I INTRODUCTION

Thailand is a top destination for foreign direct investment (FDI). With its strategic location in the centre of Asia, which is the fastest-growing economic market in the world and offers great business potential, Thailand serves as a gateway to South East Asia and has become a hub for multinational companies.

Despite internal political unrest, Thailand continues to maintain investor confidence and welcome investment from all over the world. The government has actively encouraged FDI, especially investment that contributes to the development of the economy and employment, as well as technology transfer. The World Bank’s Ease of Doing Business 2017 report ranked Thailand as the 46th-easiest country in which to do business out of 190 countries worldwide, which is higher than China, India, and most of the Association of Southeast Asian Nations.

The government supports FDI through various vehicles. For example, foreign businesses promoted under the Board of Investment (BOI) scheme may be granted tax and import duty exemptions for a specified period, permission to bring in foreign expatriates, permission to own land and permission to transfer foreign currency, as well as other support services.

II COMMON FORMS OF BUSINESS ORGANISATION AND THEIR TAX TREATMENT

i Corporate

Businesses generally adopt a corporate form. The principal forms of corporate organisation are limited liability companies (either private or public), registered partnerships, branch offices, representative offices and regional offices.

Limited liability companies

The nature and form of a limited liability company in Thailand is essentially the same as in many other jurisdictions. The capital of a limited liability company is divided equally and is represented by shares of a designated (par) value. The liability of each shareholder is limited to the unpaid portion of the shares held. Limited liability companies can be private limited companies, which are subject to the Civil and Commercial Code (CCC), or public limited companies, which are subject to the Public Limited Companies Act, BE 2535 (1992) (PLCA). Companies are subject to corporate income tax (CIT) on their net profits.

Private limited companies

At least three natural persons (not necessarily Thai citizens) must act as promoters to establish a private limited company, with each promoter holding at least one share and thus becoming a shareholder upon incorporation. The par value of a share of a private limited company is at least 5 baht, and each share must be at least 25 per cent paid up. The incorporation of a private limited company can be completed in one day, provided that all conditions under the CCC are met. Generally, there are no restrictions as to the nationality of the directors, except for companies that engage in certain commercial activities.

Shares in a private limited company may not be offered publicly. However, a private limited company may issue certain debt instruments to the public, subject to approval from the Securities and Exchange Commission (SEC) under the authority of the Securities and Exchange Act, BE 2535 (1992) (SEC Act).

Public limited companies

There must be at least 15 promoters to apply to incorporate a public limited company. The promoters must subscribe to at least 5 per cent of the total shares, and must hold such shares for two years from the company’s incorporation date, unless approval has been obtained otherwise by a shareholders’ meeting. In addition, at least 50 per cent of the promoters must be residents of Thailand. The shares in a public limited company must be fully paid up. The board of directors must have no less than five members, at least half of whom must reside in Thailand. The directors must make full disclosure of their shareholdings in the company or its affiliates, and generally have greater responsibility than directors of private limited companies.

The SEC, under the authority of the SEC Act, is responsible for approving the offering of securities to the public or any person, and for supervising the Stock Exchange of Thailand (SET). Only shares of public limited companies may be offered publicly and traded on the SET. Public limited companies may also issue debentures and other forms of securities to the public.

Registered partnerships

In a partnership, two or more parties join for a common business purpose and share the profits. Partnerships may be ordinary or limited. In ordinary partnerships, all partners have joint and unlimited liability for the debts and obligations of the partnership. In a limited partnership, some partners have only limited liability for the obligations and debts of the partnership. Limited partnerships must be registered, while ordinary partnerships may be unregistered. Registered partnerships are classified as juristic partnerships and are subject to CIT on their net profits.

Branch offices

A foreign enterprise may establish a branch office in Thailand. Such branch office, in terms of its status and liability, is considered to be the same legal entity as its head office overseas. The branch can carry on any or all of the activities within the scope of the head office’s business objectives, subject to certain restrictions under the Foreign Business Act BE 2542 (1999) (FBA). A branch office is subject to CIT on net profits generated from business carried on in Thailand.

