Your Quick Guide to Corporate Income Tax in Thailand

Navigating the complexities of corporate income tax is crucial for businesses operating in Thailand. It’s essential that you understand your tax obligations for compliance and financial planning.

We have prepared a guide providing a clear overview of the corporate income tax system, tax rates, filing procedures, and benefits so you are equipped with the knowledge you need to make informed decisions about your company’s tax strategy.

Corporate Income Tax Basics

Corporate Income Tax(CIT) in Thailand is a direct tax levied on the net profits of companies and juristic partnerships. It’s an essential component of the Thai tax system, designed to ensure that businesses contribute their fair share to the country’s economic development.

Who is Subject to CIT?

1. Thai companies
   • Any company or juristic partnership incorporated under Thai law
   • This includes limited companies, public limited companies, and registered partnerships
   • Thai companies are taxed on their worldwide income, meaning profits earned both within Thailand and from overseas sources are subject to CIT
2. Foreign companies operating in Thailand
   • Companies incorporated under foreign laws but carrying on business in Thailand
   • These entities are taxed only on income arising from or in consequence of the business conducted in Thailand
   • This includes companies with a branch, office, employee, or agent in Thailand

Tax Rates

The current standard CIT rate in Thailand is 20% of net profits. This rate applies to most incorporated businesses, both Thai and foreign.

Companies with paid-up capital not exceeding 5 million baht at the end of the accounting period and income from sales of goods and provision of services not exceeding 30 million baht in the accounting period are eligible for reduced rates.

• 0% on net profit up to 300,000 baht
• 15% on net profit over 300,000 baht but not exceeding 3 million baht
• 20% on net profit exceeding 3 million baht

Taxable Income and Deductions

What Constitutes Taxable Income

Taxable income for CIT purposes includes:

1. Income from business operations – this covers revenue from the sale of goods, provision of services, and other business activities.
2. Passive income – this includes interest, dividends, royalties, and capital gains.
3. Other income – any other income derived from conducting business in Thailand.

It’s important to note that for Thai companies, worldwide income is taxable. For foreign companies, only income derived from or as a consequence of business carried on in Thailand is subject to tax.

Allowable Deductions

To arrive at net profit for tax purposes, companies can deduct various expenses from their gross income. Some allowable deductions include:

1. Ordinary and necessary expenses ~ these are costs directly related to the company’s business operations.
2. Interest expenses ~ generally deductible, but subject to certain limitations.
3. Taxes ~ most taxes paid to the Thai government are deductible, except for Corporate Income Tax itself.
4. Bad debts ~ provided they meet certain conditions specified by law.
5. Depreciation ~ calculated based on the acquisition cost of assets using specified rates.
6. Donations ~ deductible up to 2% of net profit, provided they are made to approved charitable organizations.
7. Provident fund contributions ~ deductible if they meet specified criteria.
8. Research and Development (R&D) ~200% deduction for R&D expenses paid to authorized government agencies or private developers.
9. Employee training expenses ~ additional 100% deduction for expenses paid for employee training.

Non-deductible expenses

Certain expenses are specifically disallowed as deductions. The following are examples of these expenses.

• Personal expenses and gifts
• Artificial or fictitious expenses
• Expenses not exclusively expended for the purpose of acquiring profits or for the business
• Capital expenditures
• Penalties and surcharges paid to the government
• Portions of salaries paid to shareholders that are considered excessive
• Expense which is not actually incurred or expense which should have been paid in another accounting period
• Provisions for future expenses

If you understand what constitutes taxable income and allowable deductions, you’ll be able to calculate your company’s tax liability accurately.

Filing and Payment Procedures

Tax Calendar and Important Dates

Companies must file their annual corporate income tax return (Form PND 50) within 150 days from the closing date of their accounting period. For most companies with a calendar year accounting period, this deadline is May 30th.

Companies must also file a half-year corporate income tax return (Form PND 51) within two months after the end of the first six months of the accounting period. For companies with a calendar year accounting period, this deadline is August 31st.

Required Forms and Documentation

For annual filing,

• Completed PND 50 form
• Audited financial statements
• List of shareholders/partners (Form Bor. Or. Jor. 5)
• Detailed list of assets and depreciation
• Reconciliation of book to tax profit

For mid-year filing,

• Completed PND 51 form
• Estimated profit and loss statement

Electronic Filing Options

The Thai Revenue Department encourages electronic filing through its e-filing system.

1. Register for e-filing on the Revenue Department’s website.
2. Obtain a username and password.
3. File returns and make payments online.

