At the cabinet meeting on 2 April 2024, the Prime Minister directed the policy to the Ministry of Finance to urgently proceed with the measures regarding the Value-Added Tax (VAT) collection from the import of goods valued at less than Baht 1,500 per parcel to strengthen fairness for goods sold and/or produced by domestic Small and Medium-Sized Enterprises (SMEs) and also enhance and facilitate trade competition in the domestic market.
The government has its policy to reduce unfair trade between international and domestic enterprises. Currently, international enterprises are exempt from VAT for their imported goods to Thailand. This creates a huge differentiation between the price of goods imported from overseas and those produced locally in the market. As a result, the Ministry of Finance has its plan to enact legislation requiring online platform traders in Thailand and overseas to register with the Revenue Department in order to collect VAT at the rate of 7% for the sales of imported low-value goods to the local market and also require them to submit its VAT submission form to the Revenue Department on a monthly basis, similar to those of local trade businesses.
The Deputy Minister of Finance stated that the Revenue Department will submit a draft legislation in May 2024 to the Cabinet for its consideration. In the meantime, the Ministry of Finance will implement measures to collect taxes on low-value goods through Thai Customs.
Personal Income Tax Exemption from the Income Derived from Digital Investment Token Dividends
The Royal Decree recently introduced by the Thai government marks a pivotal moment in the country’s economic landscape. Aimed at fostering growth in the digital asset industry, this Royal Decree grants personal income tax exemption to individuals deriving income from dividends earned through holding investment digital tokens. Let’s move into the details of this significant development.
Background and Rationale
Digital Tokens and Traditional Securities:
The emergence of digital tokens has blurred the lines between traditional securities and modern investment vehicles. By extending tax benefits to investment digital tokens, Thailand seeks to create a level playing field and encourage investor participation.
Tax Treatment of Traditional Securities:
Under existing Thai law, investors in traditional securities can exclude dividend income from their taxable income. A withholding tax rate of 10% already applies to these dividends. Investors may voluntarily include dividends in their taxable income for various financial planning reasons.
The Proposed Royal Decree:
The Royal Decree extends the same principle to investment digital tokens. However, the withholding tax rate for these tokens is set slightly higher at 15%.
This adjustment strikes a balance between incentivizing investment and maintaining tax revenue.
Key Provisions
Entity Coveredand Conditions:
The Royal Decree applies to individuals who earn income from profits or other similar benefits as a result of holding or possessing investment digital tokens which withholding tax at the rate of 15% has already been deducted from such income. There is no need to include such income to calculate tax payment at the end of fiscal year. However, taxpayers must not request for a tax refund or credit, either in whole or in part.
Effective Date:
Income generated from 1 January 2024 will fall under the purview of this draft Royal Decree.
Implications and Conclusion
Harmonization of Tax Policies:
The Royal Decree bridges the gap between traditional securities and digital tokens. Clarity in taxation policies also fosters investor confidence.
Attractiveness as an Investment Destination:
By providing incentives and exemptions, Thailand aims to enhance its allure as a hub for digital asset investments.
In summary, the Royal Decree represents a significant stride towards a balanced taxation framework—supporting both investors and the digital asset ecosystem. As Thailand embraces the age of digital investment, this move underscores the nation’s commitment to innovation and economic growth.
Top-up Tax Bill: Implementing BEPS Pillar 2 in Thailand
The Organization for Economic Cooperation and Development/ the Group of Twenty (OECD/G20) has been leading a global effort to address tax avoidance by multinational entities (MNEs) through the Base Erosion and Profit Shifting (BEPS) project. This collaborative initiative involves over 140 member countries and aims to close the gaps in international tax regulations that allow MNEs to shift profits to low-tax jurisdictions, often referred to as tax havens. By exploiting loopholes and inconsistencies, these companies gain a competitive advantage over domestic entities while undermining the fairness and integrity of the tax system.
The BEPS project is divided into two main pillars:
Pillar 1: This pillar focuses on re-allocating profits and taxing rights on large MNE profits to ensure the impartiality of the tax system.
Pillar 2: This pillar introduces a global minimum tax rate of no less than 15% on MNE profits, preventing tax competition by requiring large MNEs to pay taxes at the Effective Tax Rate (ETR).
To implement Pillar 2 of the BEPS project in Thailand, the Revenue Department has conducted a public hearing regarding the drafting of the Top-Up Tax Bill B.E. …. This bill aims to collect top-up tax in accordance with the Global Anti-Base Erosion Rules (GloBE) measure, allocate profits from such taxation to the National Competitiveness Enhancement for Targeted Industries Fund, and provide information on top-up taxpayers to the Thailand Board of Investment (BOI).
Understanding Top-Up Tax
Top-up tax is considered a type of assessment tax separate from income tax. It is collected by low-tax jurisdictions when a Multinational Entity (MNE) has a Net GloBE Income but an Effective Tax Rate lower than 15%. The Net GloBE Income and Effective Tax Rate are calculated according to the provisions of the bill.
