The Inward Investment and International Taxation Review: Thailand
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 Southeast 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 2020 report ranked Thailand as the 21st easiest country in which to do business out of 190 countries worldwide, which is higher than Japan, China, India and most of the Association of Southeast Asian Nations.2
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.
Common forms of business organisation and their tax treatment
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 are 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) (the 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.
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.
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.
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:
- finding sources from which the head office can purchase goods or services in Thailand;
- checking and controlling the quality and quantity of goods purchased, or contracted to be manufactured, by the head office in Thailand;
- giving advice on various aspects concerning goods that the head office has sold to distributors or consumers;
- disseminating information concerning new goods or services of the head office; and
- reporting on business movements in Thailand to the head office.
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:
- consulting and management;
- training and personnel development;
- financial management;
- marketing control and sales promotion planning;
- product development; and
- research and development.
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.
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 accounting period (the accounting period 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:
- the portion of the purchase price of assets that exceeds the normal price, without justifiable reasons;
- private expenses, including gifts for customers;
- gifts to charitable institutions exceeding 2 per cent of net profit;
- capital expenditures;
- CIT, penalties, surcharges and criminal fines under the Revenue Code;
- the portion of salary paid to shareholders that exceeds a reasonable amount; and
- any expenses not exclusively incurred for the purpose of making profits or business.
Entertainment expenses up to a maximum of 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.
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.
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 accounting period beginning on 1 January 2017 onwards:
|Amount of net profits (baht)||CIT rates|
|1 to 300,000||Exempt|
|300,001 to 3 million||15 per cent|
|From 3,000,001||20 per cent|
Standard deductions are allowed depending on the type of business activity that gives 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. Mutual funds are subject to CIT at a rate of 15 per cent on certain income, such as interests and discounts.
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 of 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 (SBT) and stamp duty). Other taxes (e.g., customs duty, excise tax, property 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 Central Tax Court against the Board's decision within 30 days of the date of receipt of the decision on appeal. Then, parties are entitled to submit an appeal against the decision of the Central Tax Court to the Specialised Court of Appeal within one month from the date of judgment hearing, subject to certain conditions. If the approval from the Supreme Court is obtained, a further appeal can be made to the Supreme Court against the Specialised Court of Appeal's judgment, within one month from the date of judgment hearing.
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 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 2021 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:
- enterprises with annual gross sales of less than 1.8 million baht;
- private and government healthcare services;
- educational services;
- religious and charitable organisations; and
- leasing of immovable property.
Eight categories of businesses are subject to SBT:
- banking and similar businesses;
- finance, securities and credit foncier businesses;
- life insurance brokers;
- traders of immovable property;
- securities repurchase businesses;
- factoring businesses; and
- 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 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.
Stamp duty imposed on five types of e-instruments, which are: (1) a hire-of-work contract; (2) a loan agreement or agreement for bank overdraft; (3) a power of attorney; (4) a proxy for voting at a company's meeting; and (5) a guarantee agreement, is required to be paid to the Revenue Department through the electronic channel.
The land and building tax is imposed on the legal owner of the land or building. The land and building tax rates vary depending on the purposes of the property. The ceiling rates for each type of property are as follows:
- for property used for agricultural purposes, the ceiling rate is 0.15 per cent of the official appraisal value;
- for property used for residential purposes, the ceiling rate is 0.3 per cent of the official appraisal value;
- for property used for commercial purposes, the ceiling rate is 1.2 per cent of the official appraisal value; and
- for vacant property, the ceiling rate is 1.2 per cent of the official appraisal value. The rate would increase by 0.3 per cent every three years if the property remains unused, but the rate shall not exceed 3 per cent of the official appraisal value.
The land and building tax is levied annually, and the local authority will send assessment notice to taxpayers by the end of February. The taxpayers must pay the assessed land and building tax by the end of April.
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.
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:
- to include only half of the received dividends as income for CIT purposes; or
- 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).
Under the Investment Promotion Act, the BOI is able to provide BOI-promoted enterprises with various tax incentives, which include the following:
- import duty exemptions or reductions on imported machinery, imported raw materials and components;
- 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
- exemptions from withholding tax on dividends derived from promoted projects during the CIT exemption period or within six months from the date on which the CIT exemption period expires.
International business centre (IBC)
A new tax scheme called IBC was launched under the Royal Decree (No. 674) B.E. 2561 to replace Regional Operation Headquarter (ROH), which consists of ROH1 and ROH2, International Headquarter (IHQ), and International Trade Centre (ITC) schemes. An IBC is defined as a company established under the laws of Thailand carrying on the businesses of providing management services, technical services, support services, or financial management services (under a treasury centre licence granted by the Bank of Thailand) to affiliates, or operating business of an ITC.
Key qualifications for obtaining tax privileges under the IBC scheme are as follows:
- the amount of paid-up capital on the last day of each accounting period shall be at least 10 million baht;
- at least 10 employees, who possess knowledge and skills necessary for IBC business, or at least five employees if the IBC operates financial management services only;
- minimum expenditure of IBC business paid to recipients in Thailand of at least 60 million baht in each accounting period;
- providing management services, technical services, support services, or financial management services to the associated enterprises; and
- other criteria can be prescribed by the Director General of the Revenue Department.