Payment Methods

1. Direct payment at the Area Revenue Branch Office.
2. Payment at authorized banks.
3. Electronic payment through the e-filing system:
   • Direct debit from a registered bank account
   • Credit card payment (subject to fees)
   • Prompt Pay QR Code

Important Considerations

1. Companies must estimate their annual tax liability and pay at least 50% of this amount with their mid-year return (PND 51). If the mid-year payment is less than 50% of the final tax liability, a surcharge may apply.
2. Late filing: Penalty of 200% of the tax payable
3. Underpayment: Surcharge of 1.5% per month of the outstanding tax amount
4. Overpaid tax can be refunded or carried forward to offset future tax liabilities. Refund requests are typically processed within 30 days for e-filers and 60 days for paper filers.
5. Companies must maintain books and records for at least 5 years for tax audit purposes.

Special Considerations for Foreign Companies

Permanent Establishment (PE) concepts

A PE is a fixed place of business through which the business of a foreign company is wholly or partly carried on in Thailand. This can include a branch, office, factory, workshop, or construction site.

If a foreign company has a PE in Thailand, it’s liable to pay Thai corporate income tax on profits attributable to that PE. Without a PE, the company may still be subject to withholding tax on certain types of income derived from Thailand.

Withholding Tax on Payments to Foreign Companies

Rates:

• Dividends: 10%
• Interest: 15%
• Royalties: 15%
• Capital gains: 15%

These rates may be reduced under applicable Double Taxation Agreements (DTAs). The Thai payer is responsible for withholding and remitting the tax to the Thai Revenue Department.

Double Taxation Agreements (DTAs)

DTAs are designed to prevent double taxation and provide certainty on the tax treatment of cross-border transactions. Thailand has DTAs with over 60 countries. These agreements may provide reduced withholding tax rates and other tax benefits.

To benefit from a DTA, the foreign company must provide a certificate of residence issued by their home country’s tax authority.

Branch Profit Remittance Tax

The rate is 10% on profits remitted from the Thai branch to its foreign head office. This tax applies in addition to the standard corporate income tax. It’s based on the amount remitted, not the branch’s total profits.

Transfer Pricing Considerations

Thailand has specific transfer pricing rules requiring transactions between related parties to be at arm’s length. Companies must prepare and submit transfer pricing documentation if their annual revenue exceeds 200 million baht.

Thin Capitalization Rules

Thailand doesn’t have specific thin capitalization rules, but the Revenue Department may challenge excessive interest deductions.

Foreign Business License

Foreign companies may need to obtain a Foreign Business License to operate certain businesses in Thailand. This can affect the company’s tax status and obligations.

Repatriation of Profits

Dividends are subject to 10% withholding tax when paid to a foreign company. There is no further tax on dividend distribution if corporate income tax has been paid.

Management fees, royalties, and interest payments are subject to withholding tax but may offer tax planning opportunities.

Tax Incentives and Benefits

Board of Investment (BOI) promotions

The BOI offers a range of tax and non-tax incentives to eligible projects in targeted industries.

The key tax incentives are as follows:

• Corporate Income Tax (CIT) exemption for up to 13 years
• Exemption or reduction of import duties on machinery and raw materials
• Double deduction for transportation, electricity, and water supply costs
• Additional 25% deduction of installation or construction costs of facilities

The targeted industries are:

• Advanced technology and innovation
• Food processing
• Medical and wellness tourism
• Digital economy
• Automotive and electronics
• Agriculture and biotechnology

Special Economic Zones (SEZs)

SEZs are designated areas along Thailand’s borders with additional investment incentives. CIT exemption is up to 8 years, followed by a 50% reduction for 5 years.

• Double deduction for transportation, electricity, and water supply costs for 10 years
• 25% deduction of installation or construction costs of facilities

Eastern Economic Corridor

The EEC is a special development zone spanning three eastern provinces.

Tax Benefits

• CIT exemption for up to 13 years
• 50% CIT reduction for up to 5 additional years
• Personal income tax rate of 17% for executives, experts, and researchers working in targeted industries

Research and Development (R&D) incentives

• 200% tax deduction for R&D expenses
• Depreciation allowance of 40% on machinery and equipment used for R&D

International Business Centre (IBC) incentives

• Reduced CIT rates (8%, 5%, or 3%) based on annual operating expenses
• Withholding tax exemption on dividends and interest paid to overseas companies
• Flat personal income tax rate of 15% for eligible expatriate employees

Take Advantage of These Incentives

Do the following if you want to make the most out of these incentives.

1. Review the eligibility criteria for each incentive program.
2. Prepare a business plan that aligns with the requirements for the specific incentive.
3. Submit applications to relevant authorities (e.g., BOI, Revenue Department).
4. Make sure that you comply with every condition stipulated for each incentive.
5. Keep detailed records to support claims for tax benefits.

You should note that these incentives are subject to change and may have specific conditions and limitations. Some incentives may also not be cumulative and require companies to choose the most beneficial option for their situation.

Conclusion

Given the complexity of these incentives and the potential for significant tax savings, it’s highly recommended that you consult with tax professionals or investment advisors who specialize in Thai investment incentives.

Do you need an accounting service provider in Bangkok, Thailand? Reliance Consulting is here to help you streamline your processes. Contact us today!