Who is Subject to Top-Up Tax?
Constituent entities established in Thailand, which are members of an MNE Group with a collective turnover of the Ultimate Parent Entity (UPE) not less than the equivalent of €750 million in Thai currency, are subject to the top-up tax under the bill. However, certain types of entities may be exempted, including governmental entities, international organizations, non-profit organizations, pension funds, investment funds, real estate investment instruments, and others specified by the Royal Decree to be issued.
Collection of Top-Up Tax
Each constituent entity located in Thailand has the responsibility to submit the following documents to the Revenue Department within 15 months from the last date of the accounting period as imposed by each entity in which the top-up tax is considered.
Notification reporting information of its MNE Group, information of the constituent entity, and the country where it is located;
GloBE Information Return; and
Top-up tax return and payment of the corresponding tax.
The bill empowers assessment officials to assess top-up tax within 10 years from the last date of submitting the GloBE Information Return.
Penalties for Non-Compliance
Taxpayers who fail to pay the required top-up tax after submitting a GloBE Information Return and assessment by the Revenue Department will be subject to a one-time penalty equivalent to the amount of the top-up tax. Additionally, taxpayers who fail to submit a GloBE Information Return and pay the top-up tax will face a penalty equivalent to two times of the top-up tax amount. In addition to the penalties, the bill imposes criminal liability on taxpayers who fail to comply with its provisions and cause damages to the state’s financial stability, such as deliberately submitting false information or making false statements.
Disclosure of Top-Up Tax Information
Under the bill, the competent authority of Thailand, specifically the Director-General of the Revenue Department, is authorized to disclose top-up tax information. However, this disclosure is limited to cases where it serves the national economic and financial stability objectives or complies with international agreements regarding the exchange of information on taxation as per the GloBE measure.
Effective Date
The principle of the bill was published for a public hearing from March 1, 2024, to March 15, 2024. The next step in the process is for the Revenue Department to analyze the impact of the public hearing results and prepare the bill for the cabinet accordingly.
The Financial Revolution: Thailand Prepares for the First Virtual Bank
Thailand’s financial landscape is on the verge of a transformative revolution with the imminent introduction of virtual banks. The recent publication of the Notification of the Ministry of Finance on criteria, methods, and conditions for applying for licenses and issuing licenses to operate branchless commercial banking business (“Notification”) in the Government Gazette on 4 March 2024, marks a significant milestone in this journey. But what exactly are virtual banks, and why is Thailand embracing this new model?
Virtual banks, unlike their traditional counterparts with physical branches, operate exclusively online, providing a comprehensive range of financial services. The Notification defines a virtual bank as a Public Limited Company (“PLC”) licensed to conduct a commercial banking business through digital channels, excluding retail commercial banks and commercial banks that are subsidiaries of foreign commercial banks. The Bank of Thailand (“BOT”) proposes the virtual banking scheme to unlock opportunities for the financial sector to leverage technology and data in developing sustainable financial innovations and services that cater to users’ needs.
So, why are virtual banks a game-changer for Thailand? The country aspires to become the “Wall Street of ASEAN,” positioning itself as a regional financial hub. Virtual banks play a pivotal role in realizing this vision due to several reasons:
Financial Inclusion: Virtual banks have the potential to reach unserved and underserved populations in remote areas, promoting financial literacy and participation among these communities.
Enhanced Competition: The increased competition brought by virtual banks can lead to improved interest rates, reduced fees, and the development of innovative financial products that benefit all customers.
Tech-Savvy Generation: With Thailand’s tech-savvy population growing rapidly, virtual banks cater to their preference for the convenience and efficiency of digital banking.
To ensure the smooth and secure operation of virtual banks, the BOT is meticulously crafting a regulatory framework. This framework highlights the qualifications and requirements for potential applicants. The BOT will be highly selective in awarding virtual bank licenses, considering the following key areas:
Financial Strength: Applicants must possess the financial resources necessary to establish and maintain a secure and reliable digital banking platform. The BOT evaluates applicants’ capital adequacy, track record of financial stability, and ability to attract further investments if needed.
Technological Expertise: Virtual banking heavily relies on robust and innovative technology. Applicants must demonstrate a proven track record in developing and managing secure digital services, including strong infrastructure and a business plan that encompasses cybersecurity, data management, and application development.
Business Model Sustainability: Applicants need to present a comprehensive plan outlining how they will generate revenue and effectively manage costs and capital for at least five years. This plan should prioritize financial inclusion and responsible lending practices, ensuring long-term profitability within the virtual banking framework.
Commitment to Innovation: The BOT seeks applicants who will drive innovation in the Thai financial sector by developing unique financial products and services tailored to the virtual banking environment.
Prioritizing Virtual Banking: Virtual banking should be the core business of the applicants, not just an add-on service.
