Tag: Property and Real Estate

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Q&A Statement Issued by Revenue Department Clarifying Taxation Applied on Foreign-Sourced Income

The Revenue Department recently issued an Order no. Por.161/2566 on September 15, 2023, with an official announcement published in the Royal Gazette on October 6, 2023 (“Order”). This Order provides important clarifications regarding the taxation of foreign-sourced income, specifically in relation to Section 41 paragraph 2 of the Revenue Code.

To make these clarifications more accessible, the Revenue Department has also released a Q&A infographic statements, accompanied by practical examples addressing various scenarios that taxpayers may encounter, where the key points are summarized as follows for your reference:

(1) Resident Status Rule: The Order interprets Section 41 paragraph 2 of the Revenue Code, which mandates that a resident of Thailand who earns assessable income from sources outside Thailand or from properties located outside the Thailand must pay personal income tax upon bringing such income into Thailand. A resident of Thailand, in this context, is defined as an individual who spends a total of 180 days or more in Thailand within a given year, regardless of whether such individual resides in Thailand continuously throughout the year, if they accumulate a total of 180 days or more in Thailand, they are still considered a resident for tax purposes. For instance, if Mr. A resides in Thailand only during odd-numbered months, totalling 184 days in Thailand, he is still considered a resident.

calculator and pen on table

(2) Non-Resident Income: The Order explains that if a person is not a resident of Thailand during the year in which they earn income, they do not need to include that income in their tax calculations, even if they bring that income into Thailand in a subsequent year when they are a resident. For example, Mr. B earns income from a rental property abroad in a year when he is not considered a resident of Thailand. Then He brings this income into Thailand in a following year when he is a resident, he is not required to calculate such income as assessable income and shall not be subjected to taxation in the year that those money brought into Thailand.

Interest on Bonds and Debentures: The Order also addresses the taxation of income from buying bonds and debentures from outside Thailand. For example, if Miss C purchases bonds from foreign sources in a year when she is a resident of Thailand and subsequently brings the income into Thailand, she is only required to calculate assessable income from the interest on these bonds, not the principal.

Both conditions must be met for the foreign-sourced income to be taxed in Thailand. However, if such income has already been taxed in the source country and the person later brought the said income into Thailand. Thailand and the source country’s double taxation treaties (if any) will govern and determine whether such paid tax in the source country will be used as tax credits or tax exemptions.

It is important to note that this order applies to all taxpayers living in Thailand or planning to reside in the country. Non-compliance with the Revenue Code may lead to criminal penalties, including fines and imprisonment.

This summary provides an overview of the key points covered in the Q&A infographic issued by the Revenue Department regarding the taxation of foreign-sourced income. As these criteria will become enforced on the 1st July 2024, it is essential for the resident taxpayers to understand and adhere to these regulations to avoid penalty consequences.

Author: Panisa Suwanmatajarn, Managing Partner.

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Royal Decree on VAT Reduction under the Revenue Code

Previously, there was a proposed measure to subsidize elderly people by increasing VAT to 10% back to what specified in the Revenue Code and using 3% of the said VAT to assist elderly citizens in coping with their retirement lives. However, there has been no development on this matter since the Royal Decree regarding VAT reduction in accordance with Revenue Code no. 724/2564 (2021) (“Royal Decree”) is still in effect to extend the period of VAT reduction.

Currently, the Ministry of Finance believes that the Thai economy’s development in 2023 and the following year is vulnerable to risk factors such as volatility and economic slowdown, as the Thai economy is still recovering from the epidemic.  Furthermore, the Office of the National Economic and Social Development Council (“NESDC”) discovered that the Thai economy expanded by 1.8 percent in the second quarter, down from 2.6 percent in the first quarter of 2023. There are also the reduction of product exports and increasing of government spending. The business and household sectors are still struggling with rising expenses due to increasing interest rates and living expenses, as well as the implementation of the annual budget for the fiscal year 2024 is taking longer than usual.

money cash euro pay
Photo by Skitterphoto on Pexels.com

Thus, it is essential to ensure the country’s economic stability, support the recovery of domestic consumer expenditure, allowing the Thai economy to develop as expected, reduce the burden of living costs for the people, and promote trust in the business sector. As a result, the cabinet agreed to prolong the Royal Decree’s timeframe for keeping the VAT rate at 7% (including municipal tax) for another year, from 1 October 2023 to 30 September 2024.  

