“Practical Corporate Tax Planning Strategies”
presented by
Picharn Sukparangsee
at the Conference on
“Thai Tax Forum 2012 :
Tax Planning & Regulations towards AEC 2015”
arranged by
the Asia Business Connect
on May 14-15, 2012
at Royal Orchid Sheration Hotel, Bangkok
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Picharn Sukparangsee
SIAM CITY LAW OFFICES LIMITED
20th Floor, Rajanakarn Building,
183 South Sathorn Road, Bangkok 10120, Thailand
Tel: (662) 676-6667 – 8 Fax: (662) 676-6188-9
E-mail : picharn@siamcitylaw.com
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Practical Corporate Tax Planning Strategies
• Unlike tax system in some jurisdictions based on
territorial application such as Hong Kong or
Singapore, Thai tax system is based on the
worldwide basis.
• Thai taxation law includes capital gain tax as part
of income tax.
• Personal income tax or PIT is levied at progressive
rates.
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Practical Corporate Tax Planning Strategies (cont.)
• Corporate income tax or CIT are chargeable for a
company with its resident in Thailand or doing
business in or with Thailand.
• Thailand has value added tax or VAT and specific
business tax or SBT.
• Thailand has no controlled foreign companies or
CFC provisions.
• Thailand has no thin capitalization rules.
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I.
AEC 2015
ASEAN Economic Community or AEC 2015
- consisting of 10 state members
- approximately 600 million people
- GDP of more than US$ 1.5 trillion
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I.
AEC 2015
- free movement of capital , labour , goods and
services
- AEC will enhance competitiveness on trade and
investment
- tax and customs competitiveness will be provided
- more foreign direct investment is expected to come
to ASEAN
- ASEAN will greatly benefit from economic
development in Asia including China and India
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II. Key issues and elements of effective
corporate tax planning
Tax measures in Thailand
Adjustment of Corporate Income Tax or CIT
Companies and Juristic Partnership in general for 3
consecutive accounting years
1. Rate of CIT for net profits of company and juristic
partnership is reduced from 30% to 23 % of the net
profits for an accounting period from or after 1 January
2012.
2. Rate of CIT for net profits of company and juristic
partnership is reduced from 23% to 20 % of the net
profits for an accounting period from or after 1 January
2013.
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II. Key issues and elements of effective
corporate tax planning
SME
SME – company or juristic partnership with the paid-up
share capital of not more than 5 million and revenues
from sales and services in an accounting period of not
more than Baht 30 Million
-
net profits of not more than Baht 150,000 – exemption from
CIT
- net profits of more than Baht 150,000 but not more than Baht
1,000,000 – 15% in 2012
- net profits of more than Baht 1,000,000 – 23% in 2012
- net profits of more than Baht1,000,000 – 20% in 2013
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II. Key issues and elements of effective
corporate tax planning
Listed companies
1)listed companies on the Stock Exchange of
Thailand or the SET
- net profits – 23% in 2012
- net profits – 20% in 2013
2)listed companies on Market for Alternative
Investment or MAI
- net profits – 23% in 2012
- net profits – 20% in 2013
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III. International Procurement Center or IPC
Tax benefits
15% CIT on net profits from the qualified
income for 5 consecutive accounting years.
15% PIT on the gross income to a maximum of
3 foreigners at the management level or at the
level of experts for 5 consecutive years (subject
to qualified income threshold)
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III. International Procurement Center or IPC
Conditions
1. An IPC shall have its paid-up share capital of
not less than Baht 10 million;
2. the IPC shall have minimum annual expenses
payable to recipients in Thailand of either of the
following;
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III. International Procurement Center or IPC
2.1 the IPC shall have operating expenses
of at least Baht 15 million in each accounting
period (excluding depreciation, expenses paid in
foreign countries, cost of goods, raw materials,
goodwill, royalties, parts and packing materials)
; or
2.2 the IPC shall have its capital
expenditure of at least Baht 30 million in each
accounting period;
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III. International Procurement Center or IPC
3. Foreign associated companies shall have
management and employees to operate the
business as notified to the Revenue
Department;
4.
Employees of the IPC shall have qualified
education of at least secondary school or
primary vocational institution or its equivalent;
and
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III. International Procurement Center or IPC
5. From the third accounting period
onwards, the IPC shall have qualified income of
not less than Baht 1 billion in each accounting
period and pay compensation of not less than
Baht 2.5 million per person to at least 3
employees.
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IV. Cancellation of tax benefits, Penalties and
Surcharge
• If any of the conditions cannot be fulfilled in
any year, exemption or reduction of corporate
income tax for the IPC and the personal
income tax for foreigners shall be cancelled
with effect from the first year.