Representative offices

A foreign enterprise can establish a representative office in Thailand with the primary function of providing information and assistance to its foreign head office. The representative office must not generate income from its activities, and must have no power to accept purchase orders, make sale offers or carry out business negotiations. A representative office has a limited scope of activity in that it may only provide the following support services to its head office located offshore:

  • a finding sources from which the head office can purchase goods or services in Thailand;
  • b checking and controlling the quality and quantity of goods purchased, or contracted to be manufactured, by the head office in Thailand;
  • c giving advice on various aspects concerning goods that the head office has sold to distributors or consumers;
  • d disseminating information concerning new goods or services of the head office; and
  • e reporting on business movements in Thailand to the head office.
Regional offices

A foreign enterprise can establish a regional office in Thailand, provided that it is a juristic person incorporated under foreign law carrying on business in other countries, and it has at least one branch or affiliate in Asia, which may include Thailand.

The regional office in Thailand must not generate income from its activities, and must have no power to accept purchase orders from, make sale offers to, or carry out business negotiations with, persons or juristic persons in Thailand. Furthermore, the regional office’s expenses can only be funded by the head office. A regional office is permitted to carry out duties in communicating, coordinating and directing the operations of branches and affiliates located in the same region on behalf of the head office, and to provide the following services on behalf of the head office:

  • a consulting and management;
  • b training and personnel development;
  • c financial management;
  • d marketing control and sales promotion planning;
  • e product development; and
  • f research and development.
ii Non-corporate
Unregistered ordinary partnerships

Unregistered ordinary partnerships are not regarded as juristic persons under Thai law. Income generated by unregistered ordinary partnerships is subject to personal income tax at progressive rates of 5 to 35 per cent. Certain allowances and deductions are allowed under the conditions prescribed in the Revenue Code. Partners are no longer exempt from income tax on profit-sharing distributions by unregistered ordinary partnerships, with effect from 1 January 2015 onwards.

Non-juristic groups of persons

Non-juristic groups of persons are defined in the Revenue Code as two or more persons agreeing to jointly perform acts but are not regarded as an ordinary partnership. Income generated by non-juristic groups of persons is subject to personal income tax at progressive rates of 5 to 35 per cent. Certain allowances and deductions are allowed under the conditions prescribed in the Revenue Code. Members of the groups are no longer exempt from income tax on profit-sharing distributions by non-juristic groups of persons, with effect from 1 January 2015 onwards.

III DIRECT TAXATION OF BUSINESSES

i Tax on profits
Determination of taxable profit

CIT is usually imposed on the net profits of a business for one tax year (the tax year can be any 12-month period selected by each taxpayer). Net profits are ascertained according to conditions imposed under the Revenue Code. An all-inclusive concept of income is used, and all realised economic gains are treated as income (including capital gains), whether they occur regularly or only occasionally.

CIT is generally computed on an accrual basis – that is, income accruing in any accounting period (whether or not it has been received) is included as income for that period, and expenses may be deducted as they accrue (whether or not they have actually been paid out).

As a general matter, expenses incurred exclusively for the purpose of acquiring profits, or from conducting business in Thailand (other than those expenses specifically excluded), are deductible expenses for determining net profit. Therefore, normal business expenses, interest incurred during the normal course of business operations, qualifying bad debts and depreciation at maximum rates ranging from 5 to 20 per cent per annum are allowed as deductions. Any generally accepted accounting method may be used to calculate depreciation, as long as the resulting depreciation rate is not greater than that provided by using the straight-line method at the rate prescribed in the Revenue Code. The following items, inter alia, are not allowed as deductions:

  • a the portion of the purchase price of assets that exceeds the normal price, without justifiable reasons;
  • b private expenses, including gifts for customers;
  • c gifts to charitable institutions exceeding 2 per cent of net profit;
  • d capital expenditures;
  • e CIT, penalties, surcharges and criminal fines under the Revenue Code;
  • f the portion of salary paid to shareholders that exceeds a reasonable amount; and
  • g any expenses not exclusively incurred for the purpose of making profits or business.

