sources of goods or services for its head office, inspecting and controlling the quality and quantity of goods procured by its head office; Providing advice in various fields relating to products directly sold by its head office to local distributors or consumers; Disseminating information about new products and services of its head office; and Reporting to its head office on local business developments and activities.

The minimum capital contributions with respect to branches are also applicable to representative offices. Regional Office of a Multinational Corporation A multinational corporation may establish a regional office in Thailand to engage in limited non-revenue earning activities. These activities are restricted to:

● ●

Contacting, coordinating, and supervising the activities of affiliated businesses in the region; and Providing services to affiliated branches or subsidiaries such as: advisory and management services; training and personnel development; financial management; marketing control and sales promotion; and product research and development.

All expenditures incurred by the regional office must be borne by the head office of the multinational corporation. The minimum capital requirements in respect to branches are also applicable to regional offices. Corporate Registration Procedures Limited Company: Before forming a limited company, the chosen corporate name must first be registered and approved by the Commercial Registrar. A memorandum of Association is then filed which contains the approved name of the company, its business address, its objectives, the personal details about the promoters and the shares subscribed by each, and data on the authorized capital of the company. The next step is to hold a statutory meeting of shareholders during which the articles of incorporation and by-laws are approved, the board of directors is elected, the 6


transactions and expenditures of the founders are ratified, and the authorized auditor is appointed. The directors may then register the company with the Commercial Registrar. Branch, Representative and Regional Office: Foreign corporations wishing to do business in Thailand through a branch, representative office, or regional office must submit the required documents. Documents issued by the head office must be notarized by a notary public, or certified by the Thai consulate or embassy in the head office’s jurisdiction. Tax Registrations An individual person who is subject to personal income tax must obtain a tax identification card from the Revenue Department within 60 days from the date of having income. A business, which is subject to corporate income tax, must obtain a tax identification card from the Revenue Department within 60 days after its incorporation or registration. All business entities whose annual turnover exceeds THB1.8 million must register for value added tax (VAT) within 30 days after the annual turnover has exceeded that amount, unless specifically exempted. The application for VAT registration before the date of commencing business is also allowed under the conditions specified by the Director-General of the Revenue Department. Licensing a Factory Under the Factory Act B.E. 2535 (1992) factories are separated into three groups according to the gravity of impact of the factory operations on the public or the environment, as follows:

● ● ●

Group 1 – Factories that can operate immediately without prior government permission; Group 2 – Factories that require prior notification of the pertinent government authority before the business starts operations; and Group 3 – Factories that require the application for a factory license before the establishment of the factory.

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Before the establishment of a factory classified under Group 3, the operator must obtain a factory license from the Department of Industrial Works, Ministry of Industry. Application for a license entails completing an official form, submitting drawings and particulars of the factory, machinery, and acceptable effluent treatment system, and attaching a set of documents stipulated on the form. These additional documents include statements of the amount of investment in the factory establishment and operation, number and grades of factory employees, details of production, construction period for the factory, and the blueprints of the structures and the machinery that will be installed. The factory must be established in accordance with the approved plan and specifications. The operator of a Group 3 factory must notify the competent authority at least 15 days before a factory test-run commences, and again 15 days before actual manufacturing operations start. The factory license is valid up to the last day of the fifth calendar year from the year of commencement, and is renewable. An application for renewal of the factory license must be filed to the authority prior to the expiration of that license. While the factory license is valid, the licensee must pay an annual fee for the said license. Licensees must also obtain prior permission from the Ministry of Industry for any factory expansion, transfer of machinery to other sites, or transfer of factory site. Permission is likewise required in order to transfer, lease, assign, or sell a factory operation. Public Offerings A company, which wishes to issue shares or debt securities to the public, must comply with the regulations of the Securities Exchange Commission (SEC) and the Stock Exchange of Thailand (SET). A description of the activities of these bodies is outlined below. Securities Exchange Commission The SEC has regulatory control of the securities industry. The objectives of the SEC are as follows:

â—?

8

To provide a single legal framework for the development of Thailand’s capital markets. The SEC is responsible for overseeing the issuance by private companies of debt securities to the public and the review and approval of prospectuses;


● ●

To improve the level of investor protection. The SEC is responsible for the requirements, insider trading and takeover; and To develop Thailand’s capital markets. For example, the SEC has sanctioned the establishment of foreign-backed mutual funds.

Stock Exchange of Thailand Under the Securities and Exchange Act 1992, the SET operates under the SEC. A board elected from the SEC and the member brokers operate the new SET. In short, the SET is responsible for the operating side of the exchange, while the SEC is responsible for enforcement. The SET is responsible for determining which companies will be allowed to list on the stock exchange. The SET has authority to approve a company’s listing.

9


Chapter 3

Business Regulations Accounting and Financial Reporting Books of Accounts and Statutory Records The Accounts Act of 2000 authorizes the Director-General of the Department of Business Development, Ministry of Commerce, to issue regulations regarding the books of accounts and supporting documents that must be maintained by business enterprises. Further, Section 12 of the Accounts Act of 2000 provides general rules on the accounts that should be maintained as follows: “In keeping accounts, the person with duty to keep accounts must hand over the documents required for making accounting entries to the bookkeeper, correctly and completely, in order that the accounts so kept may show the results of operations, financial position or changes of financial position according to facts and accounting standards.� Accounting entries may be recorded in a foreign language, but there should be an appended Thai translation. All accounting entries should be written in ink, typewritten or printed. Accounting Period A newly established company or partnership should close its accounts within 12 months from the date of its registration. Thereafter, the accounts should be closed every 12 months. If a company wishes to change its accounting period, it must obtain the written approval of the Director-General of the Revenue Department. Reporting Requirements In accordance with the Accounts Act of 2000, all juristic companies, partnerships, branches of foreign companies, representative offices, regional offices and joint ventures are required to prepare financial statements for each accounting period. The financial statements must be audited by and subjected to an opinion of a certified public accountant, except for the financial statements of a registered 10


partnership established under Thai law whose capital, assets, or income, any one or all of them, are not more than that prescribed in the Ministerial Regulations. Copies of the audited financial statements must also accompany the annual income tax return that must be filed with the Revenue Department within 150 days from the closing date of each accounting period. Accounting Principles Generally accepted accounting principles in Thailand are largely in accordance with the International Financial Reporting Standards. In addition, accounting methods and conventions sanctioned by law are considered as generally accepted accounting practices. The Institute of Certified Accountants and Auditors of Thailand is the authoritative group promoting the application of generally accepted accounting principles. Any accounting method adopted by a company must be used consistently, and certain changes may need the approval of the Revenue Department. Certain accounting practices which may be of interest are as follows: Depreciation: The Revenue Code permits the use of varying depreciation rates according to the nature of the classes of assets which have the effect of depreciating the assets over periods that may be shorter than their estimated useful lives. These maximum depreciation rates are not mandatory; a company may use lower rates that approximate the estimated useful lives of the assets. If lower rates are used in the books of accounts, the same rates must be used in the income tax return. Accounting for Pension Plans: Contributions to a pension or provident fund are not deductible for tax purposes unless these are actually paid out to the employees, or the fund is approved as a qualified fund under the Provident Fund Act, and is managed by a licensed fund manager. In most cases, contributions to the pension fund are not based on actuarial computations. Consolidation: Private limited companies with either foreign or local subsidiaries are not required to consolidate their financial statements for tax and other governmental reporting purposes. Public limited companies must prepare consolidated financial statements, and listed companies must submit these to the Stock Exchange of Thailand.

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Statutory Reserve: For private limited companies, a statutory reserve of at least 5 percent of the annual net profits arising from the business must be appropriated by the company at each distribution of dividends until the reserve reaches at least 10 percent of the company’s capital. For public limited companies, a statutory reserve of at least 5 percent of the annual net profits arising from the business must be appropriated irrespective of whether a dividend is declared, until the reserve reaches at least 10 percent of the company’s authorized capital. Stock Dividends: Stock dividends are taxable as ordinary dividends and may be declared only if there is an approved increase of authorized capital. The law requires the authorized capital to be subscribed in full by the shareholders. Auditing Requirements and Standards Audited financial statements of a juristic entity, e.g., limited company, registered partnership, branch office, representative office or regional office of a foreign corporation, and also a joint venture, must be audited by a certified public accountant and submitted to the Revenue Department and the Commercial Registrar for each accounting year. Auditing standards conforming to International Standards on Auditing are, to a large extent, recognized and practiced by certified public accountants in Thailand. Foreign Participation in Business Alien Business Law On 3 March 2000, the Alien Business Act 1999 came into force replacing NEC Decree No. 281. Under this Act, a foreign investor and a majority foreign owned company registered in Thailand are restricted from carrying on certain types of business activities, unless prior approval is granted by the authorities for certain businesses. Companies promoted by the Board of Investment are permitted to engage in certain business activities which are otherwise restricted under the Alien Business Act. Moreover, US-owned enterprises may claim exemption from the Alien Business Act under the provisions of the Treaty of Amity and Economic Relations between Thailand and the United States.

12


Alien Employment Act The Alien Employment Act lists the occupations that may be undertaken exclusively by Thai nationals, and prescribes procedures to regulate alien participation in others. The substance of the law may be summarized as follows:

● ● ●

● ● ●

With a few exceptions, the law requires all non-Thai nationals who work in Thailand to have work permits issued by the Ministry of Labor; The use of these work permits is restricted to the particular occupation, particular employer, and particular locality for which they are applied; any change in these restrictions will necessitate a new work permit; Aliens working in companies promoted by the Board of Investment, or who are in Thailand under special laws (such as the Petroleum Act of 1971), can be issued with work permits which are valid for the duration prescribed by such laws under which they were allowed to enter Thailand. Likewise, foreigners assigned to work in Representative or Regional Offices may readily obtain a work permit from the Commercial Registrar; Aliens entering Thailand to work with promoted firms or under special laws, as above, may commence work immediately, but they should apply for a work permit within 30 days from the date of entry into the Kingdom; Within 15 days after the date of employment, transfer to a new locality, or departure of an alien employee, the employer is required to formally notify the pertinent government entity that issued the original work permit; and Aliens working in Thailand under special conventions between Thailand and other countries, including international organizations such as the World Bank, are exempted from obtaining work permits.

Immigration Requirements for Foreigners A foreigner may enter the country under the following categories of visa: Transit: A transit visa is issued to applicants who wish to enter Thailand to a) travel in transit through Thailand to proceed to their destination or to re-enter the applicant’s own country, b) participate in sports activities or c) be in charge or crew of a conveyance coming to a port, station or area in Thailand. The applicant is normally granted a 30 day stay, An extension of stay may be granted in certain cases, but would normally be limited to an additional 10 days. Tourist: Foreigners who obtain a visa from a Royal Thai Embassy or Consulate are initially granted a stay of 30 or 60 days. Nationals of countries which are on Thailand’s Tourist Visa Exemption list or have bilateral agreements on visa exemption 13


with Thailand will be permitted to stay for a period of not exceeding 60 days, Nationals form other countries who hold a tourist visa will be permitted to stay in Thailand for a period of not exceeding 30 days. The Immigration Department may grant an additional extension of 30 days. Non-immigrant: A foreigner entering the country to work or fill an employment post must obtain a non-immigrant visa from a Royal Thai Embassy or Consulate. His spouse and dependents who accompany him must likewise obtain the same type of visa. The visa is normally granted for an initial stay of 90 days, but it may be extended up to one year and is renewable each year. This visa entitles the foreigner to apply for a work permit. Holders of a transit or tourist visa cannot apply for a work permit. Immigrant: A person wishing to immigrate to Thailand may apply for a Certificate of Residence. However, the conditions for qualifying as an immigrant are quite restrictive, and covered by annual immigration quotas and other conditions fixed for each country by the Ministry of Interior. Restrictions on an Alien’s Right to Own Land An alien may own land only with special permission from the Minister of Interior, and only if, under a treaty between his home country and Thailand, Thai nationals are extended the reciprocal right to own land. In the case of a promoted company, the company should obtain the approval of the Board of Investment. If the Board of Investment-promoted company ceases or transfers its business, it has to sell its land within one year. Once an alien has secured permission to acquire land, he must use it for the purpose stated in his application. A change in the use of the land can be made only with the permission of the Ministry of Interior. A sale or transfer of land by an alien also requires approval by the Ministry of Interior. A foreigner is permitted to acquire units in a high-rise condominium under certain conditions. Labor Regulations The principal Thai labor legislation consists of the Civil and Commercial Code on contracts relating to the Hire of Services (Book III, Title VI), the Labor Protection Act B.E. 2541 (1998) promulgated with effect from August 19, 1998, the Labor Relations

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Act B.E. 2518 (1975), the Act on Establishment of Labor Courts and Labor Court Procedures B.E. 2522 (1979), the Social Security Act B.E. 2533 (1990), and the Compensation Act B.E. 2537 (1994). The Ministry of Labor is charged with implementing labor laws and performing labor inspections throughout the country. Minimum Wages The minimum wages per day, effective 22 November 2008, are fixed at 23 rates depending on the location of the work place as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

THB203 for Bangkok, Nonthaburi, Nakorn Pathom, Pathum Thani, Samutprakarn and Samutsakhon THB197 for Phuket THB180 for Chon Buri THB179 for Saraburi THB173 for Chachoengsao, Ayutthaya and Rayong THB170 for Nakhon Ratchasima THB169 for Ranong THB168 for Chiang Mai and Phangnga THB165 for Krabi and Kanchanaburi THB164 for Phetchaburi and Ratchaburi THB163 for Chantaburi, Prachin Buri and Lop Buri THB162 for Loei THB161 for Sing Buri and Ang Tong THB160 for Prachuap Khiri Khan, Samut Songkhram and Sakaew THB158 for Chumphon and Uthai Thani THB157 for Chiangrai, Trang, Sonkhla, Nong Khai and Udorn Thani THB156 for Kamphaeng Phet, Trat, Nakhon Nayok and Lamphun THB155 for Kalasin, Nakhonsi Thammarat, Nakhon Sawan, Buriram, Pattani, Phattalung, Phetchabun, Yasothon, Yala, Sakon Nakhon, Satun and Surat Thani THB154 for Khon Kaen, Chainat, Roi Et, Lumphang, Suphanburi, Nong Bualamphu and Ubon Ratchathani THB153 for Nakhon Panom, Narathiwat, Mukdahan, Sukhothai and Amnat Charoen THB152 for Chaiyaphum, Phitsanulok and Uttaradit THB151 for Tak, Nan, Maha Sarakhum, Mae Hong Son, and Surin THB150 for Phayao, Pichit, Phrae and Si Sa Ket

The above rates are subject to change from time to time.