• The IPC and the foreigners shall be subject to
200% penalties and 1.5 % monthly surcharge.
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Regional Operating Headquarters or ROH
Tax Benefits
CIT
1. 10% CIT for qualified royalties , service fees
and interest income for 10 years
2. Exemption of CIT for dividend received from
associated enterprises for 10 years
3. Exemption of CIT for dividend paid out of
profits of ROH to foreign corporate
shareholders not carrying on business in
Thailand for 10 years
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Regional Operating Headquarters or ROH
Tax Benefits
PIT
1. 15% PIT for foreigners for 8 consecutive years
2. Exemption of PIT for foreigners for services
rendered in foreign countries provided that
such income is not deducted as expenses of
ROH in Thailand
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Regional Operating Headquarters or ROH
Conditions
• the ROH shall have its paid-up share capital of
Baht 10 million;
• the ROH shall have the one foreign affiliate
company in year 1 , the second foreign
associated company in year 3 and the third
foreign associated company in year or at
least foreign associated companies in 3
countries within 5 years, to receive services
from the ROH;
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Regional Operating Headquarters or ROH
Conditions
• the ROH shall have the minimum annual
operating expenses of Baht 15 million and/or
the capital expenditure of Baht 30 million;
• the ROH shall have at least 75% skilled
employees and the minimum annual
employee remuneration of Baht 2.5 million
per person for at least 5 employees; and
• The foreign associated enterprises shall have
physical presence and operation in their
countries.
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Regional Operating Headquarters or ROH
Cancellation of tax benefits, Penalties and Surcharge
• If any of the conditions cannot be fulfilled, exemption
or reduction of corporate income tax for the ROH and
the personal income tax for foreigners shall be
cancelled with effect from the first year.
• The IPC and the foreigners shall be subject to 200%
penalties and 1.5 % monthly surcharge.
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Regional Operating Headquarters or ROH
Energy saving equipment
• exemption of not more than 25% of expenditure
incurred in acquisition of property being materials or
equipment used for energy saving excluding vehicle or
materials or machinery used with the vehicle.
• the property shall be acquired by an individual or a
legal entity from 1 January 2011 to 31 December 2012.
• the property shall have been certified by the
Department of Alternative Energy Development and
Efficiency within 31 December 2012.
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Regional Operating Headquarters or ROH
•
•
•
•
Export of service
Previously , all services partly used in Thai and outside
Thailand is subject to 7 % VAT.
Regulation has been amended to split services used in
Thailand and outside Thailand.
Service is wholly used outside Thailand = 0% VAT
Service is partially use of service in Thailand = 7% VAT
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Regional Operating Headquarters or ROH
Flooding and tax relief by the Revenue Department
• Tax exemption for donation in cash only by an
individual to government authorities or public charities
or any company or other organization being an agent
for receipt of money or property provided that the
total amount of the donation shall not exceed 10% of
the income after all allowances and deductions.
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Regional Operating Headquarters or ROH
Flooding and tax relief by the Revenue Department
• Tax exemption for donation in cash or property by
companies or juristic partnership to government
authorities or public charities or any company or other
organization being an agent for receipt of money or
property provided that the total amount of money or
the property shall not exceed 2% of the net profits.
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Regional Operating Headquarters or ROH
Flooding and tax relief by the Revenue Department
• exemption of VAT to an operator for donation of
products donated from 1 January 2011.
• exemption of compensation received from the
government.
• exemption of compensation received from an
insurance company which exceeds the remaining value
of the property after depreciation.
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Regional Operating Headquarters or ROH
Partial Business Transfer
Exemption of VAT, SBT and Stamp Duty for partial
business transfer to a private company or a public
company in the same associated companies made from 1
January 2011 onwards.
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Regional Operating Headquarters or ROH
Trust for transactions in the capital market
• Exemption of PIT for dividend paid by the trustee to a
beneficiary provided that the dividend is subject to
10% withholding tax and no tax credit or no tax refund
is made.
• Exemption of CIT for income received by a trustee
excluding fees or other benefits that the trustee
receives from service of the trustee under a trust deed.
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Regional Operating Headquarters or ROH
Trust for transactions in the capital market
• Exemption of 50% CIT for dividend received by a settlor
being a company incorporated under law of Thailand
which receives the return for the whole or a part of
shares from a paying company unless the settler holds
at least 25% of voting shares and the paying company
does not holds shares in the settlor for not less than 3
months from the date of acquisition of the shares and
the settlor holds the at least 25% shares for not less
than 3 months from the date on which income arises,
in this case exemption of 100 % CIT is provided.
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Regional Operating Headquarters or ROH
Trust for transactions in the capital market
• exemption of CIT, VAT , SBT and Stamp Duty to a settlor
and a trustee for income , value of tax base, revenues
and execution of an instrument for a transfer or
creation of ownership or any right under a trust deed.