Author: Panisa Suwanmatajarn, Managing Partner.

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The Building Standard Will be Increased to Meet New Safety Requirements and Usage  

On August 15th, 2023, the cabinet in principle approved the Draft Ministerial Regulation No. .. (B.E. ….) issued by virtue of the Building Control Act B.E. 2522 (1979), where this Draft Ministerial Regulation will amend some provisions as set in the Ministerial Regulation No. 39 (B.E. 2537). The main purpose is to improve certain requirements on fire safety systems as well as requirements on the type and number of bathrooms and toilets to be appropriate in accordance with the current usage of each type of building. Many factors were considered to set new requirements.   New terms and definitions have been established, such as public building, which means a building that individuals can live or use for the benefit of public assembly, for the activities of official, political, educational, religious, social, and so on. In addition, the terms, i.e., separator, sanitary ware, water closet, urinal, bath, toilet, and bathroom also have been set.

The type of building has been revised to be as follows:

  1. Row unit houses, row houses, townhouses, semi-detached houses;
  2. Public building except theatre and service place, assembly building, restaurant, office, government office, factory, and commercial building;
  3. Common residential building with 4 or more units, condominium units, and dormitory;
  4. Warehouse; and
  5. Other kinds of buildings except items 1, 2, 3, and 4 with a height of 3 floors or more.

Several requirements have also been amended and added, and the examples of requirements below may be applied in full or in part to any of the aforementioned buildings as specified in the Draft Ministerial Regulation.

  1. Buildings must have fire prevention procedures.
  2. Buildings must have a portable fire extinguisher or fire extinguisher with component, characteristic, number, type, size, capacity, and installation in accordance with the Announcement of the Ministry of Interior.
  3. Buildings must have an alarm system with the number and location as specified. Furthermore, the buildings, with a total area of 2,000 m3, must have the said alarm system on each floor. (The fire alarm system must be able to detect the smoke and give a signal or sound to warn people in the building of fire and must be the emergency equipment both automatically activated and manually operated.)
  4. Buildings must have the building plan of each floor presented in a spot where it is simple to see and show the location of rooms, fire extinguishers, fire escape ladders, elevators, and the building plan itself. If the buildings have room for storing items, such as fire extinguished materials, or hazardous or flammable materials, such buildings must comply with the standards as specified by Clauses 6/1 and 6/2 of this Draft Ministerial Regulation.

The toilet and bathroom located in the aforementioned buildings are determined to meet the requirements of the building such as required material and equipment, cleanliness, privacy, minimum space of not less than 0.80 meters width, and ventilation system are also designed to be adequate and appropriate for the number of users. Furthermore, this Draft Ministry Regulation also specifies the distance between the bathroom and any location in the building.   The Draft Ministerial Regulation will be submitted to the Council of State for its consideration and after that it will be returned to the cabinet for its final consideration before publishing in the Royal Gazette.

Author: Panisa Suwanmatajarn, Managing Partner.

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Thailand’s Carbon Credit Policy: The Push for Business Collateral

As a result of Thailand’s intention to reduce greenhouse gas (GHG) emissions at the 26th UN Climate Change Conference of the Parties, Thailand has established a Voluntary Carbon Market under the supervision of the Thailand Greenhouse Gas Management Organization (Public Organization), or TGO.  The establishment of the market is a result of the cooperation of businesses and organizations to voluntarily participate in the trading of carbon credits. Thailand’s carbon credit policy is under the Thailand Voluntary Emission Reduction Program (T-VER), in which TGO will register T-VER and certify the number of greenhouse gases that can be reduced or stored from T-VER. The amount of greenhouse gas that can be reduced or stored is called “carbon credits”.

Since carbon credits are traded in the market, they can be counted as an asset. This makes it possible to apply carbon credits to the financial services of banks in the form of a factor in environmentally friendly financing projects. Carbon credits can also be pledged as credit enhancement in these transactions, which helps to ensure that the project can meet its financing requirements. Additionally, carbon credits can be used as collateral in loans, particularly those used for climate-resilient investment projects, as they provide a measurable way to assess and manage climate-related risk. However, the specifics of how carbon credits can be used as collateral will depend on the financing agreement and the relevant legal and regulatory framework.