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Working Hours and Leave The maximum number of working hours for employees is fixed at eight hours a day and 48 hours a week in total. In some types of works as stipulated by law, the employer and the employee may agree to arrange the period of working hours, but working hours in any case must not exceed 48 hours a week. In establishments in which the work is deemed injurious to health or personal safety as stipulated by law, working hours must not exceed seven hours a day and 42 hours a week in total. All employees are entitled to a daily rest period of at least one hour after working for five consecutive hours. The employer and the employee may arrange the daily rest period to be shorter than one hour at each time, but it must not be less than one hour a day in total. A weekly holiday of at least one day a week at intervals of a six day period must be arranged for the employee. For work performed in excess of the maximum number of working hours, fixed either by law or by specific agreement (if the latter is lower), employees must be paid overtime compensation. The rates of overtime vary and range from one-and-a-half to three times the normal average hourly wage rate for the actual overtime worked. Certain employees engaged in employment related work on behalf of the employer and other types of work as prescribed by law are not entitled to overtime compensation. The maximum number of overtime working hours is limited to not more than 36 hours a week. All employees are entitled to unlimited sick leave, but the amount of paid leave shall not exceed 30 regular workdays a year. The employer may require an employee to produce a certificate from a qualified doctor for a sick leave of three days or more. An employee who has worked consecutively for one year is entitled to at least six working days of paid vacation every year, in addition to the 13 holidays in a year traditionally observed in Thailand. A female employee is entitled to maternity leave for a period of 90 days including holidays, but the amount of paid leave shall not exceed 45 days. Employee Records An employer with 10 or more employees is required to establish written rules and regulations in Thai language governing work performance, and to display these regulations on the work premises within 15 days from the date that the number of employees reaches 10 employees or more. A copy of these rules and regulations

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must be submitted to the Department of Labor Protection and Welfare within seven days from the date that the employer announces or displays the working regulations. An employer with 10 or more employees is also required to maintain an employee register in Thai language, together with documents pertaining to the payment of wages, overtime, holiday work and overtime on holidays. The employee register must be maintained for at least two years after the date of termination of employment of each employee together with the supporting source documents. Workers Compensation The Compensation Act B.E. 2537 (1994) prescribes that the employer must provide the necessary compensation benefits for employees who suffer injury or illness or who die as a result of or in the performance of their work, at the rates prescribed by law. The compensation benefits can be grouped into four categories: the compensation amount, the medical expenses, the work rehabilitation expenses, and the funeral expenses. The payment of compensation benefits will be made in accordance with the criteria and rates prescribed by law depending on the seriousness of the case. In general, the compensation amount must be paid monthly at the rate of 60 percent of the monthly wages of the employee, but not lower than THB2,000 and not exceeding THB9,000 per month. The monthly payment of the compensation amount will be paid over a specific period of time and based upon the criteria prescribed by law to the employee, who is unable to work continuously for more than three days, has lost an organ, has become disabled or dies. Actual and necessary medical expenses must be paid, but not exceeding THB35,000 for a normal case and THB50,000 for a serious injury. Work rehabilitation expenses will be paid as necessary according to criteria, procedures and rates prescribed by law, but not exceeding THB20,000. In the event of death, funeral expenses will be paid at a maximum amount equal to 100 times of the minimum daily wage rate prescribed by law. An employer with one or more regular employees is required to contribute to the Compensation Fund maintained by the Office of Workmen’s Compensation Fund in the Social Security Office. The Compensation Fund has been established in order to directly indemnify employees who suffer injury, illness or death as a result of, or in the performance of, their work. The employer must pay contributions by 31 January of the following year at the rates prescribed by the Ministry of Labor. 17


Social Security The Social Security Act B.E. 2533 (1990) and its amendments, the Social Security Act (No. 2) B.E. 2537 (1994) and the Social Security Act (No. 3) B.E. 2542 (1999), require all employers with one or more employees to withhold social security contributions from the monthly wages of each employee. The prescribed rate currently applied to the monthly wages is 5 percent; however, the maximum monthly wage base on which the above rate is applied must not exceed THB15,000. The employer is required to match the contribution from the employee. The contributions of both the employer and employees must be remitted to the Social Security Office within 15 days of the following month. Employees with social security registration may file claims for compensation in case of injury or illness, disability or death which is not due to the performance of their work, and for cases of child delivery, child welfare, old age pension and unemployment. The social security contributions are envisaged to rise as the benefits to be provided to employees are increased. Termination of Employment 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 have it take effect in the next pay period. An employee may be dismissed without notice and severance pay if the employee:

● ● ● ● ●

Intentionally commits a crime or act of dishonesty against the employer; Intentionally or negligently causes the employer to suffer damage; Violates the employer’s work rules, regulations or lawful orders and a written warning has been given (except that such warning is not required for serious offences); Has been absent for three consecutive working days without a reasonable excuse; and Is adjudged to serve a prison sentence (except where such sentence arose due to negligence or petty offence).

An employee terminated on unfair grounds as stipulated by law is entitled to receive the following severance pay:

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30 days wage where the employment period is at least 120 days, but is less than one year;


● ● ● ●

90 days wage 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; and 300 days’ wages where the employment period is ten years or more.

In the event that the employer relocates the place of business thereby disrupting the life of the employee or his/her family, the employer must notify the employee about 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 to 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 50 percent of 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 and distribution service, due to 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 notice to the employee an amount equal to 60 days’ wages. The terminated employee will be entitled to the prescribed severance pay. Moreover, if the terminated employee has worked consecutively for over six 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, calculated from the start of year seven onwards; however, the total amount of this additional special severance pay is limited to the equivalent of 360 days’ wages. Patents, Trademarks, Copyrights and Trade Secrets Patents Although Thailand is not a member of the Paris Union or signatory to any other international convention for reciprocal protection of foreign patents, it has a number of bilateral agreements entitling citizens of those countries to file patent applications in Thailand and vice versa. Under the Patent Act (No. 3) of 1999, patents for inventions shall be valid for 20 years, while patents for designs shall be valid for 10 years. Under the Act, petty patents are also protected for six years and can be extended twice for two year periods each time.

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Any patent which has been disclosed to the public and/or patented or registered elsewhere prior to the filing date of the Thai application cannot be patented in Thailand. Moreover, the following shall not be patented in Thailand: ● Naturally existing micro-organisms and their components, animals, plants or animal or plant extracts; ● Scientific or mathematical principles and theories; ● Computer programs; ● Diagnosis methods or treatments of human beings or animals; and ● Inventions which are against public order, morality, health or welfare. Trademarks Trademarks are provided protection under the Trademarks Act of 2000 and other Ministerial Regulations. Registration of a trademark may be accomplished by the trademark proprietor himself or through an agent. Application for registration must be made on official forms duly signed either by the proprietor or the agent. If an application is approved, the registration will be published in the Trademark Journal. Once published and not opposed, the proprietor has the exclusive right to use the registered mark for all the products of the classes in which registration has been granted. Registration remains effective for 10 years from the date of application and is renewable for an unlimited number of periods of 10 years each. Renewal of the registered trademark must be made within 90 days before the date of expiration. The Trademark Act allows the protection of service marks, service names, collective marks, certification marks and trade names. Copyright The Copyright Act, B.E. 2521 (1978) was repealed and replaced by the Copyright Act, B.E. 2537 (1994). The types of creative work qualified for protection under this Act are literary work, dramatic work, artistic work, musical work, audiovisual material, motion picture, sound recording, sound and picture broadcast, or any other works in the field of literature, science, or arts. A copyright is under protection for the period of the life of the creator plus 50 years from the date of his death. Where the creator is a juristic person or uses an assumed name, the period of protection is 50 years from the date of creation, or 25 years where the copyright is for applied art. Thailand is a member of the Berne Convention for the Protection of Literary and Artistic Works. This allows certain copyrights registered in other Berne Convention countries to be enforced in Thailand.

20


Trade Secrets Trade secrets in Thailand are protected under the Trade Secrets Act B.E. 2545 (2002), which came into force on 22 July 2002. The following information shall be defined as trade secrets and shall be protected under the Act:

● ● ●

Trade information that is not generally known or readily accessible to groups or persons within the circles that normally deal with information of the said kind; Trade information that has commercial value due to its secrecy; and Trade information that has been subject to reasonable measures taken by its lawful controller to keep it secret.

No registration is required in order to obtain trade secret protection, and such trade secrets shall have protection as long as they are deemed secret. Import and Export Regulations All imported products with value exceeding THB1,000 are subject to import duty and VAT at the time of importation, except goods prescribed in the list of duty exemption of the Customs Act, e.g., re-imported goods with re-importation certificates, awards and medals given by foreign countries, personal effects, etc. The importer is required to do the customs formality by presenting import customs entries and other shipping documents to the customs house at the port, and pay import duty in order to release the goods out of customs custody. Some imported products, e.g., dangerous goods, food and health products, cosmetic, medical equipment require an import license to be presented to the customs officer during the customs formality process. The present import duty rates are in the range of 0 percent - 60 percent. The importer can choose to use the reduced import duty rate if it meets the conditions of certain privileges, e.g., AFTA, IT Agreement, WTO, Board of Investment, etc. In relation to exports, all export products are exempt from export duty, except rawhide, wood and sawn wood. There are many types of privileges provided by the Customs Department to the exporter in exporting products, e.g., tax rebates, duty refund for import materials and export, manufacturing bonded warehouse, public bonded warehouse, etc.

21


Chapter 4

Taxation Summary Data Corporate Income Tax Rates Companies Thai companies and foreign companies, including PEs, doing business in Thailand Oil and gas exploration/exploitation companies New companies with listing application filed at SET by 31 December 2008 and listed by 31 December 2009 New companies with listing application filed at MAI by 31 December 2008 and listed by 31 December 2009 Existing listed SET companies – first 300 million baht of taxable profit Existing listed MAI companies – first 20 million baht of taxable profit Companies with paid up capital not more than THB5 million

● ●

Net profits not exceeding THB150,000 Net profits exceeding THB150,000 but not exceeding THB1 million ● Net profit exceeding THB1 million but not exceeding THB3 million ● Net profit exceeding THB3 million Bank: the rate applies to only the portion of net profit arising from international banking facilities ROH Qualified oil trading companies specifically for import-export in accordance with the provisioning rules which include income not less than THB2,000 million per annum BOI approved companies

22

Tax rate (%) 30 35/50 25 (1) 20 (1) 25 (2) 20 (2)

Exempt 15 25 30 10 10 10

Income tax holiday for three to eight years


Reference: Income Tax Schedule, The Thai Revenue Code; Royal Decree (No.474) B.E. 2551 (2008), Royal Decree (No.475) B.E. 2551 (2008), R.D. (No. 471) BE 2551 (2008), DG.N. -IT. (No. 47) (1993), R.D. (No. 405) BE 2545 (2002) & R.D. (No. 426) BE 2547 (2004). Section 20 Petroleum Tax Act (No.4) B.E. 2532. Board of Investment Announcement No. 1/2543 (2000) 1

Royal Decree (No.474) B.E. 2551 (2008): for three years starting from the first accounting period beginning on or after the date listed on the Stock Exchange of Thailand (“SET”) or the Market for Alternative Investments (“MAI”).

2

Royal Decree (No.475) B.E. 2551 (2008): for three years starting from the accounting period beginning on or after 1 January 2008. Companies listed between 6 September 2001 and 31 December 2005, and eligible for reduced tax rates for 5 consecutive years under Royal Decree No. 387, will be entitled to the above, but limited up to the accounting period of 2010 which ends on or after 31 December 2010. The reduced tax rates above do not apply to (i) a company filing its listing application during the period 1 January 2007 to 31 December 2007, and listing by 31 December 2008 as in this case, the listed companies are entitled to the reduced tax rates of 25% or 20% respectively for 3 consecutive accounting periods under Royal Decree No. 467, or (ii) the listed company claiming an additional tax deduction at 25% of its capital expenditures for improvement of their fixed assets under Section 3 (1) of the Royal Decree No. 460 B.E. 2549 (2006).

