Latest Tax Laws & Rules Updates for 2008
“Latest Tax Law & Rules Updates for 2008”
presented by
Picharn Sukparangsee
at
the Conference on “Thai Tax 2008”
arranged by
the Asia Business Forum
on February 14-15, 2008
at the Royal Orchid Sheraton Hotel, Bangkok
1. Macro View on Thailand tax directives
2. Important tax rules and changes
3. Implications for corporate /investors
4. How to effectively deal with changes
1. Macro View on Thailand tax directives
Thai tax is a tax system of a single state, not a federal of states.
Thai income tax is based upon a worldwide income basis, not a territory basis.
Thailand does not have income tax law as separated from capital gains tax law.
Thailand applies VAT, not GST.
Specific business tax of Thailand is applicable to certain businesses.
Thailand does not have property tax as such.
Thailand does not have inheritance tax or gift tax.
The Revenue Code of Thailand does not provide for group taxation.
New Proposals
PIT
Expenses should be increased from a minimum of Baht 60,000 to Baht 100,000.
A husband and a wife should be able to jointly file a tax return but the tax rate for each of them should be the rate for each individual.
CIT
The tax reduction for listed companies should be extended for another two years for the following:
1. Company to be listed on the SET from 30% to 25%
2. Company to be listed on the MAI from 30% to 20%
It was also proposed that companies off the SET and the MAI making additional investment would be eligible for 5% reduction from the 30% standard rate of corporate income tax.
VAT
The rate of VAT should increase in exchange for reduction of corporate income tax, if any. However the economics would not be favourable, the rate of VAT might stay at 7%.
Tax Collection
Tax collection in the fiscal year 2007 (from October 2006 to September 2007)
The total revenue taxes were Baht 1,119,203 million increased from the fiscal year 2006 by Baht 62,877 million or 5.9 % (while the economic growth was 4.3%)
1) PIT Baht 192,795 million
2) CIT Baht 384,618 million
3) VAT Baht 434,272 million
4) SBT Baht 34,406 million
5) Petroleum Tax Baht 65,735 million
Does Bangkok represent Thailand ?
Taxes collected in Bangkok in the fiscal year 2007 were Baht 737,969 million
Taxes collected from more than 70 provinces in the fiscal year 2007 were Baht 381,234 million
Taxes under studies
(1) Environmental tax,
(2) Property tax
(3) Inheritance tax
It was studied that to protect good environment and to reduce a gap of income and property, adjustment of the structure of tax collection should be made to expand new tax bases, the following taxes should be adopted :
(1.) Environmental Tax
Collection of environmental tax would alleviate pollution.
(2.) Property tax
Property tax would be collected on computation of tax on actual wealth bases such as land, structure, shares and financial securities.
(3.) Inheritance Tax
Inheritance Tax would be levied from inheritance of a deceased such as land , houses, factories and shares to discourage people from accumulation of wealth.
BOI
1. Exemption or reduction of import duties on imported machinery.
2. A reduction of up to 90% of import duties on imported raw imported for manufacturing.
3. Exemption from corporate income taxes for up to 8 years.
4. Exemption of dividends derived from the BOI business.
5. Exemption of 50% of corporate income tax for 5 years after the exemption of corporate income tax for up to 8 years.
2. Important tax rules and changes
PIT
Exemption of interest paid
Exemption of income paid as interest of loan for purchase , hire purchase or construction of housing building and the building purchased or constructed is mortgaged to secure the loan provided that income exempted shall be an actual amount paid but shall not be more than Baht 100,000 in any of the three cases:
(1) Interest paid to any of the following:
(a) property fund for resolving problems in the financial institutions established under the law governing securities and exchange;
(b) mutual fund for resolving problems in the financial institutions established under the law governing securities and exchange;
( c) specific legal entity established for securitization under the law on a special purpose vehicle for securitization only in the case that such legal entity assumes rights of creditors in substitution of the mutual funds in (a) or (b) , banks, or other financial institutions , life insurance companies , cooperatives or employers; or
(2) interest paid to a bank or another financial institution , life insurance company, cooperative or employer; or
(3) interest of the loan to the Government Pension Fund under the law on government pension fund.
The exemption is allowed for interest paid from 1 January 2007 onwards.
Interest under any of the three combined with interest of the loan under Section 47 (1) (h) shall not exceed Baht 100,000.
CIT
Listing
In the case of companies to be listed,
1) a company on the SET, 30% corporate income tax is reduced from 30% to 25%, and/or
2) a company on the MAI, 30% corporate income tax is reduced from 30% to 20%.
