International Tax Planning – Thailand Tax Implications for Foreign Entities in Thailand

INTERNATIONAL TAX PLANNING

Thailand Taxation Basics

It is crucial  for investors and proprietors worldwide with an eye on Thailand to thoroughly consider the tax implications that flow from their inception within Thailand’s tax regime. Similar yet distinct from other tax jurisdictions, it is important to understand the different forms of taxation, methods of tax calculation and common structures to deal with the local tax.

Equipped with in-depth tax knowledge, the investor or proprietor may indeed find that Thailand’s tax implications are not severe in comparison. With proper implementation of strategy and structure, Thailand’s tax is far from an incapacitating burden but on the other hand rather accomodating for international subsistence.

In fact, for instance, where a foreign entity’s Thai presence qualifies, it may be privilleged as a Regional Operating Headquarters (“ROH”) which grants the foreign-owned ROH minimal tax liabilities.

Thailand’s tax code is encompassed in the Thai Revenue Code (“TRC”) and Ministerial Regulations.

Companies incorporated under Thai Law – Worldwide Income

The First Paragraph, Section 41 of the Revenue Code dictates that income derived from within Thailand is taxable:

“Every person who…derived assessable income under Section 40 from a post or office held or business carried on in Thailand, or from the business of an employer in Thailand, or from property situated in Thailand shall pay tax…whether such income is paid within or outside Thailand.”

It flows that the Thai-sourced income of Foreign Companies carrying on business in Thailand  [Taxable ‘Permanent Establishments’ include “Companies incorporated in a foreign country and carrying on business in Thailand” – Section 66 Paragraph 2 Thai Revenue Code] is taxable.

Section 76 bis of the Thai Revenue Code further provides:

“If a juristic company or partnership organized under a foreign law has an employee, representative or go-between to carrying on business in Thailand and thereby derives income or gains in Thailand, such a juristic company and partnership shall be deemed carrying on business in Thailand, and such employee, representative or go-between, whether a natural or juristic person, shall, in so far as the said income or gains are concerned, is deemed to be the agent of the said juristic company or partnership and shall have the duty and liability to file a return and pay tax under the provisions of this Division.”

This provision essentially catches all foreign companies with Thai  ‘agents’ generally taking the form of affliate / subsidiary companies that derive income within Thailand as ‘carrying on its business in Thailand’ – ‘agents’ of which are obligated to file returns and remit taxes on income and/or gains so earned by the foreign company.

This principle is further encompassed in the respective Double Taxation Agreements to which Thailand is a member to, i.e. explicitly catching ‘agents’ as ’employees’ and may usually be found under Article 5 which generally provides for the definition of ‘Permanent Establishment’ (e.g. Article 5(3)of the Thailand – Hong Kong Double Taxation Agreement).

 Corporate Income Tax Rates based on Foreign Vehicle

*** Updated: January 2013 – Corporate Income Tax Rate slashed to 20% ***

Representative / Regional Offices do not attract tax liability as they function as non-revenue generating vehicles.

It is also important to observe that Thailand’s Corporate Income Tax Regime makes no distinction between foreign-owned and Thai-owned companies.

Special Rates 

Regional Operating Headquarters – 10%

Certain lower income bracket Small-Medium Enterprises – 15% / 20%

Certain Listed Companies – 25% 

There are also various industry-specific based rates, for instance, in the Oil & Gas industry – 50%.

Dividends

Onshore Dividends by Listed Companies – Exempt

Onshore Inter-Company Dividends – Exempt on condition of fulfilling 25% and 3 month holding conditions, non-fulfilment of which only attracts exemption for half of the dividends

Offshore Dividends – subject to the tax rate of 25% and a 6-month holding requirement and 15% Foreign Tax conditions

Capital Gain – Taxed as ordinary income – exemption for capital gains from listed shares

In addition to Corporate Income Tax, Foreign Companies operating in Thailand are subject to the following taxes in their remittance of profits / dividends:

Section 70 bis Profit Remittance Tax (“PRT”)

The branch office is required to deduct 10% PRT upon distribution of profits to the head office within 7 days in the following month of which distribution was made. Late payment attracts a penalty of a 1.5% surchage (capped at amount of tax payable).

There had been some ambiguity and resulting confusion regarding the proper method of calculation for Thai PRT. This had been recently settled by the Central Tax Court which had determined that the 10% PRT was incurred as a ‘second-level tax’ and only imposed on the profit after the company had already paid the 30% Corporate Income Tax, the latter of which would be the ‘first-level tax’ in the ‘Halliburton’ case. This essentially means that the PRT as a ‘second-level tax’ is calculated based on the balance of profit, similar in nature to a ‘dividend’ distribution from the foreign company’s Thai subsidiary to its foreign parent, equating the Section 70 bis profit to ‘net profit after tax’ and not profit per normal accounting. Further, the Court ruled that such tax could only be calculated at end of accounting year and thus remittance of service fees and subsequent profits to the foreign parent office is only PRT taxable if it can be identified as ‘net profit after tax’

In short, the 10% PRT is only to be imposed after the 30% Corporate Income Tax has been remitted.

Where the foreign company may be considered not to be carrying on business in Thailand, any offshore remittance of profits will similarly attract a 10% Withholding Tax as per Section 70 TRC.

Forum of Adjudication of Tax Disputes

For companies incorporated in Bangkok, the appropriate form of adjudication of tax disputes is the Central Tax Court.

Taxpayers desirous of contesting tax assessments to the Thai tax Courts are required to pay their tax so assessed up front, somewhat in a manner of an ante.

Inasmuch, legal challenges to tax should not be thought of as leeway for suspending tax payment. Practice-wise, evidence such as mortgage deeds, bank guarantees, and so forth may be submitted to the Tax Revenue Department to show that the tax has been paid. Upon receipt of the final Court decision favoring the taxpayer, the taxpayer will be awarded a refund of his surplus tax payment on top of which there will be imposition of 1% interest per month (which need be requested) amount of which is capped at the amount of tax and is not compoundable.

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For more information on the foregoing, please contact the author JOEL LOO SEAN EE, the Bangkok-based Senior Regional Counsel at Kelvin Chia Thailand and a member of Kelvin Chia Partnership’s Regional Practice Group at Joel.Loo@KCPartnership.com.

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This article is published to provide general information only and is not offered as specific advice on any particular matter – This information is to be taken subject to proper consultation with a lawyer.

All written material on BANGKOK LEGAL BLOG (BLB) including this post are the Copyright of Joel Loo Sean Ee. Any attempt to plagiarise or reproduce these materials in whole or in part, in verbatim or in paraphrase, or in any other form that it can be conceivable that such attempt is being made is an offense in law and will be an invitation by offenders to face charges and prosecution in a Court of Law.
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