Personal Tax Rates Net assessable income (THB) 1-150,000

Marginal tax rates (%) 0

150,001-500,000

10

500,001-1 million

20

1,000,001-4 million

30

4,000,001 and above

37

Reference: Income Tax Schedule, Thai Revenue Code; R.D. (No. 470) BE 2551 (2008)

VAT Rate

VAT

Tax rate 7 percent (temporarily reduced to 7 percent and may revert back to 10 percent on 1 October 2010)

Reference: Section 80 of the Thai Revenue Code; R.D. (No 479) BE 2551 (2008)

Currency 1 US Dollar = 34.908 Thai Baht 1 Thai Baht (THB) = 0.02865 US Dollar (USD) Reference: Bank of Thailand – average selling rate as at 15 January 2009

23


General The principal taxation law of Thailand is the Revenue Code 1938. The Minister of Finance has the responsibility for implementing the Revenue Code. The DirectorGeneral of Revenue carries out the necessary administrative and enforcement functions of the Code. Royal Decrees, Ministerial Regulations, Ministerial Notifications and Board of Taxation Directives and Rulings supplement the Code. Thailand operates a self-assessment system for filing income tax returns with heavy penalties for non-compliance or fraud. Taxpayers who by willful neglect fail to file returns or fraudulently furnish false information with a view to evading payment of tax may be punished by imprisonment. Every person, resident or non-resident, who derives assessable income from an employment or business carried on in Thailand, is subject to Thai personal income tax, unless exempted under the provisions of a DTA, or other international or bilateral agreement. Residents are also subject to income tax on any income from foreignsources that is brought into Thailand in the same year it is received. Income tax is levied on “assessable income” as described under Section 40 of the Revenue Code. Each category of assessable income is subject to specific rules and regulations concerning computations, allowances, deductions, income tax rates and withholding tax rates. Individuals are allowed various deductions and allowances in determining their assessable incomes. There are standard legislated deductions, fixed personal annual allowances, and deductions for expenses actually incurred. Expenditure of a private or capital nature, and expenditure incurred to produce income exempt from income tax, is not deductible. Individuals are subject to income tax at progressive rates. The income is also subject to withholding by the payer. Companies and other legal entities, whether organized under Thai or foreign law, are referred to as “juristic companies or partnerships” in Thai tax legislation. Thai juristic companies or partnerships are subject to corporate income tax on their worldwide income. Entities incorporated under foreign law and carrying on business in Thailand are taxed on the net profits arising from their business activities in Thailand.

24


The tax year normally follows the calendar year. In the case of a juristic company or partnership, however, the tax year is deemed to be the accounting year and it may therefore end on any date. However, once selected, this period must be used consistently unless permission to change it is granted by the Director-General of Revenue. A separate income tax law relates to companies involved in the exploitation of naturally occurring Thai oil and gas assets. Companies that receive BOI promotion may obtain special taxation incentives for a number of years from the commencement of operations. Thailand operates an extensive withholding tax regime that is based on remittances within Thailand and abroad. VAT is levied on a wide range of goods (including capital items) and services supplied in Thailand and also on the importation of goods and services. The present rate of VAT is 7 percent, however, it only applies to enterprises with annual gross sales revenue in excess of THB1,800,000. The standard rate of VAT of 10 percent was reduced to 7 percent on 1 April 1999; however it may revert back to 10 percent on 1 October 2010. Certain businesses in Thailand are excluded from the VAT regime, and are instead subject to SBT. These businesses are: banking and similar businesses; finance, security and credit foncier; insurance; factoring; and real estate business. The rate of SBT (after taking into account Municipal Tax) is generally 3.3 percent on gross receipts, but for life insurance businesses it is 2.75 percent. A number of documents and transactions are subject to stamp duty. Rates depend on the class of the instrument, but in general are between 0.1 percent and 1 percent. Flat rate duties range from THB1 to THB200 per instrument. In Thailand, no state, provincial or city income taxes apply.

25


Taxation of Companies Introduction The definition of juristic corporation is very broad in Thai tax law and includes such entities as a company, an unincorporated joint venture, registered partnerships, foreign statutory corporations, branches, foundations or any associations that carry on business. Juristic corporations in Thailand are generally subject to corporate income tax at the rate of 30 percent on their net profits. However, reduced rates exist for SMEs, certain listed companies, and companies operating in Thailand as a Regional Operating Headquarter, subject to specific criteria (see 2.13.). Net profits are computed by taking into account all revenue arising from or in consequence of the business carried on in an accounting period and deducting all expenses allowable under the Revenue Code. Broadly, all juristic corporations that have been established under Thai law, or under foreign law but are carrying on business in Thailand, are subject to corporate income tax on their incomes. Some entities, although classifiable as juristic corporations, are specifically exempt from corporate income tax liability. These include defined public charities, embassies, United Nations agencies, and certain industries taxed under other Acts, for example, the oil and gas industry, which is taxed under the Petroleum Income Tax Act. Typically, pass-through entities are not recognized under Thai tax laws. Instead, registered partnerships and the like are taxed as corporations. An exception is a mutual fund listed on the Thai SET in which case, whilst it is recognized as a corporation under the Securities and Exchange Acts, which affords limited liability, the income of a mutual fund is taxed as a pass-through entity to the unit holders of the fund. Residence The issue of residence in Thailand is not directly determinative of a liability to Thai tax.

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All companies, including other forms of legal entities, that are registered under Thai law, or that are incorporated under foreign law and carry on business in Thailand, are subject to corporate income tax. All income of companies registered under Thai law is subject to corporate income tax. Companies registered under foreign law and carrying on business in Thailand are taxed on their net profits arising from their business activities in Thailand. The term “carrying on business in Thailand” includes any juristic corporation that is deriving income from a contract of work within Thailand, regardless of whether that juristic corporation has a permanent branch established or whether its offices are located in a foreign country. For example, if a company or partnership formed under a foreign law has an employee, representative, agent or go-between in Thailand for the purpose of carrying on its business, and thereby derives income or gains in Thailand, such a company or partnership is deemed to be carrying on business in Thailand. Taxable Income Income tax is imposed on the “net profit” for tax purposes. The net profit for tax purposes commences with the accountancy profit which, under Thai law, must be audited by an independent auditor and is calculated by taking into account all revenue arising from or in consequence of the business carried on in the tax year, and deducting there from, all allowable expenses. The computation of revenue and expenses is on an accruals basis whereby all revenue arising in the tax year, even if not received, is to be included as revenue for the tax year and all expenses relevant to such revenue, even if not paid, is to be included as expenses for the tax year. Assessable Income Assessable income, as detailed in Section 40 of the Revenue Code, covers all types of income likely to be earned by a juristic corporation, with a “catch-all” sub-section for all income not specifically detailed. Foreign-source Income A juristic corporation organized under Thai law is liable to Thai tax on all foreignsource income.

27


Capital Gains Tax All realized gains are defined as income (including capital gains) regardless of the regularity of receipt of such gains. Thailand does not impose a separate tax on corporate capital gains. Any gain arising from dispositions of assets, regardless of the purpose for which the assets were acquired, are treated as ordinary income subject to income tax. Dividends Dividends received by a juristic corporation are fully taxable unless the recipient has owned the shares, in respect of which the dividends have been received, for at least three months before and three months after the dividend is paid. If these criteria are met, the following treatment will apply:

â—? â—?

â—?

A company listed on the Stock Exchange of Thailand is exempt from income tax on all dividends received from other Thai-listed companies, ordinary or public companies and mutual funds; Non-listed Thai limited companies organized under Thai law are not required to include as revenue, any dividends or share of profits received from another resident company, if the recipient company has held at least 25 percent of the total shares with voting rights, without any cross-shareholding by the paying company; and Non-listed Thai limited companies organized under Thai law must, if the condition of the preceding paragraph is not met, include as revenue only one-half of dividends, or share of profits, received from other resident companies, mutual funds or certain other financial institutions organized under Thai law.

Dividends themselves are not income tax deductible but interest on monies borrowed to enable dividends to be paid is tax deductible. Exempt Income Dividends received by companies may be non-assessable. Also, income derived during an approved BOI period constitutes exempt income.

28


Deductions Generally, expenses incurred for the purpose of deriving profits or for conducting business in Thailand are deductible. Accordingly, usual business expenses, qualifying bad debts and depreciation at rates ranging from 5 percent to 100 percent (depending upon the nature of the item) are allowed as deductions. A full deduction may be claimed by commercial banks for provisions made for bad and doubtful debts where the provision is calculated in accordance with the Bank of Thailand’s provisioning rules. Certain expenditure is specifically non-deductible for corporate income tax purposes. Such expenditure includes reserves, provisions (with some exceptions), private expenses, income taxes, penalties, fines, donations to charitable institutions in excess of 2 percent of net profits, and entertainment expenses over and above the prescribed limit based upon the size of gross turnover. In Thailand, surcharge (interest) and penalties for non-payment of income tax on a timely basis are not income tax deductible. Head-office expenses not expended exclusively in respect of a Thai branch’s operations cannot be deducted as a business expense of that branch. Expenses that pertain uniquely to the head-office (for example, office rental, utilities and stationery) will not be allowed as a tax deduction of the branch. This may cause difficulty if a portion of head-office general overhead expenses is recharged to the Thai branch. This is because for a deduction to be claimed, a certificate is required from the headoffice auditors to verify that head-office overhead expenses recharged to the Thai branch have been computed in compliance with Thai legislation. Allowable expenses incurred are deductible in the accounting year in which they are accrued or incurred and must be reflected in the books of accounts. Losses Tax losses incurred by juristic corporations in any accounting period may be carried forward for a maximum of five consecutive accounting periods and set off against assessable profits of whatever nature. No carry-back of tax losses is permitted in Thailand, nor is there provision for corporate group relief of losses. Tax losses are not foregone upon a change in the ownership of the company or a change in the company’s business.

29


Grouping/Consolidation No corporate tax consolidation regime exists in Thailand. Each company has to prepare audited financial statements and file an annual tax return. Tax Depreciation/Capital Allowances Any generally accepted accounting method and depreciation rate can be used to calculate allowable depreciation charges, provided that the resultant depreciation charge does not exceed the permissible percentage of cost value or that the cost of the asset is not written off faster than it would have been using the officially prescribed depreciation rate. Once a certain accounting method and depreciation rate is adopted, it must be applied consistently unless the Director-General of Revenue approves a change. Prescribed depreciation rates include: Asset type Machinery and related equipment

Rate (%) 20

Permanent buildings

5

Temporary buildings

100

Depletable natural resources Goodwill, processing rights, formulae, trademarks, business licenses, patents, copyrights or any other rights • Unlimited duration • Limited duration

5

10 100/number of years

Computer software, hardware and equipment Any other properties not mentioned above which are liable to wear and tear or depreciation, excluding land and inventory

33.33 20

Reference: Section 65, bis of the Thai Revenue Code; R.D. (No. 145) B.E. 2527 (1984)

A Royal Decree came into force on 23 October 1999 that allows companies to adopt a depreciation rate of up to 40 percent for assets that are normally subject to a 20 percent rate limit. The rate must be applied using the diminishing value method and the remaining residual value of an asset may be claimed as depreciation expenses in the last accounting period of the asset’s useful life. 30


However, if the rate of depreciation in the taxpayers’ books of accounts for accounting purposes is less than the prescribed tax depreciation rate then that lesser rate must be used for tax purposes. SMEs are entitled to an additional depreciation write-off in the first year equal to: Asset type Computer software, hardware and equipment Machinery and related equipment Factory buildings Fixed assets, other than buildings and intangibles (up to THB500,000 per annum)

Rate (%) 40 40 25 100

Reference: Section 65, bis of the Thai Revenue Code; R.D. (No. 145) BE 2527 (1984), R.D. (No. 395) BE 2545 (2002) & R.D. (No. 473) BE 2551 (2008)

To be eligible for additional depreciation write-offs, the company must have fixed assets (excluding the cost of land) not exceeding THB200 million and not have more than 200 employees. Three years after the effective date of the law the DirectorGeneral of the Revenue Department may issue regulations on the eligibility criteria. Special deduction allowances may be available for BOI approved companies in respect of infrastructure installation or construction costs. Assets acquired during an accounting period shall have their depreciation allowances apportioned. Gains or losses on the disposal of depreciable assets are assessable/deductible. They are calculated as the difference between the sales consideration of the asset and the asset’s tax written-down value. Amortization of Expenditure Certain other capitalized business expenditure, such as intangible rights, may be amortized for income tax purposes over their expected useful life. Interest No formal definition of interest exists in Thai tax legislation. However, the following classification of assessable income provides guidance on what is considered interest:

31


“Interest on bonds, deposits, debentures, bills, loans whether with or without security, that part of loan interest subject to tax-withholding under the law governing petroleum income tax which remains after the deduction of the tax withheld under such a law, or the difference between the redemption value and the selling price of a bill or an instrument issued by a juristic company or partnership or by any other juristic person and sold for the first time at a price below its redemption value, including income similar in nature to interest, a gain or another consideration received from extending a loan or from a claim on account of an obligation of all kinds whether with or without security.� Generally, interest expenses incurred on funds borrowed for the purpose of the business in Thailand are deductible and include borrowings to fund share acquisitions and for the payment of dividends. The expense may be deductible in the year that it is incurred, or may be capitalized (for tax purposes), depending upon the nature of the interest expense. No limits on the deductibility of interest based on debt/equity levels exist. Tax Rates The corporate income tax rate in general is 30 percent of the net profits of a juristic corporation. A corporate income tax rate of 10 percent on net profit applies in respect of the business of BIBFs. The reduced tax rate of 10 percent on net profit also applies to the companies qualified with the Royal Decree issued under the Revenue Code and licensing to engage in oil trading business specifically for import and export out of Thailand, duty free zone or between duty free zones, for the includable income from oil trading not less than THB2 billion per annum. A Royal Decree has been issued under the Revenue Code to reduce the tax rate for listed companies, i.e. companies listed on the SET, or the MAI, the trading board newly established by the SET. The reduced tax rates for listed companies are as follows:

32


Companies New companies with listing application filed at SET by 31 December 2008 and listed by 31 December 2009 New companies with listing application filed at MAI by 31 December 2008 and listed by 31 December 2009 Existing listed SET companies – first 300 million baht of taxable profit Existing listed MAI companies – first 20 million baht of taxable profit

Tax rate (%) 25 (1) 20 (1) 25 (2) 20 (2)

Reference: Royal Decree No.474 B.E. 2551 (2008) & Royal Decree No.475 B.E. 2551 (2008) 1

Royal Decree No.474 B.E. 2551 (2008): for three years starting from the first accounting period beginning on or after the date listed on the Stock Exchange of Thailand (“SET”) or the Market for Alternative Investments (“MAI”).