The aforementioned requirements and qualifications, although not exhaustive, reflect the BOT’s rigorous standards for potential applicants. Obtaining a license will be a challenging process due to the complexity of the application and the strictness of the BOT’s requirements. Nevertheless, the BOT aims to ensure a secure, innovative, and inclusive virtual banking landscape in Thailand.
The timeframe to apply for a virtual banking license is as follows:
Application Period: Applications are open for a six-month window, starting from the date the Notification takes effect, which is from March 19 to September 19, 2024.
BOT Application Consideration: The BOT reviews applications for up to nine months, followed by the announcement of successful applicants.
License Approval and Launch: Once approved, applicants have one year to establish a PLC and apply for the virtual banking license, ultimately launching their virtual bank.
Thailand’s virtual banking landscape is expected to be a collaborative one, with established players joining forces to leverage their strengths. For instance, Gulf Energy Development, an energy conglomerate, will form a joint venture with telecom giant AIS, Krung Thai Bank, and PTT Oil and Retail. This strategic alliance exemplifies the potential benefits of collaboration. By combining Gulf’s technological expertise, AIS’s extensive user base, and Krung Thai Bank’s financial experience, this joint venture positions itself as a strong contender for a virtual banking license. It is likely that other collaborations will emerge during the application process, showcasing the dynamic and competitive nature of Thailand’s virtual banking race.
In conclusion, the arrival of virtual banks in Thailand promises to reshape the financial landscape of the country. By promoting financial inclusion, fostering competition, and catering to the preferences of the tech-savvy generation, virtual banks have the potential to propel Thailand towards its vision of becoming a regional financial powerhouse. The BOT’s cautious and meticulous approach to regulation ensures a secure and sustainable future for virtual banking in Thailand.
Thailand – New Government with its Executive and Legislative Policies to Promote Foreign Direct Investment
The new government, which has taken office following a nine-year ruled by General Prayuth Chan-o-cha, signifies Thailand’s return to democracy after the 2014 military coup. Under the leadership of the Pheu Thai Party, led by Prime Ministerial candidate Srettha Thavisin, the government has set forth a visionary agenda, with a primary focus on promoting foreign direct investment to invigorate the country’s GDP.
To achieve this overarching objective, the government has implemented a multifaceted strategy that encompasses both executive and legislative policies. This strategy revolves around three core principles: reducing expenses, increasing income, and expanding opportunities, all designed to enhance Thailand’s overall business environment and attractiveness to foreign investors within the ASEAN region.
One of the government’s primary measures is an extensive economic stimulus program. This program aims to reduce the cost of living and production costs in the country. Key components include significant reductions in electricity prices, petrol prices, personal consumption loan interest rates, and suspension of debt payments for farmers. These measures are strategically designed to enhance the appeal of Thailand as a destination for foreign investment by improving the overall cost structure for businesses operating within its borders.
Furthermore, the government is focusing on boosting the Electric Vehicle (EV) industry as a driver of foreign investment. To achieve this, it plans to reduce tax exemptions for imported EV cars, incentivizing domestic EV manufacturing. By nurturing this emerging sector, Thailand seeks to enhance its industrial and technological capabilities, making it a compelling option for foreign investors looking to capitalize on the growing EV market.
The government has also implemented visa policies to promote foreign investment and tourism. Passport holders from China, Kazakhstan, Taiwan, and India already benefit from a free-visa policy, with plans to extend this privilege to other nationalities in the near future. Such policies foster an environment conducive to foreign business travel and investment in various sectors.
Furthermore, the government is taking steps to upgrade the country’s infrastructure. The proposed land bridge project, connecting the Andaman Sea to the Gulf of Thailand, will significantly enhance international trade routes, positioning Thailand as a pivotal transportation hub in the Indo-Pacific region. This infrastructure investment opens up opportunities for foreign investments in logistics and related industries.
Lastly, the government plans to introduce legislation to fund the 10,000 THB digital wallet project. This initiative will provide digital currency to adults with monthly incomes below 70,000 THB and savings below 500,000 THB. Any unused funds will be channeled into the National Competitiveness Enhancement for Targeted Industries Fund, further enhancing economic competitiveness and making Thailand an attractive destination for foreign investment.
In conclusion, the government’s comprehensive approach to economic development, with a focus on improving the business environment, supporting key industries such as EV manufacturing, and encouraging foreign investment, positions Thailand for substantial growth and prosperity. If effectively implemented, these policies have the potential to transform Thailand into a regional economic powerhouse.
As COVID-19 pandemic causes effect to the hotel business, the Ministry of Interior then proposed for the draft Ministerial Regulation on Exemption of Fee for Hotel Business B.E. …. to the Cabinet for its approval in which the Cabinet on 5 July 2022 approved in principle of the same. This waiver of fee for hotel business will be effective for 2 years from 1 July 2022 until 30 June 2024 in order to help the hotel business operator in alleviating their burden of expenses.