sky clouds building industry

According to the press release 2023 report on the Department of Business Development’s website, the Department of Business Development has discussed with relevant agencies pushing for “carbon credits” as business collateral. The carbon credit will likely be considered collateral in the future, said Mr. Tosapol Tangsubutr, Director-General of the Department of Business Development, who is urging people to plant valuable perennials on their land to create carbon credits. This corresponds to the Ministerial Regulation on Other Assets as Collateral B.E. 2561 (2018), which announced that perennials are assets that can be used as collateral to provide more business collateral. In summary, carbon credits are likely to be business collateral in the future, according to the Business Security Act B.E. 2558 (2015). There are additional issues to be studied, namely, what type of property carbon credits are classified as, valuation, credit granting process or procedure, property supervision, and collateral enforcement process including various minor details relating to the Business Security Act B.E. 2558 (2015) and comparing to foreign laws for more legal integrity.

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Lowering Withholding Tax under Ministerial Regulation no. 389/2566 (2023) issued by virtue of the Revenue Code

Previously, the Ministerial Regulation no. 144/2522 (1979) had been issued to impose conditions of withholding tax, and then the Ministerial Regulation no. 373/2564 (2021) was issued to amend the Ministerial Regulation no. 144/2522 (1979) regarding the rate of withholding tax.

Recently, the Ministerial Regulation no. 389/2566 (2023) has been issued on 10th March 2566 (2023) to amend the previous Ministerial Regulation in regard to withholding tax at a lower rate compared to the one specified in the Ministerial Regulation no. 373/2564 (2021) in order to encourage and support business entities to submit tax via electronic system.

The rate of withholding tax has been reduced from 2.0 to the rate of 1.0 for the taxpayer who pays from 1 January 2566 (2023) to 31 December 2568 (2025) and for the types of assessable income as follows:

  • The payment of assessable income under Section 40 (2) of the Revenue Code to corporations or juristic partnerships, but not include foundations or associations that generate revenue and foundations or associations prescribed by the Minister of Finance in accordance with the Revenue Code Section 47 (7) (b).
  • The payment of assessable income under Section 40 (3) of the Revenue Code which is fees of goodwill, copyright, or any other rights to the corporations or juristic partnerships but does not include foundations or associations that generate revenue and foundations or associations prescribed by the Minister of Finance in accordance with the Revenue Code Section 47 (7) (b).
  • The payment of assessable income under Section 40 (5) (a) of the Revenue Code to individuals or juristic person who are subject to personal or corporate income tax, but not include foundations or associations that generate revenue and foundations or associations prescribed by the Minister of Finance in accordance with the Revenue Code Section 47 (7) (b) and not include the payment of assessable income under Section 40 (5) (a) of the Revenue Code which is the rental fee of a boat in accordance with the law prescribing maritime promotion which is used with an international shipment.
  • The payment of assessable income under Section 40 (6) and (7) of the Revenue Code to individuals or juristic person who are subject to personal or corporate income tax, but do not include foundations or associations that generate revenue and foundations or associations prescribed by the Minister of Finance in accordance with Revenue Code Section 47 (7) (b).
  • The payment of assessable income under Section 40 (8) of the Revenue Code which applies only for the contest, competition, sweepstakes, or anything similar to those of the previously mentioned to individuals or juristic person who are subject to personal or corporate income tax, but not include foundations or associations that generate revenue and foundations or associations prescribed by the Minister of Finance in accordance with Revenue Code Section 47 (7) (b).
  • The payment of assessable income under Section 40 (8) of the Revenue Code which applies only to the payment of performance fees to public performers who are subject to personal income tax and domiciled in Thailand. In this case, ” Public performers ” include actors in drama, film, radio, or television, as well as singers, musicians, professional athletes, entertainers, etc.
  • The payment of assessable income under Section 40 (8) of the Revenue Code applies only to the income from the hire of work contract, reward payment, discounts or other benefits similar to those mentioned above in relation to promotions, advertisements, and other services which are not performance fees paid to public performers, payment for life and non-life insurance premiums,  payment for transportation excluding public transportation and payment for hotel service fees and restaurant service fees to individuals or juristic person who are subject to personal or corporate income tax, but not include foundations or associations that generate revenue and foundations or associations prescribed by the Minister of Finance in accordance with Revenue Code Section 47 (7) (b). In this case, “Services” means any action that may generate value that is not a sale of goods. In this case, “Restaurant” means the business of selling food or beverages of any type, including the business of employing personnel to prepare food or drinks, whether in or from premises that are accessible for the public to consume.