2

Royal Decree No.475 B.E. 2551 (2008): for three years starting from the accounting period beginning on or after 1 January 2008. Companies listed between 6 September 2001 and 31 December 2005, and eligible for reduced tax rates for 5 consecutive years under Royal Decree No. 387, will be entitled to the above, but limited up to the accounting period of 2010 which ends on or after 31 December 2010. The reduced tax rates above do not apply to (i) a company filing its listing application during the period 1 January 2007 to 31 December 2007, and listing by 31 December 2008 as in this case, the listed companies are entitled to the reduced tax rates of 25% or 20% respectively for 3 consecutive accounting periods under Royal Decree No. 467, or (ii) the listed company claiming an additional tax deduction at 25% of its capital expenditures for improvement of their fixed assets under Section 3 (1) of the Royal Decree No. 460 B.E. 2549 (2006).

SMEs are also granted reductions of corporate income tax rates. SME is defined as a juristic company or partnership with paid up capital not exceeding THB5 million at the end of the accounting period. The reduced rates are as follows: Net profit (THB) 0 – 150,000

Tax rate (%) Exempt

150,001 - 1 million

15

1,000,001 - 3 million

25

Above 3 million

30

Reference: R.D. (No. 471) BE 2551 (2008)

The reduced tax rates applicable to Regional Operating Headquarters in Thailand are discussed under “Tax Incentives” below. 33


Profits remitted abroad, whether by dividend or other distribution, are subject to a 10 percent withholding tax. Foreign juristic corporations carrying on the business of international transportation must pay tax on their gross incomes before deduction of expenses. In the case of carriage of passengers, the tax rate is 3 percent of the fares collectible in Thailand. In the case of carriage of goods, the tax rate is 3 percent of freight collectible in Thailand or elsewhere in respect of the transport of goods from Thailand. Tax Administration Every juristic corporation must submit a corporate income tax return. Thailand operates a self-assessment system of taxation. No provision exists for consolidated group returns. A juristic company may choose any 12 month period as its accounting period but, once adopted, can only be changed with the approval of the Director-General. Corporate income tax is payable in two installments each year and the taxes due must accompany the submission of the relevant returns:

● ● ●

An annual corporate income tax return (which must be accompanied by signed, audited accounts) must be filed within 150 days of the end of the accounting year; A half-year corporate income tax return must be filed within two months of the end of the first six months of the accounting year; All listed companies, banks, finance companies, securities companies, credit foncier companies, and companies whose auditors are approved by the Revenue Department are required to pay half-year tax based on actual income. Other types of corporations are required to estimate net profits for the year and pay half of the tax thereon; and The amount of tax paid against the half-year return, and tax withheld by income payers, are allowed as credits in the computation of the return at the end of the year.

The Revenue Department examines the accuracy and correctness of the tax returns and the accompanying audited accounts. The Revenue Department may then request further information to support claims for deductions or other matters it deems appropriate. The Revenue Department may select juristic corporations at random for an in-depth investigation or audit.

34


Foreign-owned companies incorporated under the laws of Thailand, and branches of foreign incorporated companies, are subject to the same filing requirements as Thaiowned companies. Taxpayers’ income tax returns will normally close after two years, unless fraud or evasion has occurred. Tax ID Number Every juristic corporation registered in Thailand must apply for a tax ID number, which must be quoted on all tax returns. A non-resident juristic corporation that receives only Thai-source income that has been subjected to final withholding tax at source is not required to have a tax ID number. Setting up Business According to Thai law, the principal forms of business entities are:

● ● ● ● ● ● ● ●

Sole proprietorship; Partnership–unregistered ordinary partnership, registered ordinary partnership, and limited partnership; Private limited company; Public limited company; Branch office of foreign company; Representative office; Regional office; and Joint venture.

The most common form of entity in Thailand is the private limited company. In general, foreign companies prefer to operate as a private limited company, as opposed to a branch office, to limit liabilities. For taxation purposes, the private limited company is treated as a separate legal entity. However, a branch office is considered the same legal entity as its head office, and accordingly, it is not possible to obtain a tax deduction for remittances to its head office for payments, such as interest, rent and royalties.

35


It should take approximately one day to establish a private limited company after an application for the company’s registration is made. The government fee is THB 5,500 per THB1 million of registered capital. Alien Business Act The Alien Business Act prohibits aliens from participating in specified business activities and requires licenses to be obtained before engaging in others. An alien for the purpose of the Alien Business Act is:

● ● ●

A natural person whose nationality is not Thai; A juristic person (i.e. a registered company) that is not registered in Thailand; A juristic person registered in Thailand that has the following attributes: A juristic person with at least 50 percent of its capital held by a natural person whose nationality is not Thai or a juristic person (i.e. a registered company) that is not registered in Thailand, or with at least 50 percent of its total capital invested by natural persons whose nationality are not Thai or juristic persons (that are not registered in Thailand); A limited partnership or a registered ordinary partnership whose managing partner or manager is a person whose nationality is not Thai; and A juristic person registered in Thailand with at least 50 percent of its capital held by persons described in the foregoing three clauses, or a juristic person comprised of persons described in the foregoing three clauses who invests in at least 50 percent of the total capital in such a juristic person.

Business activities that are subject to regulation are divided into three categories and are listed in Schedules 1, 2 and 3 of the Act. The three categories of business are:

● ● ●

36

Businesses closed to aliens; Businesses related to national safety or security; businesses affecting cultural arts, traditional customs and folk handicrafts; and businesses affecting natural resources or the environment; and Businesses in which Thai nationals are not yet ready to compete with aliens.


Foreign Exchange Controls Import of Foreign Currency No controls or limits exist on the amount of foreign currency that may be brought into Thailand. However, individuals and juristic persons residing in Thailand are required to sell any foreign currency received to an authorized bank or authorized person or to deposit the money into a foreign currency account within 360 days of receipt. Foreign currency proceeds from the sale of exported goods from Thailand must be collected within 360 days and sold to an authorized agent or deposited in a foreign currency account within 360 days of receipt. Thai individuals and juristic persons in Thailand are allowed to maintain foreign currency accounts under certain conditions. The total daily outstanding balances in all foreign currency accounts must in general not exceed USD 100 million for a juristic person and USD 1 million for an individual. Non-residents may open and maintain foreign currency accounts with authorized banks in Thailand. Deposits into these accounts must originate from abroad. Balances on such accounts may be transferred without restriction. Export of Foreign Currency The amount of foreign currency that may be remitted abroad for business expenses including the payment of goods, services, interest, profits and dividends is unlimited but must be accompanied by the required supporting documentation. Foreign direct investments by Thai residents or the provision of loans to their affiliated companies abroad for:

â—? â—?

Amount not exceeding USD 100 million can be approved by an authorized agent of the Bank of Thailand, e.g. a commercial bank; and Amounts exceeding USD 100 million require the permission of the Bank of Thailand.

Remittance for the purchase of immovable property in an amount exceeding USD 5 million or securities with an aggregate amount of capital exceeding USD 50 million in a foreign country requires prior approval.

37


Remittance to Thai emigrants with permanent residence abroad are allowed up to an annual limit of USD1 million per person provided the funds are derived from the emigrant’s personal assets. Remittances of funds abroad between relatives are allowed up to an annual limit of USD 1 million per person. Certain remittances abroad in both foreign and local currency must be made with the appropriate deduction of withholding tax as required by the Revenue Code. Local Currency No restriction exists on the amount of Thai currency that may be brought into Thailand. A person traveling to Thailand’s bordering countries (Cambodia, Laos, Malaysia, Myanmar, or Vietnam) may export Thai currency up to THB500,000 without authorization. This amount is restricted to THB50,000 for other countries. Tax Incentives BOI The BOI is the principal government agency responsible for providing incentives to stimulate investment in Thailand and is officially governed by the Investment Promotion Act 1977, as amended by the Investment Promotion Act (No 2) 1991 and the Investment Promotion Act (No 3) 2001. Tax-related relief and other incentives are granted to Thai and foreign companies investing in BOI-promoted projects. However, the BOI does not grant promotional incentives to a branch office of a foreign company. Activities eligible for promotion are specified in guidelines issued by the BOI. Activities not specifically listed in the BOI guidelines may nevertheless still be eligible for promotion if considered to be of benefit to the Thai economy and are in accordance with national development objectives. In general, the BOI will promote projects that will:

● ● ● ● ●

38

Strengthen Thailand’s industrial and technological capability; Utilize domestic resources; Create employment opportunities; Develop basic and support industries; Earn foreign exchange;


● ● ● ●

Contribute to the economic growth of regions outside Bangkok; Develop infrastructure; Conserve natural resources; and Reduce adverse environmental impacts.

To gain BOI approval, a proposed investment project must fulfill certain criteria, specific to each promoted project. Minimum requirements of investment capital and minimum Thai shareholding in the project company must be satisfied. The BOI is empowered to grant a wide range of fiscal and non-fiscal incentives and guarantees to investment projects that meet national development goals. The following is a summary of tax incentives available under the Investment Promotion Act 1977:

● ● ● ●

Exemption or reduction of import duties on imported machinery; Exemption or reduction of import duties on imported raw materials and components; Exemption from corporate income taxes (tax holiday) for three to eight years with permission to carry forward losses and deduct them as expenses for up to five years after the end of the income tax holiday period; and Exclusion from taxable income of dividends derived from promoted enterprises during the tax holiday and paid out during the tax holiday period.

Enterprises located in Thailand’s special investment promotion zones are eligible for additional incentives, including:

● ● ●

A reduction of 50 percent of corporate income tax for five years after the termination of a ‘normal’ income tax holiday period or from the date on which income is earned; Entitlement to claim double tax deductions for the cost of transportation, electricity and water supply expenses; and Entitlement to deduct from the taxable corporate income up to 25 percent of the investment costs of installing infrastructure facilities for 10 years from the date of income derivation.

For export orientated enterprises, the following additional incentives are available:

● ●

Exemption from import duties on imported raw materials and components; Exemption from import duties on re-exported items;

39


● ●

Exemption from export duties; and Allowance to deduct from taxable corporate income an amount equivalent to 5 percent of the increase in income derived from exports over the previous years, excluding costs of insurance and transportation.

Research and development activities and trade and investment support offices may be eligible for promotional privileges depending on BOI approval. ROH Tax incentives to attract foreign investors to establish ROHs in Thailand came into effect in August 2002. An ROH must be a juristic company or partnership established under Thai law. The purpose of an ROH should be to provide services, including management, technical and other support services, such as research and training to subsidiary companies or branches in Thailand and other countries. The following is a summary of tax incentives available:

● ●

● ● ● ●

10 percent corporate income tax on net profits of the ROH operations; 10 percent corporate income tax on net profits from royalties derived from research and development in Thailand by the ROH. The reduced tax rate shall apply to royalties received from the subsidiaries or branches of the ROH and other persons that manufacture or provide services to the subsidiaries or branches of the ROH; 10 percent corporate income tax on net profits from interest received on loans made to branches or subsidiaries out of borrowings; Exemption from corporate income tax on dividends received by the ROH from both domestic and foreign subsidiaries; Exemption from withholding tax on dividends paid by the ROH to foreign companies that do not carry on business in Thailand; and 25 percent tax deduction for ROH building costs in the year of acquisition. The remaining 75 percent shall be depreciated over a period of 20 years.

The following additional incentives are available for expatriate employees of a ROH:

40

Exemption from personal income tax on salaries received for work performed outside Thailand in the first four years for the ROH. Such salary will not be deductible for corporate tax purposes to the ROH or other subsidiaries which directly or indirectly carry on business in Thailand;


15 percent flat personal income tax rate on taxable salaries derived in the first four years from employment with the ROH, instead of the usual personal tax rates ranging from 5 percent to 37 percent. Certain conditions must be satisfied.

To be eligible for the tax benefits, the term of the expatriate’s employment with the ROH cannot exceed four years. The four year period will exclude previous periods of employment with the ROH after the expiration of a one year break. To be entitled to the ROH incentives, the following conditions must be met:

● ● ●

The Thai company operating as the ROH must have THB10 million or more paidup registered capital; ROH services must be provided to subsidiaries or branches in at least three countries other than Thailand; and At least 50 percent of total revenue must be derived from foreign subsidiaries or branches. However, for the first three years of operations the requirement will be reduced to one-third of total revenue.