Entertainment expenses up to a maximum of between 0.3 per cent of gross revenues or the paid-up capital of the company (whichever is higher) are deductible if they are generally necessary for that type of business, but only up to 10 million baht. Certain bad debts can generally be written off if reasonable efforts have been made to recover them under criteria set out in relevant regulations. For example, where a lawsuit has been filed against the debtor, the court has issued an order or injunction, and the debtor has no assets to repay the debt.

Losses

Net losses may be carried forward for five consecutive years. However, there is no provision for the carry-back of losses. Losses survive a change in ownership, such as a change of shareholders of the company. However, in changes of ownership where the company is dissolved and liquidated (e.g., in an amalgamation), losses of the dissolved company are not transferred to the new company.

Rates

In general, all companies and registered partnerships pay CIT at a flat rate of 20 per cent of net profits. However, the following progressive rates have applied to net profits derived by small and medium-sized enterprises (companies or juristic partnerships with paid-up capital of not more than 5 million baht, and with an annual income from the supply of goods and services of not more than 30 million baht) for the following accounting years:

Amount of net profits (baht)

Rates for 2015–2016

Rates from 2017 onwards

1 to 300,000

Exempt

Exempt

300,001 to 3 million

10%

15%

3,000,001 upwards

10%

20%

Standard deductions are allowed depending on the type of business activity that give rise to the income. Net profits are taxed at the normal rate. Any Thai or foreign-incorporated company or registered partnership conducting business in Thailand that fails to file a return in accordance with the law may be assessed to owe income tax at a rate of 5 per cent of the aggregate of either its gross receipts or total sales, without any deductions. Certain types of business are subject to CIT on their gross receipts or gross sales instead of their net profits. For example, foreign-incorporated companies engaged in the business of international transportation of passengers or goods pay 3 per cent CIT on gross receipts of fares collected in Thailand, or gross freight collected in or outside Thailand with regard to goods carried out of Thailand. Foundations and associations pay CIT at a rate of either 2 or 10 per cent of their gross income, depending on the type of income they have received.

Administration

CIT is payable twice a year. The first instalment is 50 per cent of the total tax, normally based on estimated net profits for the year. This is due within two months after the close of the first half of the financial year of the company. An annual income tax return must be filed within 150 days of the close of the company’s financial year. In the case of failure to file, a penalty of twice the amount of tax due is imposed when an official conducts an assessment. If tax is to be paid on the basis of net profits, then the return must be accompanied by an audited financial statement. If tax is to be paid on a gross-receipts basis, then a statement of gross receipts must be filed along with the return. Currently, filing can be done either by paper return or an electronic form.

The Revenue Department of the Ministry of Finance is responsible for tax under the Revenue Code (e.g., income tax, value added tax (VAT), specific business tax and stamp duty). Other taxes (e.g., customs duty, excise tax, house and land tax, and signboard tax) are the responsibility of other government authorities.

There is a standard appeal procedure for grievances arising from income tax assessments. To qualify for consideration, an appeal must be filed with the Board of Appeals within 30 days of receiving the notice of assessment. A further appeal can be made to the Tax Court against the Board’s decision within 30 days from the date of receipt of the decision on appeal.

Tax grouping

There is no concept of consolidated tax grouping in Thailand. All corporate entities are treated as separate taxable entities and are subject to tax on their own merits.

ii Other relevant taxes
VAT

VAT is essentially a consumption tax on goods and services, operating at each stage of production and distribution. In effect, VAT covers all retailers, manufacturers, wholesalers, producers and importers of goods, as well as service providers, other than those excluded by the Revenue Code.

VAT is currently levied at a reduced rate of 7 per cent; however, this rate will increase to a standard rate of 10 per cent from 1 October 2017 onwards (unless the reduced rate is extended). Municipal tax at a rate of one-ninth of the VAT is already included in the VAT rate. VAT on exported goods and services, under the terms and conditions of the Revenue Code, is rated at zero per cent.

