Tag: Tax

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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.

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(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.

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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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Thailand Implements Mechanism to Promote Tax Transparency and Combat Tax Evasion on a Global Level  

The Cabinet has approved a Ministerial Regulation issued under the Royal Decree on the Exchange of Information for International Agreements on Taxation B.E. 2566 (2023) (“Ministerial Regulation”) to implement the automatic information exchange for tax purposes. In addition, Thailand will be bound by Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (MCAA).

Thailand has been a member of The Global Forum on Transparency and Exchange of Information for Tax Purposes since 2017. The Global Forum is a framework for the exchange of tax information by the Organization for Economic Cooperation and Development (“OECD”) committing to implement the automatic information exchange for tax purposes and Thailand’s Royal Decree on the Exchange of Information for International Agreements on Taxation B.E. 2566 (2023) (“Royal Decree”) to specify Thailand’s procedure in order to comply with OECD standards.   OECD is an international organization that promotes economic cooperation and development among its 38 member countries and other partner countries around the world. The OECD provides policy advice, conducts research and analysis, and exchanges information on a wide variety of economic and social issues, including trade, investment, taxation, education, health, and the environment, among others. Thailand is not a member of the OECD but is an associate and participant in some OECD bodies and adheres to some OECD legal instruments.

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MCAA on Automatic Exchange of Financial Account Information and The Global Forum on Transparency and Exchange of Information for Tax Purposes are both necessary for promoting tax transparency and combatting tax evasion on a global level. The Global Forum on Transparency and Exchange of Information for Tax Purposes provides a framework for countries to exchange information and collaborate in the fight against tax evasion, while the MCAA sets out the rules and procedures that countries must follow when automatically exchanging financial information under the OECD Common Reporting Standard (CRS). The MCAA is a tool that enables countries to meet their obligations to exchange information under the CRS, while the Global Forum provides a platform for cooperation and information exchange at the international level. Together, these two initiatives help to ensure that taxpayers cannot hide their assets and income in offshore jurisdictions and that all taxpayers pay their fair share of taxes according to their respective tax laws.  

For Thailand, under Section 5 of the Royal Decree, the Ministry of Finance has proposed the Ministerial Regulation to set the criteria and procedures for the duties of persons responsible for reporting financial accounting information of financial institutions in Thailand. This Ministerial Regulation will support the exchanging of information in accordance with the Multilateral Competent Authority Agreement on Automatic Exchange of Information (“MCAA CRS”), improve data exchange operations as well as Thailand’s taxation transparency, and promote Thailand’s taxation and economic system. The Ministerial Regulation contains 6 titles:

  1. Reporting Persons,
  2. General Audits,
  3. Natural Person Account Audits,
  4. Juristic Person Account Audits,
  5. Special Criteria for Checking Customer Information, and
  6. Miscellaneous.

It also imposes precise definitions such as Depository Institutions, Financial Accounts, Deposit Accounts, and Reportable Financial Accounts, as well as types of reporting financial institutions, which are financial institutions by virtue of Thai law situated in Thailand and branches of financial institutions not under Thai law but located in Thailand, types of audits, and special criteria for checking customer information.  

As mentioned, the Ministerial Regulation has been approved by the Cabinet and it will become effective after the date of publication 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.

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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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Extension of Tax Exemption Period Under the Thailand Plus Package Program

The Ministry of Finance has proposed 3 draft Royal Decrees under the Revenue Code on revenue exemption to extend the tax exemption period under the Thailand Plus Package Program. The Cabinet has approved and passed them to the Council of State to conduct an immediate review. The essences of the Royal Decrees are as follows:

  • 1. Draft Royal Decree Prescribing Tax Measures to Promote Investment in Automation

The objective is to promote and support investors in investing more in automation in Thailand, which will enhance the country’s competitiveness and industry efficiency.

This draft Royal Decree extends the period of corporate income tax exemption for expenses spent on machinery and computer programs for automatic machines investment from 1 January 2020 (B.E. 2564) to 31 December 2025 (B.E.2568).

  • 2. Draft Royal Decree Prescribing Tax Measures to Promote Hiring of Highly Skilled Personnel.

The objective is to encourage and support the employment of highly skilled individuals in the fields of science, technology, engineering, and mathematics, which will enhance the country’s competitiveness and industry efficiency.

This draft Royal Decree extends the period of corporate income tax exemption for salaries of skilled employees in sciences, technology, engineering, and mathematics spent by the targeted industries, i.e. automotive, agriculture industry, and biotechnology industries from 31 December 2022 (B.E. 2565) to 31 December 2025 (B.E.2568).

  • 3. Draft Royal Decree Prescribing Tax Measures to Promote Development of Highly Skilled Personnel.

The objective is to encourage and support the skill upgrading of employees in companies or juristic partnerships in order to increase staffs’ efficiency and encourage the growth of Thailand’s private sector.