Non-tax privileges for ROH entities such as foreign majority shareholding are also offered by the BOI. International Tax Double Tax Relief Juristic corporations may obtain relief from foreign taxes suffered on foreign-source income by claiming either a bilateral credit or unilateral credit against income tax liabilities, depending on the existence and terms of any DTA with the country where the income arose. Excess tax credits may not be carried forward or back. When claiming double tax relief, the juristic corporation must indicate that the foreign-source income has been brought into the tax computation at the gross amount before deduction of the foreign tax suffered. In order to claim relief, evidence of the foreign tax suffered is required by the Director-General of Revenue by way of an official receipt. A foreign juristic corporation that is conducting business in Thailand, and which is a tax resident of a country with which Thailand has a DTA, is taxed on the profits of that business only if it has a PE in Thailand. A “PE” has been broadly defined to

41


include fixed places in which the business is either wholly or partially undertaken and will usually incorporate such places as a branch, office, factory, warehouse, a building site or a mine. The definition does, however, vary among DTAs. Domestic Withholding Tax Payers of assessable income who are residents of Thailand are liable to deduct tax at source from domestic payments to individuals and corporations at the following rates: Assessable income Salaries, wages and related benefits

Withholding (%)

Tax rate note

10-37

1

15

2

1 or 10

5

Nil or 10

3

10-37

1

Interest

• •

paid to individuals paid to corporations

Dividends Royalties

• •

paid to individuals paid to corporations

3

Hire or rent of property

5 or 10

5, 6

Professional fees

3 or 10

5, 6

Hire of work

3 or 5

4, 6

Transportation

1

Provision of services

3

Non-life insurance premium

1

Income paid on a contract with a government agency

1

Contest prizes

5

Public entertainers

42

10-37

8

7


Assessable income

Withholding (%)

Advertisement charges

2

Aquatic animals or related products

1

Prizes, discounts or other benefits from sale promotions

3

Rubber, cassava, jute, maize, sugar cane, coffee beans, Oil-palm seed, and rice products in certain circumstances

0.75

Tax rate note

6

Reference: Section 50, M.R. (No.144) B.E. 2522 & No. Taw. Paw. 4/2528 1 2

3

4

5

6 7 8

Deductions are made according to the graduated scale of personal income tax rates. The nil rate applies to payments of interest made by a non-juristic person. Tax withholding will not apply, in certain circumstances, where: (a) Interest received on saving deposits with a bank in Thailand where the total amount of interest does not exceed THB30,000 per annum. (b) Interest received on fixed deposits with a bank in Thailand where the term of the deposit is greater than one year and the total amount of interest does not exceed THB30,000 per annum. (a) A company that is listed on the Stock Exchange of Thailand is exempt from income tax on all dividends received from other registered companies, ordinary or public companies and mutual funds, provided the shares are held for at least three months before and three months after the dividend is paid. (b) Non-listed resident companies organized under Thai law are not required to include as revenue, any dividends or share of profits received from another resident company, if the recipient company has held at least 25 percent of the total shares with voting rights, without any cross-shareholding by the paying company, for at least three months before and three months after the dividend is paid. Withholding tax of 10 percent applies to dividend payments to resident and non-resident persons, unless exempted under (a) or (b). A foreign corporation receiving income for hire of work carried out in Thailand through a permanent establishment is subject to withholding tax at 3 percent or 5 percent if it does not have a permanent branch. Juristic corporations organized under foreign laws that are party to a contract involving work in Thailand are responsible for deducting tax on payment of income to subcontractors or other recipients of assessable income. A foundation or association that is engaged in any revenue producing business, but not including any of the foundations or associations designated by the Minister in notifications given under Section 47(7)(b) of the Revenue Code, will be subject to a withholding tax rate of 10 percent on receipt of income. Withholding tax only applies for payments made by juristic corporations or partnerships. Deductions are made according to the graduated scale of personal income tax rates if the public entertainers are domiciled in a foreign country. Assessable income for payments arising from the provision of services, but excluding public transportation, hotel, restaurant services and life insurance premium.

The payer of assessable income is responsible for deducting the tax, remitting the tax and filing a return by the seventh day of the month following the month in which

43


the payment was made. Companies incorporated under foreign laws and carrying on business in Thailand will be responsible for the withholding of tax from payments to Thai registered businesses as well as to overseas residents (depending on the type of income). Where the total of the payments due under a contract is less than THB1,000, the payments are not subject to withholding tax. Companies that derive income subject to domestic withholding tax can claim a credit for the tax withheld against their annual corporate income tax liability. Withholding Taxes on Remittances Overseas All payers of certain types of assessable income are required to deduct tax at source from payments of such income to overseas resident individuals and corporations at the following rates: Assessable income Dividends Interest Royalties Gains from the sale of shares within Thailand

Withholding (%)

Tax rate note

10 10 or15

1

5, 10, or 15

2

0 or 15

3

Distribution of profits

10

Management fees, technical fess and other income, subject to withholding under Section 70 of the Revenue Code

15

4

Reference: Section 50 & Section 70 of the Thai Revenue Code 1 The 10 percent rate applies to interest paid to foreign bank or financial institutions (including insurance companies) with residence in a country having a DTA with Thailand. 2 Lower rates of 5 percent or 10 percent exist for royalties paid for the use of copyright of literary, artistic or scientific work to residents of certain countries with DTAs with Thailand. 3 Certain gains are tax-free under the terms of certain DTAs. 4 Under Thailand’s DTAs, provided such income is not excluded from the meaning of “business profits” or not specifically treated as a royalty, entities without a Thai PE are not subject to Thai tax on such income. Accordingly, they are not subject to Thai withholding tax.

44


Double Tax Agreements As of 1 January 2009, Thailand has signed DTA’s with 52 countries. The following withholding tax rates apply to recipient countries that do not have a PE or fixed base in Thailand. Country of recipient

Dividends (%)

Interest (%)

Royalties (%)

10

10/15(1)

15

Australia

10

10/15

(1)

15

Austria

10

10/15(1)

15

Bahrain

10

10/15

(1)

15

Bangladesh

10

10/15(1)

15

Belgium

10

(1)

10/15

5/15(2)

Bulgaria

10

10/15(1)

5/15(10)

Canada

10

10/15(1)

5/15(3)

China, P.R.

10

10/15(1)

15

Cyprus

10

(1)

10/15

5/10/15(11)

Czech Republic

10

10/15(1)

5/10/15(4)

Denmark

10

10/15(1)

5/15(2)

Finland

10

10/15(1)

15

Armenia

(5)

0/5/15(6)

France

10

3/10

Germany

10

10/15(1)

5/15(2)

Hong Kong

10

10/15(1)

5/10/15(4)

Hungary

10

10/15(1)

15

India

10

(1)

10/15

15

Indonesia

10

10/15(1)

15

10

(1)

Israel

10/15

5/15(3)

45


Country of recipient

Dividends (%)

Interest (%) (1)

Royalties (%) 5/15(2)

Italy

10

10/15

Japan

10

10/15(1)

Korea, Rep. of

10

(1)

10/15

Kuwait

10

10/15(1)

15

Laos

10

(1)

10/15

15

Luxembourg

10

10/15(1)

15

Malaysia

10

10/15

(1)

15

Mauritius

10

10/15(1)

5/15(10)

Nepal

10

10/15(1)

15

Netherlands

10

10/15(1)

5/15(2)

New Zealand

10

10/15(1)

10/15(7)

Norway

10

10/15(1)

5/10/15(12)

Oman

10

10/15(1)

15

Pakistan

10

10/15(1)

10/15(6)

Philippines

10

10/15(1)

15

Poland

10

10/15(1)

0/5/15(6)

Romania

10

10/15(1)

15

Seychelles

10

10/15(1)

15

Singapore

10

(1)

10/15

15

Slovenia

10

10/15(1)

10/15(7)

South Africa

10

10/15(1)

15

Spain

10

10/15(1)

5/8/15(8)

Sri Lanka

10

10/15(1)

15

Sweden

10

10/15(1)

15

46

15 5/10/15(13)


Country of recipient

Dividends (%)

Interest (%) (1)

Royalties (%) 5/10/15(4)

Switzerland

10

10/15

Turkey

10

10/15(1)

15

Ukraine

10

(1)

10/15

15

United Arab Emirates

10

10/15(1)

15

United Kingdom

10

(1)

10/15

United States

10

10/15(1)

5/8/15(9)

Uzbekistan

10

10/15(1)

15

Vietnam

10

10/15(1)

15

5/15(2)

Source: The website of the Revenue Department of Thailand. Last updated 1 January 2009 1 Interest: - 10 percent applies to a recipient that is a bank or financial institution (including an insurance company); - 15 percent for other interest payments. 2 Royalties: - 5 percent for the use of or the right to use any copyright of literary, artistic, or scientific work; - 15 percent for other royalties. 3 Royalties: - 5 percent for production or reproduction of any literary, dramatic, musical or artistic work (but not including royalties in respect of motion picture films and works on film or videotape for use in connection with television); - 15 percent for other royalties. 4 Royalties: - 5 percent for alienation or the right to use any copyright of literary, artistic or scientific work; - 10 percent rate for alienation of any patent, trademark, design or model plan, secret formula, or process; - 15 percent rate for other royalties. 5 Interest: - 3 percent for interest paid on loans or credits granted for four years or more with the participation of a financing public institution to a statutory body or to an enterprise in relation to the sale of any equipment or to the survey, the installation or the supply of industrial, commercial or scientific premise and public works; - 10 percent applies to a recipient that is financial institution. 6 Royalties: - Zero percent for films or tapes (payable to a Contracting State or State owned company); - 5 percent for the use of or the right to use any copyright of literary, artistic, or scientific work; - 15 percent for other royalties. 7 Royalties: - 10 percent for the use of or the right to use any copyright, any industrial, commercial or scientific equipment, any motion picture film or film or videotape or any other recording for use in connection with television, or tape or any other recording in connection with radio broadcasting : the reception of, or the right to receive, visual images or sounds or both and the use in connection with television or radio broadcasting, visual images or sounds, or both, transmitted by satellite or cable, optic fiber or similar

47


8

9

10

11

12

13

48

technology; -15 percent rate for other royalties. Royalties: - 5 percent for the use of or the right to use any copyright of literary, dramatic, musical, artistic, or scientific work excluding cinematograph films or films or tapes used for radio or television broadcasting; - eight percent for the use of or the right to use industrial, commercial or industrial equipment; - 15 percent rate for other royalties. Royalties: - 5 percent for the use of or the right to use any copyright of literary, artistic or scientific work including software, and motion pictures and works on film, tapes or other means of reproduction for use in connection with radio or television broadcasting - 8 percent for the use of or the right to use industrial, commercial or industrial equipment; - 15 percent rate for other royalties. Royalties: - 5 percent for the use of or the right to use any copyright of literary, dramatic, musical, artistic, or scientific work excluding cinematograph films or films or tapes used for radio or television broadcasting; - 15 percent rate for other royalties. Royalties: - 5 percent for the use of or the right to use any copyright of literary, artistic or scientific work including software, cinematograph films or tapes used for radio or television broadcasting - 10 percent for the use of or the right to use industrial, commercial or industrial equipment or for information concerning industrial, commercial or scientific; - 15 percent rate for other royalties Royalties: - 5 percent for the use of or the right to use any copyright of literary, artistic, or scientific work; - 10 percent for the use industrial, commercial or industrial equipment - 15 percent for other royalties. Royalties: - 5 percent for the use of or the right to use any copyright of literary, artistic or scientific work including software, and motion pictures and works on films, tapes or other means of reproduction for use in connection with radio or television broadcasting; - 10 percent for the use of or the right to use of any patent, trademark, design or model, plan, secret formula or process; - 15 percent rate for the use of or the right to use industrial, commercial or industrial equipments or for information concerning industrial, commercial or scientific experience;


Anti-avoidance Rules Introduction Thailand does not have general anti-avoidance provisions. However, the Revenue Department has powers to conduct an investigation into any company’s or individual’s business affairs to determine whether tax returns disclose correct and complete information. Tax legislation allows expenses to be deductible provided such expenditure is incurred exclusively for the purpose of acquiring profits or for the purpose of the business. Therefore, any scheme that reduces a taxpayer’s taxable income by virtue of its expenses not being for the acquisition of profits, or for the purpose of the business, may lead to such expenses being disallowed. In addition, artificial or fictitious expenses are non-deductible. Various penalties, surcharges and terms of imprisonment can be imposed on companies and officers involved in any arrangements whereby tax has been evaded. The severity of the punishment depends upon the particular circumstances. Transfer Pricing Businesses that have transactions with their head offices, fellow subsidiaries, other branches or other related entities are required to disclose the existence and nature of such related party transactions in their statutory audited accounts. Under the provisions of the Revenue Code, Thailand’s Revenue Department has the power to deem a taxpayer to have received a market value consideration for the provision of goods or services, or the lending of money, where it considers that a less than market value consideration has been received. 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 business. Transfer pricing guidelines have been issued by Departmental Instruction. The Instruction confirms the position under the Thai Revenue Code that the Revenue Department has the power to adjust a company’s revenues or expenses for corporate tax purposes where:

● ●

No compensation is received or the compensation received is less than the market price without any justifiable reasons; and The expenses paid are higher than market price without any justifiable reasons.