Certain businesses are exempt from VAT, including the following:

  • a enterprises with annual gross sales of less than 1.8 million baht;
  • b private and government healthcare services;
  • c educational services;
  • d religious and charitable organisations; and
  • e leasing of immoveable property.
Specific business tax (SBT)

Eight categories of businesses are subject to SBT:

  • a banking and similar businesses;
  • b finance, securities and credit foncier businesses;
  • c life insurance brokers;
  • d pawnbrokers;
  • e traders of immoveable property;
  • f securities repurchase businesses;
  • g factoring businesses; and
  • h businesses selling securities on the SET (currently exempt).

SBT is imposed on gross receipts at rates ranging from 0.01 to 3 per cent, according to the nature of the services provided. Businesses that are subject to SBT must also pay municipal tax at a rate of 10 per cent of the SBT. As such, the effective SBT rates vary from 0.011 to 3.3 per cent.

Stamp duty

Stamp duty is levied on the execution or importation of 28 dutiable documents listed in the Stamp Duty Schedule of the Revenue Code, including share transfer instruments and hire-of-work contracts. Rates and payment procedures depend upon the type of instrument. Penalties for failure to stamp documents can be imposed at a rate of up to six times the original duty. Furthermore, documents that have not been properly stamped are not admissible as evidence in civil court proceedings.

IV TAX RESIDENCE AND FISCAL DOMICILE

i Corporate residence

An entity becomes resident for Thai tax purposes if it is incorporated under Thai law, regardless of where management and control are exercised. A Thai tax-resident entity is subject to CIT in Thailand on a worldwide-income basis.

ii Branch or permanent establishment

A non-locally incorporated entity can have a fiscal presence in Thailand through a branch, agency relationship or permanent establishment. A branch of a foreign company carrying on business in Thailand is subject to CIT on net profits generated from business carried on in Thailand. Profits attributable to a permanent establishment in Thailand are subject to CIT.

Income derived in or from Thailand by an offshore principal as a result of an agency relationship with a person in Thailand is usually subject to CIT. The appointment of an agent (or an employee, representative or go-between) in Thailand exposes the overseas business entity to the risk of being deemed to be ‘conducting business in Thailand’, and results in a tax burden. However, where the Thai agent does not act solely for the overseas company, but acts as a general agent for various companies (i.e., he or she is an independent agent), income tax liability may not be incurred. There may also be relief effective under applicable agreements for the avoidance of double taxation.

V TAX INCENTIVES, SPECIAL REGIMES AND RELIEF THAT MAY ENCOURAGE INWARD INVESTMENT

i Holding company regimes

A Thai company holding shares in another Thai company for at least three months before and after the dividends distribution is eligible:

  • a to include only half of the received dividends as income for CIT purposes; or
  • b not to include the entire dividends received as income, provided that:
  • • the recipient of dividends is a company listed on the SET; or
  • • the recipient of dividends holds at least 25 per cent of voting shares in the company paying dividends, and there is no cross-shareholding, either directly or indirectly, between the two companies.

Dividends received by a Thai company from a foreign company are exempt from CIT if a Thai company holds not less than 25 per cent of the total shares with voting rights in the foreign company for not less than six months from the share acquisition until the dividends distribution; and the dividends are paid from net profits that are subject to tax in the country of the foreign company at a rate of not less than 15 per cent (regardless of any reduction or exemption granted under the tax law of the country in which the foreign company is incorporated).

ii General
BOI incentives

Under the Investment Promotion Act, the BOI is able to provide BOI-promoted enterprises with various tax incentives, which include the following:

  • a import duty exemptions or reductions on imported machinery, imported raw materials and components;
  • b a CIT exemption for three to eight years from the date on which income is first earned, with permission to carry forward losses and deduct them as expenses for up to five years; and
  • c exemptions from withholding tax on dividends derived from promoted projects during the CIT exemption period.
Regional operating headquarters (ROH)

In establishing an ROH, a private limited company will need to be established under Thai law and registered as an ROH with the Revenue Department to obtain tax privileges for the ROH’s operation.