Author: Panisa Suwanmatajarn, Managing Partner.

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Tax Exemption For Carbon Credit Sales Under T-VER

The Royal Decree on Revenue Exemption (No. 760) B.E. 2566 (2023) issued by virtue of the Revenue Code has been issued for supporting and motivating the private sector to carry out the implementation of greenhouse gas emission reduction.

In line with Chapter 3 Part 3 Title 2 of the Revenue Code, this royal decree exempts companies or juristic partnerships from collecting corporate income tax on the profit generated from domestic carbon credit sales made through the Thailand Voluntary Emission Reduction Program (T-VER) governed by the Thailand Greenhouse Gas Management Organization (TGO).

The exemption will remain valid for three fiscal years or until 31 December B.E. 2570 (2027). The first fiscal year will begin on the date when TGO issues the participants with their carbon credit sales certification.

This royal decree has been published in the Gazette on 19 March B.E. 2566 (2023) and will be effective from the date after publication in the Gazette until 31 December 2570 (2027).

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Taxes on Land and Buildings be Reduced for the Fiscal Year of 2023

As of March 19, 2023, the Royal Decree on Reduction of Taxes for a Certain Type of Lands and Buildings (No. 3) B.E. 2566 (2023) (“Royal Decree”) has been implemented to reduce taxes on certain types of lands and buildings for the tax year 2023. The Royal Decree states that the tax amount for lands and buildings falling under certain categories can be reduced by 15%, according to Section 42 of the Land and Building Tax Act B.E. 2562 (2019). The categories include lands and buildings used for agriculture, residential purposes, other purposes apart from agriculture or residential purposes, and lands and buildings that are not being used or utilized appropriately based on their condition.

Furthermore, a further reduction at the rate of 15% of the tax amount calculated after the initial tax reduction for the tax collection of the tax year 2023 for the aforementioned lands and buildings will also be applied.

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Standards and Safety System of Hotel Building to be Changed

The Department of Public Works and Town and Country Planning has recently conducted a public hearing to hear feedback on the Draft Ministerial Regulation Defining the Characteristics of Other Types of Buildings Used for Hotel Business (No. 4) B.E. …. (“Draft Ministerial Regulation No. 4”) and the Draft Ministerial Regulation Defining the Characteristics and Safety System of Hotels B.E. …. (“Draft Ministerial Regulation for Safety System”).

The objective of the Draft Ministerial Regulation No. 4 is to amend the Ministerial Regulation Defining the Characteristics of Other Types of Buildings Used for Hotel Business (No. 3) B.E. 2564 (2021) which will be expired on August 18, 2024. It also adds requirements for buildings to be converted to be used in the hotel business. For the Draft Ministerial Regulations for Safety System, it is to enhance the standards of stability and safety systems against fire hazards.

The Draft Ministerial Regulation No. 4 will be effective for 9 years. The buildings which will be converted to be used for the hotel business (“Hotel”) must obtain approval for modification or change. Moreover, the buildings must not be in conditions that may be harmful to health, causes a nuisance, or environmental impact, and must not violate urban planning, environmental protection, and the relevant laws. Furthermore, this draft also adds additional requirements for the buildings’ maximum load-bearing capacity and safety system for fire hazards.

For the Draft Ministerial Regulation for Safety System, presently, buildings used for hotel business have various features.  Generally, all new buildings which will be used for the hotel business, must have appropriate safety standards and proper features. This Draft Ministerial Regulation for Safety System sets out the definitions such as “guest room”, “main structure”, “permanent materials” etc. for the existing buildings to be converted for using in the hotel business. Keys provisions categorized safety structure and standards of the buildings are as follows:

  1. Category 1 specifies the structure, stability, and construction materials: the structure must be strong and stable to support the load-bearing capacity of the buildings and the main structure. For 4 floors or more buildings, it must be constructed with fire-resistant materials that exceed the requirement. The buildings less than 3 floors that are constructed with non-fire resistance must provide a fire prevention and suppression system.
  2. Category 2 specifies the fire prevention and suppression system: hotels must provide fire prevention and suppression system. The hotel room must have a fire alarm system with at least 2 components: a fire signal device and fire automatic detection which include a manual alarm device and fire alarm control panel. Moreover, hotels must have enough light from emergency lighting systems and fire escape signs on all levels.
  3. Category 3 specifies the stairs, fire escape ladder, fire escape routes, and fire escape doors: The size, quantity, and width of stairs, fires escape ladders, and the minimum standard for fire escape routes and fire escape doors are specified.
  4. Category 4 specifies characteristics of buildings, interior space, various distances, and vacant space outside the building: The hotel rooms must have the bed size, plumbing distance, internal aisles width, and vacant space (not less than 10%) appropriately for the hotel size and not less than the minimum requirements.
  5. Category 5 specifies special characteristics of buildings: The building which have different characteristics, shapes, sizes, and areas from general buildings such as a raft, vehicle wreckage, etc. is required to be in compliance with provisions of the Draft Ministerial Regulation for Safety System.
anonymous builders working at construction site near crane