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Dividend from foreign investment
Current rules
• A Thai company shall hold at least 25% of voting shares
of a foreign company.
• shareholding period shall be at least 3 months from
the date of acquisition of shares and at least 3 months
after the date of declaration of dividend payment.
• Dividend shall be derived from taxable net profits in a
foreign country at the income tax rate of not less than
15% (regardless of whether reduction or exemption of
tax for the net profits of a foreign company is provided.
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Dividend from foreign investment
•
•
•
•
Proposed changes
A company which pays dividend shall be subject to
corporate income tax in a country of its operation.
No minimum tax rate would be required.
A Thai company shall directly or indirectly hold at last
10% of the total shares for at least 3 months after the
acquisition of the shares and at least 3 months after
the date of declaration of the dividend.
Dividend is exempt from Thai tax even though the
dividend is derived from a non-taxable holding
company.
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Dividend from foreign investment
Merchant shipping business
• Exemption of CIT from a sale of a ship used in an
international transport
• registered as a Thai ship within 1 year prior to the date
of a sale of the old ship or a purchase of a new ship;
• proceeds from a sale of an old ship shall be used to
purchase a new ship or build a new ship which shall be
registered as a Thai ship within 2 years from the date
of the sale of the old ship under the following
conditions:
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Dividend from foreign investment
Merchant shipping business (cont.)
• 1) if the new ship cannot be registered as a Thai ship
within 2 years from the date of the sale of the old
ship, the Director-General of the Revenue Department
may extend the time period;
• 2) the new ship shall have been used for a shorter
period and the new ship bought or built shall have no
less freight capacity than the old one; and
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Dividend from foreign investment
Merchant shipping business (cont.)
• 3) a notice in writing of the sale of the old ship and the
purchase of the new ship or the building of the new
ship shall be given to the Director-General of the
Revenue Department within 30 days from the date of
the sale of the old one or from the date of registration
of the new one as a Thai ship.
• If CIT is exempted , the outstanding cost of the old ship
that has been sold shall not be included as expenses in
computation of the net profit or the net loss.
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Dividend from foreign investment
Minimum wage increase and tax measures
The increase of the minimum wage to Baht 300 per day
from 1 April 2012 significantly affected small and
medium enterprises or SME in Thailand.
1.
tax exemption for sale of old machinery
2.
100% tax reduction for purchase of new machinery
3.
the difference between the old minimum wage
and the new minimum wage is entitled to 1.5 time of
deductible expenses.
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Board of Investment or BOI
1.
2.
3.
4.
5.
Investment privileges
exemption of import duties on importation of
machinery and raw materials
exemption of corporate rate income tax for up to 8
years
reduction of 50% of corporate income tax for 5 years
after the tax exemption period
exemption of tax on dividend paid out of a BOI
business
bring in foreigners and their family to Thailand
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Board of Investment or BOI
Tax measures for flood relief by BOI
• 150% tax exemption for 8 years for a company
maintaining its production base at an area affected by
flood
• 100% tax exemption for 8 years for a company moving
to invest in another province
Dividend of BOI companies shall be paid out of the tax
benefits period.
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Use of double taxation agreement or DTA
DTA
Thailand has DTAs with most members of ASEAN
but has not entered into DTA with Cambodia .
As of 9 May 2012 , Thailand has 55 DTAs effective
with its counterparts.
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Use of double taxation agreement or DTA
DTA
Thailand also signed DTAs with the following:
•
•
•
•
•
•
Brunei
Estonia
Ireland
Kenya
Lithuania
Morocco
• Papua New Guinea
• Philippines
(amendment)
• Tajikistan
• Zimbabwe
However, 10 new DTAs have not been entered into force.
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Use of double taxation agreement or DTA
Business profits
business profits may be subject to 15 % withholding tax
but are exempted from withholding tax if the business
profits are received by a company which is incorporated
in a foreign country and has no permanent establishment
or PE in Thailand.
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Use of double taxation agreement or DTA
Technical Service Agreement
Is payment under a technical service agreement regarded
as royalty or business profit ?
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Use of double taxation agreement or DTA
Facts
A Joint venture or JV consisting of Company A as a
company in Canada and Company B as a Company in
Malaysia. The JV entered into an agreement with a Thai
company as the JV provided engineering and design
services.
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Use of double taxation agreement or DTA
Facts
The JV signed an agreement with Company C in Malaysia
and Company B to provide experts for technical
assistance in this project for the following:
• technical assistance rendered from Malaysia and
Canada
• payment of salaries and benefits
• recruitment and payroll handling
• administrative support services
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Use of double taxation agreement or DTA
Technical Assistance and Service Agreement
Is payment under a technical assistance and service
agreement regarded as royalty or business profit?
