Taxation in Thailand: What is this for your Company?

100% Commitment to
Client Success

taxation of special corporations

 

Does your business fall under the petroleum industry, insurance or banking? If yes, then, the tax computation can be a little different than the usual. Also, you may be eligible for some deductions. Let us go through the regulations and policies of taxation in Thailand.

1. Petroleum Industry

Have you heard about the Petroleum Income Tax Acts of 1971, 1973, 1979, 1989, 1998 and 2007? No? Let me help you to take through.

So, what led to the introduction of this Act?

To let companies holding concessions for the production, export, and exploration of petroleum, particularly crude oil and natural gas, pay petroleum income tax. The 1989 legislation is applicable to those concessions active from or before 15th August 1989. The approval must have the consent of the Minister of the Industry for the concessionaire, under the legislation of 1989.

The concessionaires have tax exemptions under the Revenue Code. It is to the extent of business activities of production, exploration, and export of petroleum. As for the rate of income tax on the net profit, 50% is its capping value. However, no further tax is payable on the dividends of the shareholders or to the head office of the branch.

When calculating the net profit, its revenue includes the gross income from the sale or disposal of petroleum and the value of petroleum delivered as the payment of royalty in kind, gross income from a transfer of any property or any other income arising in connection with the petroleum business.

Regarding the deductions, most of them are permitted under the Revenue Code sans the interest expense. Also, royalties are not permitted as a deduction under the pre-1989 Acts although they are allowed as a credit against the payable petroleum income tax. All necessary and ordinary costs that are incurred prior to the beginning of the production are considered as capital expenditure and can be amortized in not less than 10 years right from the date of commencement of production.

With the start of production, tangible costs of exploration must be capitalized while the intangible costs are either capitalized or expensed at the concessionaire’s option. Bonuses, especially signature bonuses are considered as the capital expenditure and can thus be not less than ten years.
The first period of accounting by the concessionaire usually commences on the first day of petroleum disposal or sale. However, if there’s transfer of any rights in the concession prior to that date, then that transfer will be treated as an accounting period. But, then, of course, a concessionaire whose activities are restricted to exploration, filing tax return may not be required.

Additionally, the 1989 Petroleum Income Tax Act needs the concessionaire to file a half-year tax return in 2 months considered from the last day of the first 6 months of an accounting period along with the tax paid, depending on the one and half of the calculated profit for the entire year. This tax when paid is considered as a credit in the computation of the annual income tax liability. In fact, a 20% surcharge of the underpaid tax can be imposed, if the estimated profit is lesser than the actual net profit (almost by 25%).

As for the tax losses that can be carried forward for nthe ext ten accounting periods.

2. Insurance Companies

The insurance companies in Thailand typically follow the general rules laid down in the Revenue Code to calculate the taxable profits, other than the below mentioned that may be deducted as an expense.

a) A reserve kept out of premiums as a contribution to the LIC fund, not exceeding 65% of the remaining of the premiums obtained in the accounting period after deducting the reinsurance premiums. If the sum insured is paid out in either full or in part, but not exceeding the amount of the reserve, may not be permitted as an expense. However, when it comes to termination of the LIC policy, the outstanding reserved amount related to the policy must be included as the revenue of the accounting period, wherein the policy is terminated.

b) A reserve kept prior to the calculation of the profit out of premiums as contributing to other insurance fund to such an extent that it doesn’t exceed 40% of the remaining premium, obtained in the accounting period after deducting the reinsurance premiums. Well, the reserve should be treated as revenue in calculating the taxable profit of the upcoming accounting period.

3. Banks and Financial Companies

Usually, a provision for bad debts is not considered as an expense in calculating the net taxable profit. When it comes to banks and financial companies, a provision is set aside for bad debt from credit extension is permitted a deductible expense. However, that is happening in respect of the amount that additionally set up over the balance of the provision that appears in the balance sheet for the previous accounting period.

Besides, banks and other finance organizations can write off their bad debts completely provided for under the regulations laid by the Bank of Thailand without complying with the Revenue Department’s rules for writing off of bad debts. Well, in that case, court acquired isn’t needed.

4. Holding Companies

Regarding holding companies, there’s no special legislation.

Enquiry Form

Get a Free One-on-One Consultation