Reduction of Corporate income tax shall be for a period of 3 consecutive accounting periods from the first accounting period in which a company has its securities listed on the SET or the MAI under the law on securities and exchange.
Conditions shall have been complied with.
CIT
Reduction of CIT in a special development zone in the far southern region of Thailand from 2007 to 2009 on the following:
(1.) Income under Section 40 (7) and (8) from manufacture, a sale of goods or provision of services is subject to income tax at the rate of 0.1 of the assessable income.
(2.) Reduction of corporate income tax to 3% of the net profits to a company or a partnership which has its place of business in the special development zone and has income arising from manufacture , a sale of goods or provision of services.
(3.) Reduction of withholding tax under Section 50 (5) to 0.1 % of the proceeds from a sale of real property.
(4.) Specific business tax under Section 91/6 (3) shall be reduced to 0.1 of the receipt from a sale of real property.
VAT
The rate of VAT shall be reduced to 7% for a sale of goods, provision of service or import of goods in every case which liability to pay VAT arises from 1 October 2007 to 30 September2008.
SBT
The rate of SBT shall be reduced to 0.01% of the following revenues from a banking business under the law governing commercial banking, a finance business , a securities business and a credit foncier business under the law governing undertaking of a finance business, a securities business and a credit foncier business or a business similar to a banking business:
(1) interest from a borrowing between financial institutions or other legal entities as prescribed by the Director-General and the borrowing has a period of not more than 1 year.
(2) profits before deduction of any expenses from a resale of securities under an agreement on purchase or sale of securities with an agreement of resale or repurchase entered into between financial institutions or other legal entities as prescribed by the Director-General and the borrowing has a period of not more than 1 year.
(3) interest of cash security from an agreement of purchase or sale of securities with an agreement of resale or repurchase in (2).
(4) interest or discount derived from a debt instrument or profits before deduction of any expenses derived from a purchase or a sale of a debt instrument.
(5) interest from an agreement of borrowing or lending of securities.
(6) profits before deduction of any expenses derived from exchange or trading of currency.
(7) interest, fee or profits before deduction of any expenses derived from trading of future agreement only in the case that underlying asset or derivative is any currency , a debt instrument, currency exchange , interest rate , other underlying assets or derivatives as prescribed by the Director-General and the agreement is entered into off future dealing centre under the law on financial future agreement but excluding an agreement of purchase or sale of securities with an agreement of resale or repurchase.
Supreme Court Decision
Exchange loss
The plaintiff , a real estate company , has a loan from a local bank to buy land. The principal and interest of the loan are regarded as costs of the land which is treated as capital expenditure and not operating expense.
The plaintiff also entered into the forward contract to minimize the potential risk of exchange rate fluctuation which could arise upon loan repayment.
Question
Can the foreign exchange loss and the expenses from the forward contract be deductible expenses ?
Swap
The borrower entered into the loan agreement with the foreign bank. In addition, the borrower also entered into the interest rate swap agreement with the foreign bank.
Question
Is the difference of interest rates under the interest rate swap agreement subject to Thai Tax ?
Rulings
PIT
Estate
A final court judgment that a heir is deprived from estate and land shall be returned to the estate shall be deemed to be a sale of land.
Question
Is the deemed sale of land subject to PIT, WT and stamp duty ?
Sale of Property
An individual receives the proceeds from a sale of property at a public auction. The proceeds is not sufficient for repayment of the principal and the interest.
Question
Are the proceeds from the sale subject to Thai tax ?
CIT
R&D
A Thai company engages a foreign company to do R&D on products without any transfer of technology. The foreign company has no PE in Thailand. The Thai company makes payment to the foreign company.
Question
Is the payment subject to any withholding tax ?
Goods Stolen
Goods of a company were stolen. No insurance was made by the company. The company informed the police who examined the factory and made a summary report to a public prosecutor that an investigation should cease.
Question
Can the company record the value of the cost of goods stolen as expenses for computation of the net profits ? In which year can the expenses be recorded in the accounts ?
Question
Can the goods stolen be regarded as goods missing from the report of goods and raw material and are treated as a sale for the VAT purpose ?
Question
Is the input tax incurred from the goods stolen directly related to the business operation of the company and can it be used to offset the output tax for VAT computation purposes ?
Partial business purchase
A purchaser enters into a sale and purchase of part of the business. The purchase price is Baht 190 million. But the net book value of the business is appraised at Baht 900 million. The purchaser records the difference between the purchase price and the net book value at Baht 710 million as the negative goodwill.