The ROH can render various management and technical services to its affiliates, both in Thailand and abroad. Qualifying services include general business management, procurement of raw materials, product research and development, technical support, marketing and sales promotions, and financial advisory services.

Examples of tax incentives for an ROH include the following:

  • a net profits from the qualifying service fees received from the affiliates are exempt, or are taxed at a reduced rate of 10 per cent, as the case may be;
  • b qualifying loan interest and royalties derived from the affiliates are taxed at a reduced rate of 10 per cent;
  • c dividends derived from the affiliates are exempt from tax; and
  • d dividends paid by the ROH to foreign company shareholders not doing business in Thailand are exempt from tax in Thailand.
International headquarters (IHQ)

The IHQ scheme is a newly launched scheme similar to that of ROH. IHQs, however, will operate under a broader scope of services, looser conditions and increased tax benefits.

Examples of tax incentives for IHQ include the following:

  • a income from qualifying service fees, royalties and dividends received from foreign affiliates are exempt from tax;
  • b capital gains from a qualifying disposal of shares in foreign affiliates are exempt from tax;
  • c income from qualifying service fees and royalties received from Thai affiliates are taxed at a reduced rate of 10 per cent;
  • d interest from loans provided to foreign and Thai affiliates in respect of financial management services is exempt from SBT; and
  • e dividends and loan interest paid by the IHQ to foreign company shareholders not doing business in Thailand are exempt from tax in Thailand.
International trade centres (ITC)

A Thai company conducting procurement and sale of goods, raw materials, accessories and assembly parts, or providing international trading services, may apply for the tax incentives under the ITC scheme. Tax privileges under the ITC scheme are granted with the satisfaction of similar rules and conditions required for an IHQ, except that a foreign affiliate requirement is not compulsory. The income from ‘out-out transactions’ and international trading services provided to foreign entities, whether affiliated or not, is exempt from CIT.

VI WITHHOLDING AND TAXATION OF NON-LOCAL SOURCE INCOME STREAMS

i Withholding outward-bound payments (domestic law)

The Revenue Code requires certain payments, made from or in Thailand to an offshore entity not carrying on business in Thailand, to be subject to withholding tax. Payments subject to withholding tax include dividends, interest and royalties. The withholding tax rate is 10 per cent for payment of dividends, and 15 per cent for payment of interest and royalties.

ii Domestic law exclusions or exemptions from withholding on outward-bound payments

There are no domestic law exclusions or exemptions from withholding on outward-bound payments of dividends, interest and royalties to an offshore entity.

iii Double taxation treaties (DTAs)

The withholding tax rate on dividends, interest and royalties, paid to a foreign entity that is a tax resident of a country that has a DTA with Thailand, may be reduced.

Dividends

Normally, the 10 per cent withholding tax rate on dividends would still be applicable under the DTAs to which Thailand is a party. However, certain DTAs provide for a reduction of the withholding tax on dividends. For example, the DTA between Thailand and Taiwan reduces the withholding tax rate on dividends to 5 per cent if the beneficial owner directly holds at least 25 per cent of the capital of the company paying the dividends.

Interest

Depending on the terms of each DTA, the withholding tax rate on interest can be reduced to 10 per cent if the interest is paid to financial institutions or insurance companies.

Royalties

Depending on the terms of each DTA, and the type of royalties, the withholding tax rate on royalties can be reduced to 5, 8 or 10 per cent.

iv Taxation on receipt

Thai companies must include income received, or receivable, from offshore entities in their taxable income for the calculation of CIT. However, foreign-sourced dividends may be exempt from CIT. See Section V.i, supra, for more details.

Thai companies are entitled to a CIT exemption equal to the tax paid in a foreign country from carrying on business in such foreign country. The tax exemption must not exceed the CIT imposed on such income.

Regarding tax paid in a country with which Thailand has a DTA, such amount could be used as a tax credit. Such tax credit will be given only on the portion not exceeding the CIT imposed on such income.

