What follows is an overview of the most common aspects of Thai taxation encountered by small businesses.
To view the 2017 Personal Income Tax Table - Click here.
Personal income taxes are withheld from salary by your company each month, and are then paid to Revenue Department by the fifth day of the following month. Your accountant will generally tell you the correct NET compensation amount to pay each employee each month, based on your input to the accountant the gross compensation amount. To see what personal income tax would be based on various scenarios, Visit our on-line Personal Income Tax Calculator in the References & Links section or click here.
The "default" calculation rule used by most accountants is: each month, tax is calculated based on assuming that monthly compensation for all future months of the current calendar year will be the same amount as was paid in the most recent month. The computation is as follows:
In general, any Thai employee earning 26,583 baht per month or less, pays no personal income tax.
Another personal tax paid each month is Social Fund tax. This tax is deducted from employee salaries and paid to the Social Security Office not later than the last business day prior to the fifth working day of each month. The withholding amount is 5% of employee salary, but applies to only the first 15,000 baht per month of earnings (so - the maximum monthly withholding amount is 750 baht). Whatever the amount withheld from each employee's salary, the company must contribute a matching amount each month - paid along with the withholding amounts.
Any employee who is a company director, or who is a direct family member of a company director, is not eligible, nor enrolled in the Social Fund system - and thus pays no Social Fund tax. A secondary significance of this fact is that for purposes of a company being able to sponsor work permits or Immigration extensions for foreign employees, only employees on the company's Social Fund tax roll can be counted toward the four Thai employees needed, per each permit (so - Thais who are directors or family members of directors, do not count).
Next, let us address VAT. VAT is currently 7% - which has been at that same rate since 1998. Prior to 1998, the rate was 10% - and the government has stated that it may eventually return to that 10% rate. The basic rule is that VAT must be charge and collected by only two types of companies:
VAT applies to most - but not all - products and services. For B-2-B transactions, the main items that are exempt from VAT are: rent, fresh foods, medical services, and most transportation services. VAT is also charged on all imported trade goods.
Please note: Many property owners divide monthly lease payments into two portions: a "rent" portion - on which VAT is not charged, and "services" portion - on which VAT is charged. The "services" part pays for trash removal, security guards, elevator maintenance, and similar common expenses.
VAT is not charged to customers outside Thailand for exported products, or for services rendered from Thailand that are not used in Thailand. Examples:
IMPORTANT: For B-2-B transaction within Thailand, VAT costs nothing to the company paying the VAT (other than a brief cash flow delay), as long as that company is reselling everything that it buys for a higher price than it paid.
Example: In a given month, your company purchases products and services with total value of 100,000 baht - and you pay out 7,000 baht in VAT. In that same month your company records sales of 150,000 baht, and collects 10,500 baht in VAT. What your company forwards to the government is 3,500 baht (10,500 baht minus 7,000 baht). Basically, as your company collects VAT it first "pays itself back" for any VAT paid out during that month - and it then forwards only the EXCESS amount collected to the Revenue Department. VAT must be paid not later than the last work day prior to the 15th of each month.
VAT is not actually calculated on a current month (isolated) basis - it is calculated based on a cumulative, Year-To-Date (YTD) basis, comparing VAT collected YTD, vs VAT paid out YTD - and you continually pay out whatever excess VAT is collected, on a cumulative basis
If - for any reason - a company pays out more VAT than it collects during a calendar year, then the company may apply for (and receive) a refund of excess VAT paid. The two most common scenarios for this are:
Now, we will turn to corporate tax. Companies pay corporate tax from their own funds only twice per year -
Note: I cited calendar months, assuming that your company will specify its Tax Year as matching the Calendar Year. If you use a different Tax Year, then mid-year tax submission is due as of end of the sixth month, payable on or before the last day of the eighth month, and end of year tax is payable at the end of the fifth month, following your Tax Year end date.
For a given year, mid-year tax payment is only made by companies that were incorporated PRIOR TO the current tax year.
Now, I noted above that a company only makes tax payments at its own initiative twice per year. Those are the only times that corporate tax is paid by and collected from:
What remains after those categories are removed is: B-2-B transactions for SERVICES billed to customers within Thailand. For all such billings, corporate tax withholding is accomplished by the business PAYING an invoice, at one of several tax withholding rates. The most common corporate tax withholding rates are:
5% ‐ for rent
3% ‐ for the vast majority of services
2% ‐ for advertising
1% ‐ for interest paid out on loans
There are some other tax withholding rates:
10% ‐ withheld from dividends paid out
5% ‐ withheld from outbound international remittances for services
Now - here is the one thing about Thai taxation that is a bit difficult to understand, and to execute: Every time that your company makes an invoice payment that is subject to corporate withholding tax, and also every time that one of your customers makes an invoice payment to your company that is subject to corporate withholding tax - the correct withholding amount must be withheld, and in place of the withheld amount, the paying company must complete a four-copy tax withholding form/slip - that identifies both parties, the nature of the billing item, and the amount withheld. Two copies of this slip are sent to the seller, two copies are retained. Each party then sends one copy of this slip to their accountant at the end of the month. Upon receipt of the withholding slips, the seller then sends to the buyer a "Tax Invoice" - which is the(bizarre) Thai term for the payment receipt. This document must fully describe the transaction, the amount and date that the payment was received, it must identify any VAT charged/collected, plus any corporate tax withheld, and it must identify both parties by correct (legal) company name, followed by the words "Head Office", and it must include the company tax ID number and correct, legal business address of both parties.
Tax Invoices must also be provided to the buyer by any Thai seller of anything.
If any receipt does not include all the items, then the expense cannot be treated as a deductible business expense. Thus, you cannot deduct as business expense such expenses as taxi fare, motorcycle taxi fare, purchase of postage stamps, purchase of BTS or MRT tickets, highway tolls, fast food meals, etc. - because you get no valid tax Invoice (receipt) for any of these expenses.
Each month, every company must pay to the Revenue Department, by the fifth working day of the month, the consolidated amount for all corporate tax amounts withheld from payment to vendors.
Each month, a company must submit a number of forms. The following are the names of the Thai Revenue Department forms on which each type of tax payment is reported:
|PND.1||Personal income tax|
|PND.3||Corporate tax withholding on contractors who are NOT registered Thai companies or registered Thai limited partnerships|
|PND.53||Corporate tax withholding on registered businesses|
|PP.30||Calculation of VAT due to be paid to Revenue Department|
|Sales tax||Record of VAT charged and collected on sales|
|Purchase tax||Record on VAT paid out on purchases|
|SSF1||Summary of Social Fund tax paid, vs total taxable salary amount, amount of tax withheld, and company matching amount|
|SSF2||Summary of Social Fund tax withheld from each enrolled employee|
Here is a link to the rules concerning payouts due to employee whose employment you wish to terminate. The key points are:
My last comment is about capitalization. Thai Revenue Law specifies that the following expenses MUST be paid from paid-up capital (these expenses cannot be claimed as deductible business expenses, used to offset revenues, in calculating profits):