The Revenue Code of Thailand lays down the principles to collect Personal Income Tax on almost all types of income received from the ability to earn income or from properties of a natural person or individual. The Code classifies income into eight categories, and such income, either earned or unearned, is subject to income tax if the tax is not exempt by law, royal decrees issued thereunder, or announcement or orders of the National Executive Council having the force of law. At this point, it is essential that a tax-payer carefully considers what type of income is subject to tax. He should also pay attention to the rules and regulations laid down by the Revenue Department as to how the provisions of the law are interpreted and enforced by the Department.
1.1 Individual tax-payers are divided into 5 categories:
1.1.1 Natural person
1.1.2 An Ordinary Partnership
1.1.3 A group of persons which is not a legal entity
1.1.4 A person who dies during a tax year
1.1.5 An undistributed estate
1.2 A Resident
A resident is defined under the Revenue Code to be a person residing in Thailand at one or more times totalling 180 days or more in any tax year. That person is treated a resident even though he is an alien and does not stay in Thailand under an immigrant visa. The determining factor is that he is physically present in Thailand for 180 days or more in a tax year.
1.3 A Non-Resident
A non-resident is a Thai or an alien who resides in Thailand for one or more times but the total is less than 180 days in any tax year. His tax liability is limited to the income received:
a) from a post or office held in Thailand
b) from a business carried on in Thailand
c) from a business of an employer in Thailand, or
d) from a property situated in Thailand
Whether such income is paid within or outside Thailand and whether or not he brings it into Thailand.
1.4 Payment of Income Tax
Payment of Personal Income Tax may be made under one of the following methods:
a) withholding Income Tax
b) payment of tax before its due date
c) payment of tax on its due date
d) joint tax liability
e) assessment by Tax Authorities
1.5 Tax Refund
If a tax-payer has over-paid his tax either by direct payment or through tax deduction, he is entitled to request a refund from the Revenue Department on the excess amount, provided that he files a claim for the refund (Form Khor 10) with the tax authority within three years.
1.6 Tax Clearance Certificate
In the past, an alien must apply for a tax clearance certificate from the Revenue Department if he is residence in Bangkok or from the Provincial Governor or his authorised representative if such an alien is resident in any province outside Bangkok. The Law on Tax Clearance Certificate came into effect on 1st January, 1960.
If a tax-payer does not agree with the assessment order issued by the Tax Authority, he may lodge an appeal with the Board of Tax Appeals within 30 days from the date he receives such an order. This time period may be extended by the Director General of the Revenue Department. However, an appeal is not allowed if the Tax-payer refuses to cooperate with the Official in a tax investigation.
2. Income Tax on Juristic Entities
The general principle of income tax on juristic entities is based on the collection of tax on net profit arising from or in the consequence of the business carried on within an accounting period from the following juristic entities.
(1) a Limited Company, a Public Company or Juristic Partnership organised under Thai or a foreign law;
(2) a business or profit-seeking enterprise operated by a Foreign Government, or an organisation owned by a Foreign Government or any other juristic person organised under a foreign law;
(3) a joint venture, being a business or profit-seeking enterprise carried on jointly:
(a) by a company and another company;
(b) by a company and a juristic partnership;
(c) by a juristic partnership and another juristic partnership, or
(d) by a company and/or a juristic partnership on the one hand, and an individual, a group of persons, an ordinary partnership or another juristic person on the other hand.
(4) a foundation or association engaged in any revenue-producing business, but not including the foundations or associations designated as tax exempt organisations.
(5) any juristic person designated by the Director-General with the approval of the Minister and published in the Government Gazette, but there is none at the moment.
2.1 Corporate Tax-Payers
Corporate Tax-Payers can be divided into 7 categories:
2.1.1 Local Companies and Partnerships
Juristic Companies and Partnerships which are organised under Thai Law must pay income tax on all profits derived from domestic as well as foreign business operations. In this connection, if a company formed under the Civil and Commercial Code or Public Company Act of 1992 does not carry out any business in Thailand but has all its activities in a foreign country, it is still required to pay any income tax on the profit derived therefrom. However, tax credit may be allowed under the Applicable Double Tax Agreement.
2.1.2 Foreign Companies and Partnerships
Foreign Juristic Companies and Partnerships are classified as those entities incorporated under foreign laws. If they carry on business in Thailand, they are subject to tax under the Thai Revenue Code, Foreign Juristic Companies and Partnerships which carry on business in various countries including Thailand shall pay tax only on the net profit arising from or in consequence of the business carried on in Thailand during an accounting period.
2.1.3 Joint Venture
Although the Civil and Commercial Code of Thailand does not recognise joint ventures, this form of doing business is recognised as a tax entity by the Revenue Department. A joint venture is formed for big construction projects such as joint venture that constructed Sathorn Bridge across the Chao Phaya River. The partners must share in the profit and loss of the joint venture, and is a Limited Company of Partnership set up either under Domestic Law or Foreign Law. The joint venture is subject to Corporate Income Tax as well as Value Added Tax. Any profit derived by the joint venture shall be distributed to the participants in proportion to their interest but income tax could be exempted under Royal Decree No. 10 and No. 108.
In case where the participant is a foreign company that has no other business activity in Thailand, that participant will pay income tax on its share of profit at decree no. 10 in the same manner as a dividend.
2.1.4 Affiliated Companies and Partnerships
Affiliated Juristic Companies or Partnerships mean two or more juristic persons related to one another in any of the following manners:
(1) More than one half of the number of the shareholders or partners in one juristic person constitutes more than one half of the number of the shareholders or partners in another;
(2) The shareholders or partners holding more than 50 percent of the capital of one juristic person are also shareholders or partners holding more than 50 percent of the capital of another;
(3) One juristic person as a shareholder or partner holding more than 50 percent of the capital of another;
(4) More than one half of the number of the directors or partners with the power of management in one juristic person are directors or partners with the power of management in another.
The tax liability of an Affiliated Company is the same as that of a Juristic Company or Partnership. The law provides for such a definition in order to determine the income and net profit under Section 70 ter of the Revenue Code and reserve for bad debts which will be discussed in subsequent paragraph.
2.1.5 Registered Companies
Registered Companies means companies whose share are listed with the Stock Exchange of Thailand but do not include authorised companies.
2.1.6 Investment Management Companies
Investment Management Companies mean securities companies licensed to carry on the business of managing investments under the Securities and Exchange Act of 1992.
Consortium is a group of companies similar to a joint venture but the members do not share in the profit and loss. Therefore, a consortium is not a tax entity by itself but the members must separately pay tax in their own names. A consortium is now a more popular form of doing business as compared to a joint venture because an efficient member can make profits while an inefficient member may suffer losses.
2.2 Tax Refund
A company or partnership that overpaid its taxes and duties is entitled to claim a refund from the Revenue Department within a period of three years from the last day of tax filing for the applicable accounting year by using from the Khor no. 10.
NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
If you would like further advice please contact: David Ellis, Johnson Stokes & Master, 16th Floor, Princes Building, 10 Chater Road, Hong Kong; Tel 2843 4226; Fax no. : 2845 9121. Alternatively do a text search "Johnson Stokes and Master" and "Business Monitor".