VII TAXATION OF FUNDING STRUCTURES

Entities in Thailand are funded either by equity or by a combination of equity and debt.

i Thin capitalisation

There are no specific rules regarding thin capitalisation under the Revenue Code. The debt-to-equity ratio may, however, be limited by the FBA, which governs the business conduct of the company.

ii Deduction of finance costs

Finance costs may be deductible if incurred for the purpose of making profits, or for the business in Thailand. Acquisition finance costs will generally be treated as capital expenditure; thus, depreciation deduction would be allowed.

iii Restrictions on payments

A company can pay dividends only if it has accumulated profits and has obtained approval from the shareholders’ meeting. At each distribution of dividends, a company must retain a legal reserve of at least 5 per cent of its profits until the legal reserve reaches 10 per cent of the capital of the company.

iv Return of capital

Capital can be returned to shareholders in two ways: capital reduction and liquidation. The company is required to comply with the procedures prescribed under the CCC or PLCA to proceed with a capital reduction, and cannot reduce its capital to less than one-quarter of its total capital.

The return of originally invested capital under liquidation is not subject to tax. However, the amount of capital returned via a capital reduction will be included as income of the shareholders if the amount of reduced capital does not exceed the retained profits or reserves at the time of making the distribution. In such event, said distribution may be deemed as being made out of the company’s profits or reserves, which are subject to tax.

VIII ACQUISITION STRUCTURES, RESTRUCTURING AND EXIT CHARGES

i Acquisition

Generally, the acquisition of a business in Thailand can be conducted through a share deal or asset deal. It is important to take into account several laws and regulations that govern the extent of foreign participation in business activities in Thailand. The main governing law is the FBA.2 Under the FBA, if a company is deemed to be foreign, the debt-to-equity ratio must not exceed 7:1 in order to obtain a licence to conduct business in Thailand.

Gains derived from the sale of shares or assets in a business acquisition transaction are subject to Thai taxes. In the case of foreign shareholders disposing of their shares in a Thai company, withholding tax at a rate of 15 per cent will be imposed, unless exempted or reduced by a relevant DTA.

ii Reorganisation

In a reorganisation, whether via a merger or demerger, the transferor may be subject to CIT if it has gains arising from the transfer of shares or assets. In addition, transfers of businesses, assets or assignments may trigger VAT, SBT and stamp duty. However, qualified business transfers will be entitled to tax benefits as discussed below.

Entire business transfer (EBT)

A business transfer under the EBT scheme is exempt from CIT, VAT, SBT and stamp duty. To qualify for tax benefits, the following criteria must be met:

  • a both the transferor and the transferee must be companies incorporated under Thai laws, and must not owe any outstanding tax or duty to the Revenue Department as of the date of the transfer, unless there is a bank guarantee or other form of security provided;
  • b the transferor must transfer its entire business (e.g., all assets, licences, contracts, liabilities and employees) to the transferee;
  • c the transferor must submit its dissolution application to the Ministry of Commerce in the same fiscal year as the EBT; and
  • d the transferee must report the names of its shareholders, and the number of shares and their par value, of both the transferor and the transferee, to the Revenue Department within 30 days of the EBT.
Partial business transfer

VAT, SBT and stamp duty are exempt for a qualifying partial business transfer. The tax exemption does not cover CIT; therefore, the transferor may be subject to CIT on the gains arising from the transfer.

iii Exit

As a company is treated as a Thai tax resident if it is incorporated in Thailand, ceasing such status can be achieved by the dissolution and liquidation of the company. There is no specific tax imposed on the company ceasing to be a tax resident of Thailand; therefore, tax provisions concerning liquidation will apply.