49


The Instruction provides guidelines for determining the market price of cross-border and Thai domestic transactions between related parties. The Instruction’s definition of market price is consistent with the “arm’s length” principle used in the OECD’s transfer pricing guidelines. The market price for the transfer of assets, provision of services, or lending of funds is the price at the date of the transaction that would be charged between independent contracting parties for assets, services or loans of the same character, category and type. The term “independent contracting parties” means contracting parties with no direct or indirect relationship with regard to management, control or capital. The definition is consistent with the concept of “associated enterprises” in the OECD transfer pricing guidelines. The Instruction also suggests that one of four pricing methodologies should be selected to determine market price, as follows:

● ● ● ●

Comparable Uncontrolled Price Method; Resale Price Method; Cost Plus Method; or Other Methods.

If none of the above three methods above can be applied, then the company can use any other “internationally accepted” methods. The Revenue Department has indicated that it would accept the profit-based methods adopted by the OECD, being the profit-split method and transactional net margin methods. The application of any of the above pricing methods relies on a comparison of prices or profits for transactions between related parties with the prices or profits for transactions between independent contracting parties in the same or similar circumstances. In addition, the Instruction provides an extensive list of documentation and requires that the Revenue Department officers, when performing a transfer pricing examination, review such documentation prepared by the company to support the transfer prices established with related parties. The Instruction indicates that these documents should be contemporaneously prepared as the transactions are entered into and should be maintained at the company’s place of business.

50


Given the enforcement of the Thai transfer pricing rules, Thai businesses are required to ensure that the pricing of transactions with related parties is based on one of the accepted methodologies and that the process of establishing transfer prices is appropriately documented. Failure to follow the guidelines may result in timeconsuming and costly transfer pricing examinations. Permanent Establishment The general provisions of the Thai Revenue Code state that “if a company or partnership organized under a foreign law has an employee, a representative or a gobetween to carry on business in Thailand and thereby deriving income or gains in Thailand, such company and partnerships shall be deemed to carry on business in Thailand, subject to corporate tax�. Thus, Thailand will impose income tax on the Thai branch profits equal to 30 percent of the profits attributable to the Thai branch. When the Thai branch remits those profits to its Head Office, a branch profit remittance tax of 10 percent of the after tax Thai branch profit is payable. Accordingly, the total Thai tax on the branch profits after remittance is 37 percent which is equivalent to the tax paid on the profits earned by Thai companies which are remitted as dividends to their foreign parents. However, it is generally recognized that a Thai company is a simpler structure as a means of conducting business in Thailand. The Thai company can also deduct its share of management fees, royalties and the like while a Thai branch may not deduct these expenses under Thai tax laws, as a branch is considered the same legal entity as its head office. Thailand has an extremely wide network of DTAs with other countries. The typical wording of the term PE in those DTAs follows the OECD Model. Accordingly, the Thai Revenue Department is unlikely to question any reasonable interpretation of the definition of PE which follows the OECD Guidelines. Again the total Thai tax likely to be imposed on the Thai profits of a PE and on the remittance of those profits to a foreign Head Office will total 37 percent. Thin Capitalization Thailand has no thin capitalization rules.

51


Controlled Foreign Company (CFC) Provisions Thailand has no CFC provisions. Taxation of Individuals Introduction Every person, resident or non-resident, who derives assessable income from employment or business carried on in Thailand, is subject to Thai personal income tax, unless exempted under the provisions of a DTA. This is regardless of whether such income is paid in or outside of Thailand. Resident individuals are also subject to personal income tax on foreign source income to the extent that it is paid in or remitted to Thailand in the year it is received. Employers are required to withhold income tax from salaries and other benefits paid to employees. Residence An individual who is present in Thailand for a total of at least 180 days in a tax year (calendar year) is treated as a resident of Thailand for tax purposes, although residency can be established from other factors. Non-residents are individuals other than residents. Non-residents who derive assessable income from employment or business carried on in Thailand are subject to Thai personal income tax on such income. Taxation of Income Thailand imposes personal income tax on the Thai-source income of both resident and non-resident individuals. Residents are also subject to income tax on foreignsource income, but only if that income is remitted to Thailand in the same year it is received. Assessable income includes most monetary and non-monetary benefits derived from employment in Thailand. This is regardless of the resident status of the recipient, where the payments are made or whether the employment is permanent or temporary in nature.

52


In addition, the following classes of income received by resident or non-resident individuals are subject to Thai tax:

● ● ●

The practice of a liberal profession, i.e. law, medicine, engineering, architecture, accountancy or fine arts; Contractual work, for which the contractor provides essential materials besides tools; and Business, commerce, agriculture, industry, transport, or any other activity.

Income from real property situated in Thailand is subject to tax regardless of the resident status of the recipient. A resident individual is also liable to tax on income from real property situated outside Thailand to the extent the income is paid in or remitted to Thailand in the year it is received. Interest earned on saving deposits with a bank in Thailand (which is repayable on demand) is exempt from tax if the interest is below the maximum limit of THB 20,000 per annum. Moreover, interest earned from a fixed deposit for a period of one year up with a bank in Thailand is exempt income for an individual who is 55 years old or more if the aggregate interest earned throughout the year from all types of fixed deposits does not exceed the maximum limit of THB30,000. In general, other interest income derived from local sources by resident and nonresident individuals is taxable. The tax on such interest is imposed in the form of a 15 percent withholding tax. Interest subject to the withholding tax is optional to be included in the individual’s assessable income. A non-resident’s income tax liability is limited to the income arising from or in consequence of employment, property held, or business carried on in Thailand, regardless of whether such income is paid within or outside Thailand. Capital Gains Tax No separate capital gains tax regime exists in Thailand. Most types of capital gains are taxable as ordinary income. However, capital gains from the sale of shares listed on the Stock Exchange of Thailand (if the sale is made through a licensed broker) or from the sale of investment units in a mutual fund are tax exempt. Any gains received by a resident from sources outside of Thailand are only subject to Thai tax to the extent paid in or remitted to Thailand in the year received.

53


Dividends In general, dividend income derived from local sources by resident and non-resident individuals is taxable in Thailand. A 10 percent withholding tax applies to dividends paid to resident and non-resident individuals. Resident individuals may exclude from assessable income all dividends received which have been subject to the 10 percent Thai withholding tax provided they do not apply for a withholding tax refund or claim a dividend tax credit. Non-residents are not entitled to claim a dividend tax credit. Employment Income/Employee Benefits Under the Revenue Code, assessable income includes income from employment, “whether in the form of salary, wage, per diem, bonus, bounty, gratuity, pension, house rent allowance, monetary value of rent-free residence provided by an employer, payment made by an employer for settlement of any obligation due from an employee, or any money, property or benefits derived by virtue of hire of service.� Payments of employment income are subject to withholding tax. Tax is deducted on the basis of the total amount of income the individual will receive if the payments were to continue for the rest of the tax year. This tax is then divided by the number of payments the individual will receive in the year. Employers are responsible for withholding income tax from salaries and other benefits paid to employees and submitting it to the Revenue Department within seven days following the month in which the payment was made. Exempt Income There are limited categories of income that are specifically excluded from assessable income by virtue of Section 42 of the Revenue Code. These include interest on savings and fixed deposited with banks in Thailand subject to prescribed conditions and maximum limits, reimbursement for business travel expenses, gains from assets not acquired with the intent to trade or earn a profit, family maintenance, inheritances, legacies, gifts, and educational scholarships. There are also specific classes of income exempted from assessable income by virtue of Ministerial Regulation No. 126.

54


Gains from the sale of shares listed on the Stock Exchange of Thailand (if the sale is made through a licensed broker) or from the sale of investment units in a mutual fund are tax exempt. Any gain received from the sale of moveable property in Thailand is only subject to tax if the property was acquired with the intention of realizing a profit. Deductions Thai tax law provides different deductions for the various classes of assessable income. For some classes of income, standard deductions apply; for others, actual expenses incurred in connection with the derivation of the income may be deductible. For employment income, a standard deduction of 40 percent of an individual’s gross income, up to a maximum of THB60,000 per annum, may be taken as an expense. Under certain conditions, an individual taxpayer is also entitled to a tax deduction for items such as life insurance premiums, mortgage interest, charitable donations and contributions to an approved provident fund. A standard deduction of between 65 percent and 85 percent is allowable for income received for contractual work or from business, and commerce etc. Alternatively, actual costs and expenses can be deducted. Income received from a medical profession is allowed a standard deduction of 60 percent. All other liberal professions are allowed standard deductions of 30 percent of their assessable income. In all cases, the taxpayer can elect to deduct actual costs and expenses. For income from real property, individuals may deduct actual costs and expenses that can be substantiated as having been incurred during the period. Standard deductions are also permitted in lieu of actual costs and expenses. Standard deductions range between 10 percent to 30 percent of gross income, depending on the type of property.

55


Personal Allowances and Rebates of Tax The Revenue Code permits personal allowances as follows: THB Taxpayer

30,000

Taxpayer’s spouse

30,000

Lawful or adopted children under 25 years of age and in full-time education, or under parental care (maximum 3 children)

15,000 per child

Parent care allowance

15,000 per each parent

Reference: Section 47 of the Thai Revenue Code

Children of the taxpayer or his/her spouse, qualify for a child allowance. Children eligible for the above allowance must not exceed three in number, although this limitation only applies to children born on or after 1 January 1980. Other allowances are granted for life insurance premiums, provident fund contributions, interest payments on loans for residential purposes and charitable donations. An education allowance of THB2,000 is also available where a child is studying in school or university in Thailand. The spouse allowance and the child allowance will not be available in any particular year if the taxpayer resides in Thailand for less than 180 days in that year. Parents of the taxpayer or his/her spouse are entitled for a parent care allowance of THB30,000 for each person. Parent eligible for this allowance must be 60 years old and over, has no income or has insufficient income for sustenance and is under the care of the taxpayer under the conditions prescribed by the Director-General of the Revenue Code.

56


Tax Rates The current personal income tax scales for both residents and non-residents are as follows: Net assessable income (THB)

Marginal tax rate (%)

1-150,000

0

150,001-500,000

10

500,001-1 million

20

1,000,001-4 million

30

4,000,001 and above

37

Reference: Income Tax Schedule of the Thai Revenue Code; R.D. (No. 470) B.E. 2551 (2008)

Tax Administration Income tax returns must be filed on or before 31 March in respect of taxable income received during the preceding (calendar) year. Any outstanding tax on this income must also be paid on or before this date. Persons receiving income from the professions of law, medicine, engineering, architecture, accountancy, fine arts, a contract of work whereby the contractor provides essential materials besides tools, and income from other businesses, commerce etc., during the period January to June, must file a half-year return and pay personal income tax by September each year. Such persons are allowed to deduct 50 percent of the annual allowances when making the half-year return. The tax paid in this respect is taken as a credit in the calculation of the tax payable at the end of the year. For married couples, the husband is normally responsible for filing a joint return and paying any tax due. However, if desired, a separate return may be filed by the spouse in respect of employment income only. It should be noted that the cumulative tax liability will be lower if separate returns are filed. Every resident taxpayer in Thailand will be assigned a tax ID number that must be quoted on all tax returns.

57


A Thai nationality taxpayer having a citizen identification number shall use their citizen identification number to quote on income tax returns and returns remitting withholding tax. A tax clearance certificate is required prior to departure from Thailand for the following:

● ● ●

Aliens who are liable to pay or remit tax that is due or overdue at the time of departure; Aliens who are liable to pay tax on behalf of foreign companies doing business in Thailand; and Foreign public entertainers.

Indirect and Other Taxes Social Security Taxes Any company with one or more employees is required to make contributions to the Social Security Fund. Contributions to a Social Security Fund are made by employees, employers and the Government. The minimum contribution amount is 5 percent of the employees’ salary up to THB750 per month for the employee and the employer and 2.75 percent for the Government. The contribution must be deducted by the employer at source and remitted to the Fund on a monthly basis. Sales Tax/VAT/GST VAT is chargeable on a wide range of goods and services supplied in Thailand and also on the importation of goods. As a general consumer expenditure tax, the basic principle of VAT is to charge tax at each stage of production, allowing each supplier credit for the tax paid, so that the VAT eventually impacts the final consumer. Taxable supplies attract VAT at either the standard rate of 7 percent or the zero rate. Zero rating applies to exports. Certain supplies are exempt from VAT, for example, unprocessed agricultural products, newspapers, magazines, textbooks, health care services, educational services, auditing services, rent of immovable property and internal transport by land. The current VAT is 7 percent. This is a reduced rate for a temporary period under a special Royal Decree. Unless this period is further extended the rate will revert to 10 percent on 1 October 2010.