It should be noted that the Draft Ministerial Regulation No. 4 and the Draft Ministerial Regulation for Safety System are not in effect yet but they are expected to do approved by the Cabinet soon.

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Small Accommodations Be Legalized Under Hotel Business Operation Act 

Present, many types of building (such as raft, container, tent, and etc.) are being converted into hotels, which are popular among visitors and guests, but its structure is contrary to the Hotel Act B.E. 2547 (2004). As a result, in order to have such buildings being eligible for obtaining the Hotel Business License and operating the hotel business, the Department of Provincial Administration has issued a Draft Ministerial Regulation for Defining Types and Guidelines on Hotel Business Operation (No. ..) B.E. …. (“Draft Hotel Business Operation”) creating special conditions of buildings and specifying safety standards appropriated for those kinds of building.

This Draft Hotel Business Operation aimed to amend and add the following matters:

  1. To define the conditions of restroom and bathroom for each type of building to be adequate for the number of guests and the size of the hotel, as well as in compliance with the related laws such as building control and entertainment place laws.
  2. The visible number in every bed for hostel business, as well as the quantity of restroom and bathroom must be appropriate with the number of guests for ease of service and guest safety.
  3. To define the documents using for such buildings to be in compliance with the building control and other relevant laws.

It is to be noted that the hotel business license granted before this Draft Ministerial Regulation becomes effective is still valid.

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Visa Extension for Foreign Workers

The cabinet has recently approved the guideline for managing foreign working after February 13th, 2023, as proposed by the Ministry of Labor in collaboration with the Ministry of Interior, Ministry of Public health, Royal Thai Police, and Department of Provincial Administration. The guideline below will be applied to foreign workers whose work permits expire on or before February 13th, 2023, by allowing the following foreigners to stay in Thailand as a special case until May 15th, 2023.

1. Foreigners who have completed and submitted an application for a renewal of their work permit and paid for the application fee and renewal work permit fee within February 13th, 2023  and that 1.) those foreigners were granted a visa or permitted to temporarily stay in Thailand until February 13th, 2023 but have not yet applied for a temporary stay in Thailand until 2024 or 2025 or have a gradually expired passport since February 14th, 2023 onwards or 2.) those foreigners who were granted a visa or permitted to temporarily stay in Thailand until February 13th, 2023 and have been granted to stay temporarily in Thailand until 2024 or 2025 or have a passport expired from February 14th, 2023 onwards.

According to the Notification of the Ministry of Labor issued by virtue of Section 14 of the Royal Ordinance on the Management of Foreign Workers Employment B.E. 2560 (2017) and its amendments, foreigners as mentioned above in Item 1 will be allowed to work in Thailand until February 13th, 2024, or 2025 as the right is granted.

women in sitting on floor rug

2. Foreigners, who have incompleted but  submitted an application for a renewal of their work permit and paid the application fee within February 13th, 2023 under the circumstances of 1.)  those foreigners do not have a passport or document in lieu of a passport, 2.) those foreigners who have a passport or document in lieu of passport but fail to extend their visa or 3.) those foreigners whose status is not legal but whose employers have applied for their work permits on their behalf and have already paid the fee in the process of biometrics collection prohibited disease diagnosis, will be granted temporary visas until May 15th, 2023. In case they wish to continue working in Thailand, they will be granted temporary visas and work permits until February 13th, 2024 or February 13th, 2025 as the case may be.

3.  Those foreigners, who have passports or documents in lieu of passports and have been granted visas or have permission to temporarily stay in Thailand but passports or documents in lieu of passports expired before February 13th, 2023, will be allowed to temporarily stay and work until February 13th, 2024, or February 13th, 2025, as the case may be.