The current tax landscape in Thailand presents businesses with both challenges and opportunities. The ongoing economic uncertainties and evolving tax regulations make proactive tax planning more important than ever. If you are able to navigate the dynamic landscape, you might as well gain a competitive edge in your industry, on top of reducing your tax burdens and liabilities.
Let’s explore eight (8) tax planning strategies that you must implement right away to achieve long-term financial success.
Maximize Depreciation Deductions
Maximizing depreciation deductions allows you to deduct a portion of the cost of your assets from your taxable income over their useful life. Here are some ways you can do this.- Assets with shorter useful lives will allow you to take larger deductions in earlier years, so make sure to classify your assets correctly into the appropriate tax depreciation categories.
- Also consider using accelerated depreciation methods like the double-declining balance method (doubling the regular depreciation approach) for higher deductions at the beginning of an asset’s useful life.
- If available, take advantage of any bonus depreciation schemes offered by the Thai government for your industry to have a significant portion of the asset cost deducted in the year of purchase.
- For example, machinery and equipment to be used for research and development (R&D) can be depreciated by 40% of their initial cost, and then the remaining value can be depreciated by the standard maximum rate of 20% annually.
- Factory buildings may also be initially depreciated at 25% of the cost. The existing balance will be depreciated at a 5% rate (max).
- Time your acquisition of new assets towards the end of the tax year so you can start claiming depreciation deductions sooner.
- Allot time to review your asset portfolio regularly and dispose of assets that are no longer needed or have been fully depreciated.
Utilise Tax Incentives and Exemptions
Make good use of the tax incentives and exemptions provided by the Thai government. For instance, the Board of Investment has numerous tax incentives you can leverage, and they are for various activities across different industries. You can receive a full exemption from Corporate Income Tax for a period of up to 13 years or you can claim double deductions for transportation, electricity, and water supply costs. Aside from these, the Board also offers tax holidays or reduced CIT rates for a certain period, but that depends on the promoted activity and location. There are many more incentives you can apply for as long as you meet the specific criteria they set. So carefully review all the requirements, plan your investments and operations, and maintain proper documentation.Optimise Business Structure
The specific details and viability of this strategy would depend on various factors. These include the nature of your business operations, legal structures, revenue sources, and relevant tax laws and regulations in Thailand. Some common tax planning strategies that you may consider are:- Know that when selecting the appropriate business entity, you are bound by its tax implications, because different entities are subject to different tax rates and regulations.
- Establish a holding company and subsidiary companies for opportunities in tax planning.
- For example, dividends received by a Thai holding company from its Thai subsidiaries are generally eligible for a 50% exemption from CIT.
- Dividends a Thai holding company receives from its foreign subsidiaries are fully exempt from CIT if it has held at least 25% of the voting shares in the foreign subsidiary for at least 6 months before receiving the dividends.
- Review and restructure your existing business operations. You may employ the following wherever possible:
- Reorganizing divisions
- Merging or splitting entities
- Transferring assets and operations between related companies
- Situate some of your business functions or operations in different regions within Thailand. Businesses with operations in 20 provinces with the lowest income per capita can receive additional tax benefits.
- Analyze and optimize the financing structure of your business, such as the mix of debt and equity.
Implement Effective Inventory Management
Proper inventory management means you have accurate records of your inventory levels, costs, and valuations. This is important for tax purposes because the value of your inventory is a deductible expense when calculating your taxable income. When you have a reliable inventory valuation system, you can accurately report your costs and claim the correct deductions. An effective inventory management system also helps minimize inventory losses due to factors like spoilage, theft, or obsolescence. These losses can be deducted from your taxable income as business expenses. For you to effectively implement an inventory management system for tax planning purposes, you can follow these steps:- Select an inventory valuation method that best suits your business, such as FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and weighted average cost.
- Invest in reliable inventory management software or an Enterprise Resource Planning (ERP) system to track inventory levels, costs, and movements in real time.