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Commencing on or after 1 April 2005, a supplier carrying on the business of selling goods and providing services must register for VAT if the tax base of its business exceeds THB1.8 million. Such businesses are required to account for VAT by submitting VAT return forms on a monthly basis. Any VAT due is liable to be paid on or before the 15th day of the following month. All registered VAT operators must file a monthly VAT return within 15 days of the following month, regardless of whether any goods have been sold or services rendered in that month. The excess input tax can be claimed as a refund or used as credit applied toward the following month’s return. Specific Business Tax Certain Thai businesses are excluded from the VAT system and are, instead, subject to a substitute tax. SBT is calculated as a percentage of gross receipts. The businesses subject to SBT and the applicable rates include: SBT

Rate % (1)

Banking and similar businesses

3.3 or 0.11

Finance, security and credit foncier

3.3 or 0.11

Life Insurance Trading in immovable properties

2.75 3.3 or 0.11 (2)

Reference: Section 91/6 of the Thai Revenue Code; R.D. (No. 413) B.E 2545, R.D. (No. 469) BE 2551 (2008) & R.D. (No. 472) BE 2551 (2008). 1 2

The above rates include a Municipal Tax at 10 percent of the SBT rates. The rate of 0.11% is subject to many conditions including that the sales must be registered before 28 March 2010

Where the above businesses engage in transactions that are not directly related to their principal activities, as stated, they may be subject to VAT. A return should be submitted each month, regardless of whether any SBT is due, within 15 days of the following month. Filing is made at the local district office where the place of business is located. If there is more than one place of business, the filing must be made separately for each place of business, unless approval has been obtained from the Director-General of Revenue for a consolidated return. 59


Customs Duty Customs duty is levied on both imports and some categories of exports. Import duties are levied on either a specific, an ad valorem, or a compound basis. The compound basis is a combination of the specific and ad valorem basis (whichever is higher). The duty rates generally range between 1 percent and 20 percent, except for some luxury products - e.g. cigarettes (60 percent), liquor, vehicle, etc. Generally, the import value for the calculation of import duty is based on CIF and the export value, FOB. The Customs valuation is made under GATT which primarily uses the transaction value on prices actually paid or payable. There is a provision, however, for related party transactions to be adjusted. If the customs value cannot be determined from the transaction value of the imported goods, the customs value will be determined using one of five other successive methods, which include the transaction value of identical goods or similar goods, deductive value, computed value and fallback value. Export duties are generally imposed on only two groups of commodities, comprising rawhide and wood. In addition to customs duty, VAT is payable on the import value plus duty. Foreign trade transactions are subject to the provisions of exchange control laws and various licensing agreements. VAT for exports is at the rate of zero percent. Excise Duty Excise tax is imposed on the following commodities based on a specific, an ad valorem, or a compound basis. The compound basis is a combination of the specific and ad valorem basis (whichever is higher). The excise tax is applied to the following categories of products whether manufactured locally or imported:

● ● ● ● ● ● ● ● ● 60

Petroleum oil and products; Mineral water and beverages (both alcoholic and non-alcoholic); Certain kinds of electrical appliances; Certain glass and crystal products; Motor vehicles; Yachts; Perfumes and cosmetics; Other products, e.g. carpets, marble, battery, etc; Entertainment places such as horse racing, etc;


● ● ●

Liquor; Snuff and tobacco; and Playing cards.

Tax liability arises on locally manufactured goods when the products are shipped from the factory. On imported goods, excise tax is imposed on importation. The value for the calculation of excise duty is based on (a) ex-works price for locally manufactured goods, or (b) CIF price plus import duty, including the excise tax. In addition to excise duty, interior tax at the rate of 10 percent is imposed on the excise duty amount for all the above products, except tobacco and cards. Stamp Duty A number of documents and transactions listed in the Stamp Duty Schedule of the Revenue Code are subject to stamp duty. Rates depend upon the class of instrument, but in general are between 0.1 percent and 1 percent, although for certain instruments the stamp duty is capped, e.g. for loan documents stamp duty is capped at THB10,000. Property Taxes A House and Land Tax is levied at the rate of 12.5 percent of the assessed rental value of the property. It is levied on the owner of the building, but does not apply to owner-occupied residences. Payroll Tax Payments of employment income are subject to income tax withholding. Tax withheld by the employer must be remitted within seven days after the end of the month of payment, together with lodgment of the tax return, to the Revenue Department. The employee is provided a withholding tax certificate and can use the tax withholding at source as a credit against the annual income tax payable for the pertinent tax year. Inheritance Tax There is no inheritance tax in Thailand.

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Gift Tax Gifts that are bestowed in accordance with established custom or on the occasion of a special ceremony (for instance, birthdays and weddings) are exempt from tax. Glossary BIBF

Bangkok International Banking Facilities

BOI

Board of Investment

CFC

Controlled Foreign Company

CIF

Cost, Insurance and Freight

DTA

Double Tax Agreement

FOB

Free on board

GATT

General Agreement on Trade and Tariff

GST

Goods and Services Tax

ID

Identity

MAI

Market Alternative Investment

MOC

Ministry of Finance

OECD

Organization for Economic co-operation and Development

PE

Permanent Establishment

ROH

Regional Operating Headquarter

SBT

Specific Business Tax

SET

Stock Exchange of Thailand

SME

Small and Medium Enterprise

THB

Thai Baht

USD

US Dollar

VAT

Value Added Tax

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Chapter 5

Investment Incentives Incentives under the Investment Promotion Act Government Role The Board of Investment (BOI) is the government agency responsible for administering incentives to encourage private-sector investment in priority areas. The structure, role, and policies of the BOI today basically follow the guidelines contained in the Investment Promotion Act of 1997, as amended in 1991 and 2001. The BOI is chaired by the Prime Minister and includes, as members and advisors, key ministers and private-sector representatives. The office of the BOI functions as the administrative arm of the Board. The BOI has seven regional offices in Songkhla, Nakhon Ratchasima, Chiang Mai, Chonburi, Surat Thani, Khonkean and Phitsanulok, and eight overseas offices in New York, Frankfurt, Tokyo, Paris, Shanghai, Los Angeles, Osaka and Taipei. Foreign Equity Participant Rules The BOI uses the following criteria in considering the extent of foreign equity participation allowed in a promoted investment project: Criteria

Maximum foreign equity participation percentage (1)

Projects in agriculture, animal husbandry, fishery, mineral exploration and mining and service business under Schedule one of the Foreign Business Act B.E. 2542

49

Manufacturing projects in all zones

100

The Board may specifically fix the shareholding of foreign investors on some promoted projects when it is deemed appropriate.

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Objective of the BOI In the rapidly changing world of the 21st century, the major challenge that Thailand faces is to remain attractive to foreign investors. It is, therefore, imperative that the BOI must change with the times, in order to keep Thailand attractive to investors. Under the BOI’s new initiatives, the objective is to become less a regulator and more a facilitator of investment. In line with national development objectives, the business model for the BOI will include three targets. First, there will be a focus on attractive investment that draws talent and promotes R&D skill development as well as technological development and transfer, as productivity-driven wealth creation is more desirable than capital-driven wealth creation. Second, the BOI is encouraging the development of clusters that will enable businesses to take advantage of economies of scale and efficiency throughout the supply chain. Third, recognizing that conditions and investor needs vary from industry to industry, the BOI will move away from a “one size fits all” approach and will work with individual investors to develop customized packages of support for each project, depending on its contribution to economic development. Promoted Companies The types of entities that may be promoted by the BOI and granted investment incentives are: a limited company, a foundation or a co-operative. Application for promotion may be submitted in accordance with the rules, procedures, and forms prescribed by the BOI prior to the formation of the qualified promoted company. Non-Tax Incentives for Promoted Companies The following non-tax incentives may be granted to promoted companies: Guarantees:

● ● ● ● 64

Against nationalization; Against competition of new state enterprises; Against state monopolies; Against price controls; and


Against tax-free imports by the public sector.

Permission:

● ● ●

To own land; To bring in foreign nationals to undertake investment feasibility studies; To bring in foreign technicians and experts to work on the promoted project; and To take or to remit foreign currency abroad.

Protection Measures:

● ● ●

Imposition of a surcharge on competing imported products of up to 50 percent of CIF value for a period of one year at a time; Import ban on competing products; and Implementation of other tax relief measures as appropriate.

Investment Promotion Zones In line with the national goals of decentralizing and spreading the benefits of development to the country’s provinces, the BOI has divided all provinces of Thailand into three investment zones. Investors who set up their operations in provinces outside the central region of Thailand are entitled to a wider range of tax incentives. The three investment zones are as follows: Zone I:

Six provinces, namely: Bangkok, Samut Prakan, Nakhon Pathom, Nontaburi, Pathum Thani, and Samut Sakhon.

Zone II:

Twelve provinces, namely: Suphan Buri, Ayuthaya, Nakhon Nayok, Chachoengsao, Chonburi, Ratchaburi, Samut Songkram, Saraburi, Kanchanaburi, Ang Thong, Rayong and Phuket.

Zone III:

All the remaining 58 provinces and Industrial Estates, in Rayong province under conditions prescribed by the BOI.

The investor is able to establish factories in all investment zones, except for certain activities for which a specific zone is stipulated.

65


Major Tax Incentives for Promoted Companies The BOI grants two major types of tax incentives to promoted companies, namely: 1. 2.

Exemption or reduction of tariffs on imported machinery and equipment, as well as raw materials for the promoted activity; and Exemption from income tax on net profits and dividends. The extent of these incentives varies according to the location of the promoted company.

Customs Duty Exemption The general rules for granting import duty exemptions on the import of machinery and raw materials by promoted companies are outlined in the table below. Import Duty Reduction Zone I

Machinery 50 percent

(1)

Raw Materials 100(2)

II

50 percent(3) or 100 percent (4)

100(2)

III(5)

100 percent

100(6)

1

Machinery is subject to import duty of 10 percent or more.

2

For a period of one year, for raw and essential materials used in the manufacturing of export products.

3

For projects located outside industrial estates or promoted industrial zones and machinery is subject to import duty of 10 percent or more.

4

For projects located in industrial estates or promoted industrial zones.

5

Including Laem Chabung Industrial Estate and industrial estates and promoted industrial zones in Rayong Province.

6

For a period of five years.

Income Tax Exemption In general, the duration of income tax exemption granted to promoted companies depends on the project’s location. The period of tax exemption generally starts from the date of the first sale. The exemptions are shown in the table below.

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Years of Income Tax Exemption Zone

1

2

General

I

0

II

3(1)

III

(1)

8

Conditional

Total

(1) (2)

3

7(1) (2)

7

3

(2)

8

8

For projects with capital investment of THB10 million or more (excluding cost of land and working capital), must obtain ISO 9000 or similar international standard certification within two years from the start-up date. Otherwise the income tax exemption will be reduced by one year. Located in an industrial estate or promoted industrial zone.

Additional Fiscal Incentives for Projects Located in Zone III Promoted activities located in Investment Zone III may also be eligible for the following additional incentives: 1.

A project located in one of the following 36 provinces: Chai Nat, Chanthaburi, Chiang Mai, Chiang Rai, Chumphon, Kamphaeng Phet, Khon Kaen, Krabi, Lamphang, Lamphun, Loei, Lop Buri, Mae Hong Son, Mukdahan, Nakhon Ratchasima, Nakhon Sawan, Nakhon Si Thammarat, Phangnga, Phattalung, Phetchabun, Phetchaburi, Phitsanulok, Pichit, Prachin Buri, Prachuab Khiri Khan, Ranong, Sa Kaew, Sing Buri, Songkhla, Sukhothai, Surat Thani, Tak, Trang, Trat, Uthai Thani, and Uttaradit as well as Laem Chabung Industrial Estate and industrial estates or promoted industrial zones in Rayong province shall be granted further privileges, as follows: 1.1. A project located within industrial estates or promoted industrial zones is entitled to the following privileges:

• • •

50 percent reduction of corporate income tax for five years after the exemption period; and Double deduction from taxable income of transportation, electricity and water costs for 10 years from the date of first revenue derived from promoted activity. 75 percent import duty reduction on raw or essential materials used in manufacturing for domestic sales for 5 years, based on annual approval (this incentive is not available to projects in Laem Chabung Industrial Estate and industrial estates or promoted industrial zones in Rayong province.) 67


1.2. For a project located outside industrial estates or promoted industrial zones, a deduction can be made from net profit of 25 percent of the project’s infrastructure installation or construction cost for 10 years from the date of the first sale, and net profit for one or more years of any year can be chosen for such deduction. The deduction is additional to normal depreciation. 2.

A project located in one of the following 22 provinces: Amnat Charoen, Buri Ram,Chaiyaphum, Kalasin, Maha Sarakham, Nakhon Phanom, Nan, Narathiwat, Nong Bualamphu, Nong Khai, Pattani, Phayao, Phrae, Roi Et, Sakhon Nakhon, Sathun, Si Sa Ket, Surin, Udon Thani, Ubon Ratchathani, Yasothon, and Yala shall be granted further privileges as follows: 2.1. 50 percent reduction of corporate income tax for five years after the exemption period; 2.2. Double deduction from taxable income of transportation, electricity and water costs for 10 years from the date of first revenue derived from promoted activities; 2.3. 75 percent import duty reduction on raw or essential materials used in manufacturing for domestic sales for five years, based on annual approval, for projects located in industrial estates or promoted industrial zones.

Priority Activities The BOI places priority on promoting the following types of projects:

● ● ● ● ●

Agriculture and agricultural products; Direct involvement in technological and human resource development; Public utilities and infrastructure; Environmental protection and conservation; and Targeted industries.

The BOI announces annually the list of priority activities or industries. Such projects will be entitled to the following privileges:

● ● ● 68

Exemption of import duty on machinery regardless of location; Corporate income tax exemption for eight years, regardless of location; and Other privileges entitled for each zone.


Criteria for Factory Relocation To encourage industrial decentralization, the Board will grant promotion status to existing activities in the Central area, whether being promoted or not, if they relocate to the other regions. The following criteria are used: 1.