Question
1. Shall the purchaser be required to include the negative goodwill as income of the purchaser ?
Question
Can the purchaser use the net purchase value for computation of expenses or depreciation or amortization of the property for the purpose of computation of the net profits for payment of corporate income tax ?
Delivery of goods to a customer outside Thailand
Company A orders goods from its parent company in one foreign country which delivers the goods to a customer of Company A in another foreign country.
Question
What are tax implications in this case ?
Expense
Company A imports coffee makers. If the coffee maker is regarded as an industrial goods, import duty at the rate of 1% shall be imposed on the value of the industrial goods. If the goods is regarded as a household goods, import duty at the rate of 30% shall be imposed on the value of the industrial goods.
Question
If at the time of the import of the goods, Company A is ordered by the Customs Department to pay 1% import duty and lays a bond for another 29% import duty, will the additional import duty be allowed to be included as costs of goods for computation of the net profits in the accounting period of the import of coffee makers ?
Question
If in a separate accounting period, Company A is ordered by the Customs Department to pay 1% import duty and lays a bond for another 29% import duty, will the additional import duty be allowed to be included as expenses for computation of the net profits in the accounting period of the import of coffee makers ?
Land and transfer fees and expenses
The Company is to bear on behalf of its customers for all transfer fees and related expenses incurred form transfer process.
Question
Can the transfer fee and expenses paid by the company be deductible ?
Provision of Service
Company A is incorporated in Thailand and provides its parent company in a foreign country with information on a factory and quality control. The parent company uses the information for contact with the customers in foreign countries. The parent company remits money for expenses of Company A every month to cover salaries, expenses for quality control.
Question
Is the business of Company A subject to VAT ?
Sale or Hire of Work
Company A manufactures goods for sale in its ordinary course of business. Some times, Company A manufactures some goods and have a trade mark fixed on the goods at an order of its customer. Company A procures all raw materials.
Question
Is the payment subject to Thai tax ?
Warrants
Share warrants are issued by a company to its employees and transferable. The Company also issues the warrants to its existing shareholders which are listed on the SET.
Question
What is the price of the warrants issued to the employees of the Company ?
Question
If any of the employees sells warrants on the SET, will the proceeds from the sale of the warrants be exempted from personal income tax ?
Question
If an employee exercises the right under the warrant to purchase shares of the Company at the price lower than the market price , will the difference be subject to personal income tax ?
Website and advertising fee
A Thai company engaging in gems stone business paid advertising fee and auction management fee via website to a Swiss company which is a legal entity incorporated under the law of Switzerland and does not carry on any business activities in Thailand.
In this regard, the computer server of the Swiss company which was used for the advertising and auction is located in Thailand. However , the company does not have authority to control or manage the website.
The potential customers around the world including those in Thailand can access to the website in order to browse and bid for the company’s gems stones.
Question
Is the payment of the fee subject to Thai tax ?
Leasehold and services transfer and VAT implications
The company transfers leasehold right of the building and the right to use the central facilities to other persons.
Question
Are the transfer of the leasehold right of the building and the right to use the central facilities subject to Thai tax ?
3. Implications for corporate /investors
Application for tax benefits to the BOI , if eligible.
Application for listing of shares on the SET or the MAI , if eligible.
A sale of goods , provision of services or import of goods to be completed within 30 September 2008.
Benefits from existing laws on exemption or reduction of taxes.
CIT
Standard rate of 30% of the net profits
Reduction of rate of CIT
1) companies to be listed on the SET or the MAI
SET -25%
MAI -20%
2.) SME companies
2.1) not more than Baht 1 million – 15%
2.2) Baht 1 million to less than Baht 3 million - 25 %
2.3) From baht 3 million or more – 30%
4. How to effectively deal with changes
Use of tax benefits
- exemption of capital gains for a sale of shares
- exemption of tax for debt restructuring
- reduction of corporate income tax for listed companies
- reduction of tax for SME companies
- application of tax losses
- use of a foreign company
Arrangement of a transaction to qualify for tax exemption or reduction.
- purchase of shares and purchase of assets
- a sale of shares on and off a stock exchange
- a sale of goods and provision of service
- provision of service and intellectual property
Preparation of documents to be in line with tax benefits
- a sale agreement and a service agreement
- a service agreement and a technical assistance agreement
Exploration of relevant double taxation agreements between Thailand and its counterparty
- business profits and royalties
- dividend and interest
- capital gains and dividend
Consulting with a tax advisor on specific issues.
OUR PUBLICATIONS