Examples of tax incentives for IBCs include the following:
- reduced CIT rates to 8, 5 or 3 per cent of net profits, depending on amount of expenditure in Thailand (60 million, 300 million or 600 million baht, respectively);
- exemption on CIT for dividend received from an affiliate;
- reduced personal income tax rate to 15 per cent for expatriates working for an IBC;
- exemption on SBT for income from provision of financial management services to an affiliate; and
- exemption on withholding tax for offshore affiliates receiving dividend or interest paid from an IBC.
Withholding and taxation of non-local source income streams
i Withholding on 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 dividends, and 15 per cent for 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 tax treaties
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 double taxation agreement (DTA) with Thailand, may be reduced.
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.
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, and the withholding tax can be exempt if the interest is paid to the government authority.
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 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 that 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, this amount could be used as a tax credit. This tax credit will be given only on the portion not exceeding the CIT imposed on the income.
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 this event, said distribution may be deemed as being made out of the company's profits or reserves, which are subject to tax.
Acquisition structures, restructuring and exit charges
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.3 Under the FBA, if a company is deemed to be foreign, the debt-to-equity ratio must not exceed 7:1 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 to a Thai-resident buyer, withholding tax at a rate of 15 per cent will be imposed, unless exempted or reduced by a relevant DTA.
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, SBT and stamp duty, and is not subject to VAT. To qualify for tax benefits, the following criteria must be met:
- 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;
- the transferor must transfer its entire business (e.g., all assets, licences, contracts, liabilities and employees) to the transferee;
- the transferor must submit its dissolution application to the Ministry of Commerce in the same fiscal year as the EBT; and
- 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.
As a company is treated as a Thai tax resident if it is incorporated in Thailand, ceasing this 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.
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 (CFCs)
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, namely 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.
In addition, on 22 November 2018, the Act amending the Revenue Code (No. 47) B.E. 2561 regarding transfer pricing (the Transfer Pricing Act) came into force. The Transfer Pricing Act added three sections in the Revenue Code that will apply to accounting periods that commence on or after 1 January 2019. Key contents of the Transfer Pricing Act include:
- definition of the term 'related party';
- authority of the Revenue Department to adjust income and expenses on an arm's-length basis;
- the right to claim refunds for excess taxes paid as a result of tax assessment;
- the time period and threshold for taxpayers required to prepare a report on the relationship between companies and the total amount of related-party transactions (the threshold will be determined later by subordinated regulations, with a minimum gross income threshold of 200 million baht); and
- a fine for not complying with obligations to prepare a report of not more than 200,000 baht.
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.
Year in review
i Base erosion and profit shifting
There have been developments in the field of international taxation to tackle base erosion and profit shifting (BEPS), which refers to tax avoidance strategies that exploit gaps and mismatches in tax rules in different countries to artificially shift profits to low- or no-tax countries. There are currently 15 action plans that can be undertaken by each country to address weaknesses in the current domestic laws effectively and efficiently.
Although Thailand is not an Organisation for Economic Co-operation and Development (OECD) member, Thailand has joined the Inclusive Framework on BEPS on 2 June 2017. As a member of the Inclusive Framework, Thailand will develop a monitoring process for the four minimum standards of the BEPS action plans, and put in place the review mechanisms for other elements of the BEPS.
The four minimum standards of the BEPS consist of:
- Action 5: Harmful tax practices;
- Action 6: Treaty abuse;
- Action 13: Transfer pricing documentation; and
- Action 14: Dispute resolution.
The Revenue Department is currently studying and researching the implementation of the BEPS action plans. For example, to comply with BEPS Action 5 on harmful tax practices, the royal decrees cancelling tax incentive schemes, namely ROH, IHQ and ITC, and introducing the IBC scheme were issued in 2018. See Section V.ii for more details.
ii Tax measures and relief for covid-19 outbreak
Due to the covid-19 outbreak in Thailand, the government has tried to relieve the effects for taxpayers by implementing various tax measures and relief, which include the extension of the deadline for submission of various tax return forms (such as personal income tax (PIT), CIT and VAT), the reduction of withholding tax rate on certain types of payment made during specified period, the extra tax deduction for interest incurred by small or medium-sized enterprises, the exemption of PIT for medical staff, the exemption of VAT for donating assets to combat covid-19, the reduction of the land and building tax rate by 90 per cent, and the exemption of import duty for surgical masks, anti-pollution masks, respirators, and the raw materials for producing surgical masks.
Outlook and conclusions
The Draft Bill on extraterritorial VAT regime for foreign e-service providers was introduced to the parliament for deliberation and passed the third hearing in the House of Representatives on 5 November 2020.
In brief, foreign operators who provide e-service outside Thailand are required to register for simplified VAT in Thailand if that e-service is used in Thailand by a service recipient who is a non-VAT registrant, and if the foreign operators receive income from providing the e-service of 1.8 million baht or more per year. After the registration, the foreign operators will be entitled to charge VAT on the payment for the e-service to a non-VAT registrant service recipient and remit such VAT to the Revenue Department, but are prohibited from claiming any input tax that may be charged by another Thai VAT operator.
The Draft Bill will subsequently be submitted for consideration and approval by the Senate of Thailand. Once approved by the Senate of Thailand and reaffirmed by the House of Representatives, the Draft Bill will be presented to His Majesty the King for signature and be published in the Government Gazette, taking effect 180 days after publishing.
1 Panya Sittisakonsin is a partner and Sirirasi Gobpradit is an associate at Baker McKenzie.
2 The World Bank's Ease of Doing Business 2021 report has not yet been published as of 7 December 2020.
3 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.