The operation must relocate from Zone I to Zone II, or from Zone I or Zone II to Zone III;

2.

The operation must relocate to industrial estates or promoted industrial zones;

3.

The type of activity must be one that is included in the List of Activities eligible for promotion and the size of the investment must be in accordance with that specified by the Board;

4.

The existing operation must be closed down and the operation at the relocated location must start within two years from the date of receiving the promotion certificate;

5.

The relocated project is granted tax and non-tax privileges as follows: 5.1. A project relocated to industrial estates or promoted industrial zones in Zone II will be granted corporate income tax exemption for a period of five years, provided that such a project with capital investment of THB10 million or more (excluding cost of land and working capital) obtains ISO 9000 or similar international standard certification within two years from the start-up date of its new plant. Otherwise the corporate income tax exemption will be reduced by one year; 5.2. A project relocated to industrial estates or promoted industrial zones in 40 provinces in Zone III will be granted the following: 5.2.1. Corporate income tax exemption for a period of eight years, provided that such a project with capital investment of THB10 million or more (excluding cost of land and working capital) obtains ISO 9000 or similar international standard certification within two years from the start-up date. Otherwise the corporate income tax exemption will be reduced by one year; 5.2.2. 50 percent reduction of corporate income tax for five years after the exemption period; 69


5.2.3. Double deduction from taxable income of transportation, electricity and water costs for 10 years from the date of revenue derived from promoted activity. 5.3. A project relocated to industrial estates or promoted industrial zones in 18 provinces in Zone III will be granted the following: 5.3.1. Corporate income tax exemption for a period of eight years, provided that such a project with capital investment of THB10 million or more (excluding cost of land and working capital) obtains ISO 9000 or similar international standard certification within two years from the start-up date of its new plant. Otherwise the corporate income tax exemption will be reduced by one year; 5.3.2. 50 percent reduction of corporate income tax for five years after the exemption period; 5.3.3. Double deduction from taxable income of transportation, electricity and water costs for 10 years from the date of first revenue derived from promoted activity; 5.3.4. Deduction from net profit of 25 percent of the project’s infrastructure installation or construction cost for 10 years from the date of first sale, and net profit for one or more years of any year can be chosen for such deduction. The deduction is additional to normal depreciation. 5.4. Activities that are included on the List of Activities Eligible for Promotion, but which are not eligible for corporate income tax exemption, will not be granted such exemption when operations are relocated. 6.

The corporate income tax exemption shall be granted from the day the first revenue is received from the relocated activities.

7.

Applications for relocation must be submitted to the office of the Board of Investment.

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Application Procedures The above-mentioned privileges are applicable to applications submitted after 1 August 2000. Once the application is approved, the BOI will inform the applicant of the privileges awarded and the conditions for investment promotion. Within one month from the date of the notice of approval, the applicant must confirm in writing to the BOI its acceptance of the investment promotion package, or otherwise seek any changes in the conditions and/or privileges outlined. The BOI will issue the Promotion Certificate to the applicant after receiving the following documents:

• • • • • • • •

Application form for promotion certificate; The memorandum of association; The certificate of business registration; A certificate stating the registered capital, a list of directors indicating those empowered to bind the company, and the address of the head office; A list of the shareholders and their nationalities; A document showing the transfer of funds from overseas, or a certificate of investment from overseas issued by the Bank of Thailand for foreign investors; A joint venture contract, licensing agreement, technical assistance contract and/or technology transfer contract (if any); and Form of utility and manpower requirements.

Thereafter, machinery and equipment must be imported within the period specified by the BOI. Normally, the factory must be ready to commence operations within 36 months after the receipt of the promotion certificate. The BOI must be informed in writing 15 days before the factory operations commence in order to allow an officer to inspect the premises. An official permit to start operations will then be issued by the BOI. Incentives under the Industrial Estate Authority of Thailand Act The Industrial Estate Authority of Thailand (I-EA-T) was established in 1972 as a government agency under the Ministry of Industry, and is responsible for industrial development and pollution control of industrial operations by setting up “industrial estates.” An industrial estate may also be set up in joint venture with private

71


developers. Industrial estates are divided into two zones according to the nature of the industries as follows:

• •

General Industrial Zone (GIZ), an area designated for industrial and service operations or other activities beneficial to or connected with industrial and service operations; and I-EA-T Free Zone, an area designated for industrial and commercial operations or other activities beneficial to or connected with industrial and commercial operations to achieve benefits in term of economy, state stability, public wellbeing, environmental management or other necessary purposes specified by the I-EA-T Board. Supplies taken into an I-EA-T Free Zone are entitled to additional tax and fee privileges, in accordance with the appropriate legislation.

Industrial operators locating their projects in the GIZ or I-EA-T Free Zone may be granted certain investment incentives without having to apply for BOI promotion, as follows:

Investors in G12 Zone are eligible for the following privileges: o o o

Permission to own land in an industrial estate; Permission to bring in foreign skilled workers as well as their spouses or dependents; and Permission to remit money abroad.

Investors in I-EA-T Free Zone are eligible for the following privileges: o o o o

Permission to own land; Permission to bring in foreign skilled workers as well as their spouses or dependents; Permission to remit money abroad; and Moreover, industrial operators locating in the I-EA-T Free Zone may be granted the following tax incentives: ƒ ƒ ƒ ƒ

72

Exemption from import duty, value added tax and excise tax on machinery and construction materials for the factory; Exemption from import duty, value added tax and excise tax on raw materials and supplies used in production; Exemption from export duty, value added tax and excise tax on machinery and construction materials for the factory; Exemption from export duty, value added tax and excise tax on raw materials and supplies used in production.


Incentives under the Petroleum Laws Governing Laws The Petroleum Act and the Petroleum Income Tax Act of Thailand enacted in 1971, together with various amendments, grant special incentives to concessionaires engaged in petroleum survey, exploration, and production. This is consistent with the government’s policy to develop Thailand’s natural resources. Qualification of Concession Applicant The applicant for concessions must be a company with sufficient capital, machinery, equipment, and experts to execute the survey, production, sale, and supply of petroleum. Investment Incentives The incentives extended to concessionaires under the Petroleum Act and the Petroleum Income Tax Act are:

● ● ● ● ●

Assurance that the state will not nationalize any private industrial activity; Permission to own land required for its operations; Freedom to export its products; Permission to bring in alien experts and technical staff and their dependents, including those of its contractors; and Exemption from tariffs on imported machinery, spare parts, and materials required for its business, or for the use of its drilling and oil field service contractors.

Reporting Requirements During the exploration period, the concessionaire is required to make periodic reports to the specific government entities on the progress of work, including a statement of expenditures. During the survey and exploration period, a concessionaire is not required to submit an income tax return to the Revenue Department. The first accounting period, for income tax purposes, starts from the date production starts. An income tax return must be filed, however, if an exploration concession is sold in whole or in part.

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Appendix 1 Documents Required for Registration Foreign corporations wishing to do business in Thailand through a branch office, representative office or regional office must submit documents and information required as follows: 1.

Affidavit from the Corporate Officer stating the following:

• • • • • •

Name of the corporation, registration number, and date of registration; Address of the registered office; Jurisdiction under which the corporation is registered; Name, address, nationality, age, and race of each director; number of shares held by each; and identification of the director(s) with the power to bind the corporation; Authorized capital of the registration, number of shares and par value of each, and amount of paid up capital stock; and Total number of shareholders, their nationalities, and number of shares owned or held by each national group

2.

Power of Attorney for the manager in Thailand giving him or her, in addition to the normal powers, the power to register the branch office with the pertinent Thai government authorities, and to act as the manager thereof

3.

Brochure or data book of the head office

4.

Company profile of the head office

5.

The latest audited financial statements of the head office

6.

The latest annual report of the head office

7.

Address and location map of the office in Thailand

8.

Organizational chart of the office in Thailand including the position, salary, and nationality of each of the employees including salary of the manager of the office

9.

Estimated annual expenses of the office in Thailand

74


10. An explanatory letter. According to the Act, for the purpose of the application for a business license, an applicant must submit an explanatory letter describing details of the business to be conducted in Thailand, together with details of the business plan including expenditures for the initial three year period. The explanatory letter must describe and include at least the following details:

Background of the applicant, name, registered capital, place of business and all types of business currently operating in Thailand;

Business project or plan; this shall include: o o o o o o o o o o

Type of business applied for permission under the Alien Business Act B.E. 2542; Characteristic of business and process or operation; Size of business, amount of capital, and source of capital; Employment, nationality, labor numbers, skilled workers both Thais and aliens; Type and quantities of machinery and raw materials used for operation; Transfer of technology to Thais; Research and development; Expected period for business operation in Thailand; Past performance of the applicant; and Effects on society, natural resources and environment

Justification and necessity to request for permission;

Pros and cons of the business towards the following factors: o o o o o o o

National safety and security; National economic and social development; Public order and good morality; National tradition and culture; Preservation of natural resources; Preservation of energy and environment; and Consumer protection

11. Well known projects, clients and /or products (case by case)

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Appendix 2 Types of Businesses Restricted by the Alien Business Law Annex 1 Businesses in which aliens are not allowed to operate for special reasons 1. 2. 3. 4. 5. 6. 7. 8. 9.

Newspaper publication, radio or television station Rice farming, farming or gardening Livestock farming Forestry and wood processing from natural forests Fishery, but only the catching of aquatic animals in Thai territorial waters and in the Exclusive Economic Zone of Thailand Extraction of Thai herbs Trading and auction of Thai antiques or objects of national historical value Manufacturing or casting of Buddha images and manufacturing of palm bowls Trading in land

Annex 2 Businesses involving national safety or security or affecting the arts, culture, folk customs, traditional handicrafts or natural resources and the environment 1.

Manufacturing, sale and maintenance of:

• • • • 2.

Firearms, ammunition, gunpowder and explosives; Components of firearms, ammunition and explosives; Armaments, military ships, aircraft or vehicles; and Accessories or components of war equipment, generally

Domestic land, water or air transport, including domestic aviation business

Businesses affecting the arts, culture, folk customs and traditional handicrafts 1.

Trading in antiques or objects of art, being Thai works of art or handicrafts

2.

Manufacturing of wood carvings

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3.

Silkworm raising, manufacturing of Thai silk threads, Thai silk weaving or Thai silk pattern printing

4.

Manufacturing of Thai musical instruments

5.

Manufacturing of products from gold, silver, niello, bronze or lacquerware

6.

Manufacturing of crockery or earthenware which are Thai cultural arts

Businesses affecting natural resources or the environment 1.

Manufacturing of sugar from sugar cane

2.

Salt farming, including efflorescent salt production

3.

Rock salt mining

4.

Mining, including stone blasting or crushing

5.

Wood processing to make furniture and utensils

Annex 3 Business in which Thai nationals are not yet ready to compete with aliens 1.

Rice milling and production of flour from rice and field crops

2.

Fishery, but only aquaculture

3.

Forestry from cultivated forests

4.

Manufacturing of plywood, wood veneer, chip-board or hard-board

5.

Manufacturing of lime

6.

Accounting services

7.

Legal services

8.

Architectural services

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9.

Engineering services

10. Construction, except

Construction of things providing fundamental services to the general public in respect of public utilities or communications requiring special equipment, machinery, technology or expertise, with alien minimum capital of THB500 million or more; and Other types of construction prescribed in Ministerial Regulations

11. Brokerage or agency business, except

• • •

Brokerage or agency in trading securities or services relating to trading in agricultural commodity futures, financial instruments or securities; Brokerage or agency in the purchase and sale or procurement of goods or services necessary for production or the provision of services by an affiliated enterprise; Brokerage or agency in the purchase and sale, purchase, distribution or acquisition of markets, both domestic and foreign, for the distribution of domestically manufactured or imported goods, in the nature of operation of an international business, with alien minimum capital of THB100 million or more; and Other types of brokerage or agency prescribed in Ministerial Regulations

12. Auction, except

• •

Auction in the nature of international bidding other than for antiques, historical objects or objects of arts, being Thai works of art, handicrafts or antiques or objects of national historical value; Other types of auctioneering prescribed in Ministerial Regulations.

13. Domestic trading in local agricultural products or produce not yet prohibited by law 14. Retail sale of goods of all kinds, with a total minimum capital of less than THB 100 million or a minimum capital of each store of less than THB20 million

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15. Wholesale sale of goods of all kinds, with a minimum capital of each store of less than THB100 million

16. Advertising business 17. Hotel business, except for hotel management service 18. Tour agency 19. Sale of food or beverages 20. Seed planting, reproduction or improvement business 21. Other service business, except service businesses prescribed in ministerial regulations

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Appendix 3 Contacts KPMG in Thailand Empire Tower 48th – 51st Floors 195 South Sathorn Road Yannawa, Sathorn Bangkok 10120 Thailand Tel: +66 2 677 2000 Fax: +66 2 677 2222 Email: tax@kpmg.co.th Audit Services Charoen Phosamritlert Tel: +66 2 677 2162 Fax: +66 2 677 2222 Email: charoen@kpmg.co.th Tax Services John Andes Tel: +66 2 677 2430 Fax: +66 2 677 2222 Email: jandes@kpmg.co.th Advisory Services Narisara Phatanaphibul Tel: +66 2 677 2720 Fax: +66 2 677 2222 Email: narisara@kpmg.co.th

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