Doing business in Thailand / Taxes
Income tax registration is required of natural persons 60 days after receipt of income. Thailand’s tax rate for salary income reaches up to 50 percent. In non-communist Asia, only India has a higher top rate, imposing a 62 percent tax rate in the highest bracket. 50 percent is also the top rate in Japan; Malaysia, Indonesia and the Philippines have a top rate of 35 percent, in Singapore it’s 33 percent and in Hong Kong 25 though in many cases the top rate is 15 percent.
However, the above figures (based on the Market Trends column in Asiaweek of June 14, 1991) is misleading. In Thailand, the top rate takes effect only when an annual income is 80,000 US Dollars or more. In Malaysia, one crosses the line into the top bracket with less than half (36,230 US Dollars), in Indonesia it’s 25,900 US Dollars and in the Philippines 18,180 US Dollars.
In India, one pays the top tax rate of 62 percent already for an annual income of more than 3,700 US Dollars. Therefore it’s no surprise that hardly anywhere in the world do executives and entrepreneurs concentrates as much on producing expenses as they do in India (if they do not just evade taxation by wrong declarations).
Corporate income tax is payable on profits twice a year. A mid-year profit forecast entails advance payment of corporate tax.
A business liable for income tax must obtain a company income tax identity card and tax number from the Revenue Department within 60 days of incorporating or starting up.
The company is responsible for paying income tax for all its regular employees and must withhold the taxes from their salaries.
Taxable income of branch offices of foreign corporations in Thailand:
* tax on net profits from business carried out in Thailand
* 20% withholding tax on gross dividends paid to a foreign parent by a Thai subsidiary, in addition to the normal corporate income tax on profit before payment of dividends
* 25% withholding tax on any other remittances of the Thai subsidiary to the foreign parent company
Double Taxation
Thailand has treaties with 22 countries for the avoidance of double taxation; essentially they provide that profits are only taxable if the taxpayer has a permanent establishment in Thailand. Reduced rates of taxation are levied on certain dividends, interests, royalties and other payments, and a tax credit system exists where income is taxable in two countries.
Countries with which double taxation treaties have been signed are: Austria, Belgium, Canada, China, Denmark, Finland, France, India, Indonesia, Italy, Japan, Malaysia, the Netherlands, Norway, Pakistan, the Philippines, Poland, Singapore, South Korea, Sweden, Germany and the United Kingdom. Treaties are also being negotiated with Australia, Romania and the USA.
Business Tax
Business tax is levied on gross receipts and is usually calculated monthly. The rate depends on the nature of the business. On imported cars the business tax can be as high as 50 percent of the gross receipt from the sale of such vehicles. For many manufacturing businesses, the rate is around 10 percent of the gross receipts; the rate for most service businesses is just 3 percent. The business tax is due to be replaced by a Value Added Tax.
Business tax registration must be secured within 30 days after the commencement of business. Firms with two or more places of business must file separate applications for each place of business.
A municipal tax of 10% of the business tax has to be paid at the same time.
Other Taxes
Profits remitted or retained abroad from a business operated in Thailand are subject to a 20% withholding tax in addition to corporate income tax. If a payment is made to a company or partnership incorporated under foreign laws, 25% has to be withheld from the gross remittance (subject to certain standard deductions). This applies to loan interest, royalties and management fees. The withholding rate on dividends is 20%, although tax credits are available under certain circumstances.
Remittances of funds into and out of Thailand from a certain dimension require exchange control approval, which is granted depending on a company’s tax liability. However, more and more exchange control measures are being dismantled.
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