- Conduct regular physical inventory counts and reconcile them with your software records to identify and account for any discrepancies, losses, and write-offs.
- Document all inventory transactions and maintain these records, along with supporting documentation such as invoices and receipts so you are ready for tax audits and inquiries.
- It is advisable to consult with a tax professional or accountant who is knowledgeable about the tax laws and regulations in Thailand. They can guide you on the most appropriate inventory management practices for your business.
Plan for International Tax Compliance
Without proper planning, your business income could be taxed both in Thailand and in your home country if you have operations and/or entities in multiple countries. It is also important for you to understand the specifics of the tax treaty Thailand has with the applicable country. And if your Thai business has transactions with associated entities abroad, you need to comply with Thailand’s transfer pricing regulations. Here is how to approach international tax planning with ease.- Analyse whether operating through a Thai company, branch, partnership, or other structure is most tax efficient for your circumstances.
- Structure international payments properly, like your management fees, royalties, interest, etc. to make use of tax treaties and minimize withholding taxes.
- Conduct a transfer pricing study if you have related party transactions to document arm’s length pricing and avoid tax adjustments.
- Devise a strategy to claim foreign tax credits in your home country for taxes paid in Thailand.
- And if you have an expatriate workforce, thoughtfully plan their residency, compensation, and related personal tax implications.
Maximize Employee Benefits and Deductions
This can also be a useful tax planning strategy for Thai businesses. Here is why and how you can approach this.Why maximise employee benefits and deductions?
In Thailand, employers can reduce their taxable income and lower their CIT liability by claiming certain employee benefits and deductions as tax-deductible expenses. Common tax-deductible benefits include:- Social Security Fund
- Provident funds
- Employee health insurance premiums
- Allowances like travel and accommodation allowances
How to maximize employee benefits and deductions?
- Review your current employee compensation and benefits packages to identify opportunities for tax-deductible expenses.
- Offer and encourage participation in provident funds because employer contributions are tax-deductible up to certain limits.
- Provide health insurance coverage for employees, as the premiums paid by the employer are tax-deductible expenses.
- Consider offering tax-deductible allowances if they are applicable to your business operations.
- Properly document and record-keep for all employee benefits and deductions so you can adequately support your tax claims.
Engage in Strategic Tax-Loss Harvesting
This can also be a useful strategy to reduce your tax liabilities, but the specifics of how it applies depend on the tax laws and regulations in Thailand.What is tax-loss harvesting?
Tax-loss harvesting involves selling investments or assets that have experienced a loss. It allows you to realize those losses (officially record the loss) and use them to cancel out other investment gains you made, meaning you don’t have to pay taxes on those gains. If your losses are bigger than your gains, you can also use them to lower your other taxable income. In short, it’s a strategy to save on taxes by making the most of your investments that didn’t do well. In many jurisdictions, capital losses can be carried forward for a certain number of years to offset future gains. Some countries also allow net operating losses from the business to be carried forward.What you need to do
For your Thai business, you would need to review the specific tax laws and regulations around:- What types of losses (capital vs operating) are permitted to be carried forward
- For how many years losses can be carried forward
- Any limitations on the amounts that can be used to offset gains/income each year
Partner with a Professional Tax Advisor
Partnering with a professional advisor is the most recommended strategy for your business. They can help with the previous strategies mentioned. For example, regarding strategic tax-loss harvesting, tax advisors deeply understand tax laws so they are your best bet for legally harvesting losses to offset gains, carrying forward losses to future years, and having proper documentation for tax authorities. They can:- Review your compensation structures, fringe benefits, and retirement plans to maximize allowable deductions;
- Recommend optimal inventory valuation methods and accounting practices;
- Identify exemptions and deductions your business may be eligible for;
- Guide on depreciating assets, and more.
- Tax Projections and Year-Round Planning
- Representing YOU in Tax Audits and Disputes
- Structuring Mergers, Acquisitions, and Reorganizations Tax-Efficiently
- Estate & Succession Planning
- Ensuring Regulatory Compliance Across All Tax Areas