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Use of double taxation agreement or DTA
Facts
Under Clause 2 of technical Assistance and Service
Agreement, Company A in Germany shall provide the
following services to Company T in Thailand:
1. technical assistance in engineering design of a
chemical plant and other industrial plants
2. training on technique and management in a foreign
country to employees of Company T upon request by
Company T
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Use of double taxation agreement or DTA
3.
4.
5.
6.
7.
Facts
assist in selection of computer software to Company
computer and analysis services to Company T
procure project management and support system for
projects of Company T
comprehensive analysis and data update to Company
T
provide other assistance as requested by Company T
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Use of double taxation agreement or DTA
Facts
• Under Clause 5 of the Agreement, Company A shall
provide good engineering standards services and shall
be responsible for success of work. In the case of any
defects, Company A shall correct the defects without
any additional fees.
• Services provided under the Agreement does not
involve transfer of know-how to Company T but
Company A applied its engineering knowledge and
experience to Company T and shall be responsible for
the success of the works.
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Use of double taxation agreement or DTA
Dividend
Dividend paid by a Thai company to a foreign company is
subject to 10 % withholding tax.
Interest
Interest paid by a Thai company to a foreign company is
generally subject to 15% withholding tax unless interest
is paid to a financial institution incorporated under law of
a foreign country having a DTA with Thailand and having
no PE in Thailand, 15% withholding tax can be reduced.
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Use of double taxation agreement or DTA
Royalty
• Royalty paid by a Thai company to a foreign company is
levied at 15% withholding tax. However, 15 %
withholding tax may be reduced to 5% or 10% received
by a foreign company which is incorporated in a
foreign country and has no permanent establishment
or PE in Thailand depending upon terms of each DTA.
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Use of double taxation agreement or DTA
Capital gains
• capital gains paid to a foreign company is subject to
15% withholding tax.
• However, no withholding tax is chargeable to capital
gains received from a sale of shares in a Thai company
by a foreign company in a country having a DTA with
Thailand and having no PE in Thailand.
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Chart on an offshore company
Listed Company
BVI Company
Thai Securities House
Securities House in
Country 1
Custodian in Country 2
Foreign bank
A,B
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Use of double taxation agreement or DTA
Some issues to be taken into consideration
• Sale of goods provides more tax benefits than service.
• Payment for financial service, accounting service ,
management service, legal service is considered to be
service fee.
• Payment for the hotel management business,
supermarket business , insurance business is regarded
as royalty.
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Use of double taxation agreement or DTA
Some issues to be taken into consideration
• Business profits and royalty issues are important to be
determined.
• Interest is deductible as expense but subscription for
new shares is not.
• Capital gains may be exempted from tax while dividend
is subject to withholding tax.
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Use of double taxation agreement or DTA
Some issues to be taken into consideration
• Request for tax refund
No request for tax refund shall be made to a tax
office unless a company maintains good tax documents
and fully and strictly complies with tax requirements.
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Use of double taxation agreement or DTA
Some issues to be taken into consideration
• Legal and beneficial owner
• - The concept of legal and beneficial ownership
under the common law is opposed to the concept of
absolute ownership under Thai law.
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Use of double taxation agreement or DTA
•
•
•
•
•
•
•
Some issues to be taken into consideration
plan a proper corporate structure
have a genuine transaction , not a sham transaction
select appropriate agreements
prepare and keep legal documentation
effect payments in line with transactions
closely follow new regulations and tax rulings
tax regulations and policies becoming more complex
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Use of double taxation agreement or DTA
•
•
•
•
•
Some issues to be taken into consideration
a lot of tax exemptions provided
conditions of exemptions or reductions to be strictly
complied with
apply tax avoidance , not tax evasion.
the term “tax avoidance” is changed to a financial
service and a tax planning.
tax planning is beneficial in the case of tax antiavoidance Tax evasion is illegal.
•
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Use of double taxation agreement or DTA
•
•
•
•
•
Some issues to be taken into consideration
use of provisions of the DTA enhances more trade and
investment between countries.
foreign companies to be utilized for offshore
transactions
Companies should keep low profile on investment and
contractual transactions but raise high profile on goods
and services.
Provisions of double taxation agreements should be
taken into account for tax planning.
engage legal and tax advisors
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Thank you for your kind attention
SIAM CITY LAW OFFICES LIMITED
183 Rajanakarn Building, 20th Floor,
South Sathorn Road,
Bangkok 10120, Thailand
Tel: (662) 676-6668
Fax: (662) 676-6188
E-mail : picharn@siamcitylaw.com
www.siamcitylaw.com
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