The draft Royal Decree extends the period of corporate income tax exemption for expenses on employees’ education or training organized by government agencies, i.e. Office of National Higher Education, Science Research, and Innovation Policy Council (NXPO), Eastern Economic Corridor Office of Thailand (EECO) and Digital Economy Promotion Agency (DEPA) from 1 January 2021 (B.E. 2564) to 31 December 2025 (B.E.2568). Moreover, after this draft Royal Decree becomes enforced, the Ministry of Finance will add the Center of Robotics Excellence (CoRE) to the list of designated government agencies organized for education and training.

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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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Benefits of Using E-Tax System

Since 2019, the e-tax system has helped a lot of entrepreneurs. Since they do not have to carry a huge amount of documents and it is easy to use. They still can send an e-tax invoice, e-tax receipt and e-withholding tax to the Revenue Department through email rapidly. This implementation system has increased the number of e-tax invoices, e-receipt, and e-withholding tax users steadily compared to 2021 as follows:

  1. The number of entrepreneurs who used the e-tax invoice and e-receipt increased to 1,657 cases from 1,252 cases.
  2. Payers of withholding tax who paid through the e-withholding system increased to 2,304 cases from 1,513 cases.
  3. Payees of withholding tax who paid through the e-withholding system increased to 714,683 cases from 915,997 cases.

Thus, the cabinet has recently approved the principle of draft royal decree by virtue of the Revenue Code regarding the tax exemption and the draft ministerial regulation by virtue of the Revenue Code regarding income tax, total of 2 legislations, as being proposed by the Ministry of Finance for the reason to promote the digital transformation and the incessant use of e-tax invoice, e- tax receipt and e-withholding tax system. Moreover, the Ministry of Finance decided to extend the period of tax measures to promote the e-tax system by virtue of the tax exemption from the Revenue Code (No. 718) B.E. 2564 (2021) and the usage of e-withholding tax system by virtue of the income tax from the Revenue Code until December 31st, 2025. They reduce the withholding tax rate for paying assessable income through e-withholding tax to 1 percent from 2 percent, they believed that this would trigger the entrepreneur to remit taxes through e-withholding tax system more.

Besides, the Ministry of Finance also considered the loss of income and the expected benefits by virtue of section 27 and section 32 of the State Fiscal and Financial Disciplines Act B.E. 2561 (2018) as follows.

1. Estimate of the loss of income

The extension of tax measures to promote investment in an electronic tax system would cost the loss of corporate income tax around 20 million baht. However, the extension period of tax measures to promote investment in e-withholding tax would not cost any taxes since the entrepreneurs have to calculate the assessable income with income tax.

2. Estimate of the benefit

It would widely spread how to use e-tax invoice, e-receipt, and e e-withholding tax system between the private sector and the public sector which could trigger digital economic and digital transformation from either the private sector or the public sector. Moreover, this extension period could help reduce the cost of document storage.

To conclude, the principle of this draft royal decree is about to extend the period of tax measures for promoting investment in the e-tax system by deducting expenses 2 times whilst this draft ministerial regulation is about to extend the period of tax measures for promoting the usage of e-withholding tax system by reducing the withholding tax rate from 5%, 3% and 2% to 1% for paying assessable income through e-withholding system.

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Bangkok Metropolitan Administration to Pursue New Tax Schemes

The Bangkok Metropolitan Administration (BMA) is looking into new ways to increase revenue collection. At a meeting with the BMA Finance Department, Governor Chadchart Sittipunt set out three objectives:

  1. Completely collect all statutory tax.
  2. Consider amending the Bangkok Metropolitan Administration Act B.E. 2528 (1985) to grant authority for BMA to collect additional tax, such as the tourist tax and pollution tax, in order to increase revenue without causing undue hardship to the people.
  3. Approximately five million people have their registered addresses in Bangkok. At the same time, there are many residents in Bangkok with registered addresses in other provinces. As a result, the BMA is considering the way of changing their registration to Bangkok in order to reflect the actual population and allocate an appropriate budget based on such actual population of Bangkok.
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As we all know, the BMA receives revenue from a variety of sources, including land and building tax, signboard tax, property income (i.e. the rental fee collected from the rent of a BMA’s building), VAT, vehicle tax, fees and others. Despite the fact that the BMA has been able to collect such revenue in accordance with its target, the BMA, led by the Governor of Bangkok, is considering an increase in revenue collection, as mentioned in item 2, so that such revenue amount shall be used to provide comprehensive and efficient benefits to the actual numbers of people in Bangkok, as mentioned in item 3, given the possibility of increasing expenses in the future.

The new tax collection scheme will include a robust online tax filing system called BMA TAX MAP and an array of payment options. This will allow taxpayers to conveniently file and pay their taxes online and reduce the need for physical visits to the BMA offices. The BMA will also provide 24/7 customer service for taxpayers who require assistance. The BMA believes that this new tax collection scheme will significantly improve efficiency and reduce operational costs, while providing taxpayers with a more convenient and secure way of filing and paying their taxes. It is also expected that this new system will help in increasing compliance with tax obligations, as well as promoting transparency and greater accountability of the system.

Author: Panisa Suwanmatajarn, Managing Partner.