IX ANTI-AVOIDANCE AND OTHER RELEVANT LEGISLATION

i General anti-avoidance

There are no specific anti-avoidance rules stated in the Revenue Code. However, the principle of substance over form, and the sham transaction concept under the CCC, are generally applied by the Revenue Department and Thai courts.

ii Controlled foreign corporations

There are no specific controlled foreign corporation tax rules in Thailand. Thus, a company’s Thai-resident shareholders are not subject to taxation on the income earned by an offshore company until such time as the company distributes income to such shareholders.

iii Transfer pricing

Under Section 65 bis (4) of the Revenue Code, Thai companies are required to sell goods, provides services or lend money for a consideration of not less than the market rate. Otherwise, the assessment officer is empowered to assess CIT against such companies.

Under Departmental Instruction No. Por 113/2545, the Revenue Department accepts two kinds of transfer pricing methods: traditional transactional methods, i.e., the comparable uncontrolled price, resale price and cost plus methods, which are the preferred methods; and other methods, such as the profit split, transactional net margin and other internationally accepted methods.

Departmental Instruction No. Por 113/2545 also provides guidelines on the bilateral advance pricing arrangement (APA). A taxpayer who wishes to conclude an APA with the Revenue Department for any transaction may request this in writing, together with the relevant documents. Generally, an APA will be effective for three to five fiscal years.

iv Tax clearances and rulings

It is possible to obtain an advance tax ruling from the Revenue Department. However, there is no requirement to acquire any tax clearance or tax ruling to acquire a local business in Thailand.

X YEAR IN REVIEW

i CIT rate

The CIT rate was permanently reduced from 30 to 20 per cent of net profits, effective from the accounting period beginning on 1 January 2016 onwards.

ii Thailand and US initial FATCA intergovernmental agreement (IGA)

On 24 June 2014, Thailand and the US initialled a draft Model 1 IGA agreement, and have been treated as having an IGA in effect since then. However, the agreement was signed on 4 March 2016. As of this date, Thailand is considered to be a Model 1 IGA country, and subject to all of the benefits and burdens associated with such an agreement.

Under the terms of the agreement, Thailand commits to establish, by 1 January 2017, for reporting with respect to 2017 and subsequent years, rules requiring reporting Thai financial institutions to obtain the US taxpayer identifying number of each specified US person as required pursuant to Subparagraph 2(a)(1) of Article 2 of this agreement. The agreement is a reciprocal agreement under which the Internal Revenue Service (IRS) has also committed to provide the Thai Revenue Department with information on Thai reportable accounts, including identifying information on depository accounts held by Thai individuals, and identifying information for entities and individuals holding other financial accounts, the income of which has been subjected to normal US withholding on US-source income.

This appears to be an attempt by the Revenue Department to ensure that foreign tax credits claimed by Thais are for taxes actually paid in the United States, and that income earned in the United States is being reported by Thai entities on their Thai tax returns. Thai entities are subject to taxation on their worldwide income, whereas Thai individuals are subject to tax on their Thai-sourced income or any foreign-sourced income remitted into Thailand.

The IGA alleviates the withholding obligations on recalcitrant accounts as long as certain identifying information is provided to the Revenue Department for transmission to the IRS.

The Cabinet recently approved a draft act on issues concerning:

  • a the rules and procedure for the implementation process;
  • b the relevant authorities’ responsibilities and duties;
  • c the authorities’ power to perform an audit process;
  • d reporting the information to the contracting party;
  • e data protection; and
  • f the punishment for violations of this act.

XI OUTLOOK AND CONCLUSIONS

The Cabinet recently approved a draft amendment of Section 49 bis of the Revenue Code, which has resulted in a natural person who sells immoveable property being no longer eligible to treat the official assessment price of the immoveable property as taxable income for personal income tax purposes, regardless of the actual sale price. Under the proposed amendment, a natural person would be required to treat the sale price or the official assessment price (whichever is higher) as taxable income for personal income tax purposes.

Footnotes

1 Panya Sittisakonsin is a partner and Sirirasi Gobpradit is an associate at Baker McKenzie.

2 The FBA limits the rights of foreigners to engage in certain business activities in Thailand, and investors must carefully consider the FBA before attempting to acquire any business in Thailand. A foreigner may wholly own a business in Thailand unless the specific activity of that business is restricted under the FBA or is otherwise prohibited by another law.