Corporate tax in Thailand is a critical consideration for any business operating in the country. The corporate income tax (CIT) rate is normally 20%, which is relatively competitive compared to other countries in the region. However, there are a number of factors that businesses should be aware of when calculating their CIT liability, such as allowable expenses and tax exemptions. For example, a small company will be exempt of 300,000 baht profit per year and only pay 15% tax if the profits are under 3 million baht per year.
There are reasons why people setup companies in Thailand or abroad. It can be for some:
- Limited liability: The liability of the shareholders or members of a juristic person is limited to the amount of their investment in the company. This means that their personal assets are protected in the event that the company is sued or goes bankrupt.
- Business continuity: A juristic person is a separate legal entity from its shareholders or members. This means that the business can continue to operate even if there are changes in ownership or management.
- Tax benefits: Juristic persons may be eligible for certain tax benefits, such as lower tax rates or tax exemptions.
- Credibility: Creating a juristic person can make your business seem more credible and professional to potential customers and partners.
- Access to funding: Juristic persons may have easier access to funding from banks and other financial institutions.
- Choice of structure: There are different types of juristic persons, each with its own advantages and disadvantages. This means that you can choose the structure that is best suited to your needs.
- Permitted activities: Juristic persons are generally free to engage in any lawful activity. This gives you the flexibility to expand your business into new areas in the future.
- Management structure: Juristic persons can have a variety of management structures, giving you the flexibility to choose the one that is most efficient and effective for your business.
- Succession planning: A juristic person can be passed on to heirs or successors, making it easier to plan for the future of your business.
- Estate planning: Juristic persons can be used for estate planning purposes, such as reducing the tax burden on your heirs.
- Asset protection: Juristic persons can be used to protect your assets from personal creditors.
Taxable Income and persons:
A company or a juristic partnership incorporated under Thai law could be liable to pay taxes which means:
- Limited company
- public company limited
- limited partnership
- registered partnership
The taxable income of a company for CIT purposes is determined by deducting all allowable expenses from its gross income. Allowable expenses include the cost of goods sold, operating expenses, and interest expenses. You have other juristic persons like a foundation which must make yearly corporate tax but they are subject to specific rules. Companies also under the BOI could have special incentives.
Foreign entities operating in Thailand could also be subject to corporate tax like:
- A company or juristic partnership incorporated under foreign laws and carrying on business in Thailand
- A company or juristic partnership incorporated under foreign laws and carrying on business in other places including Thailand
- A company or juristic partnership incorporated under foreign laws and carrying on business in other places including Thailand , in case of carriage of goods or carriage of passengers
- company or juristic partnership incorporated under foreign laws which has an employee, an agent or a go-between for carrying on business in Thailand and as a result receives income or profits in Thailand
- A company or juristic partnership incorporated under foreign laws and not carrying on business in Thailand but receiving assessable income under Section 40 (2)(3)(4)(5) or (6) which is paid from or in Thailand
- business operating in a commercial or profitable manner by a foreign government, organization of a foreign government or any other juristic person established under a foreign law
- Joint venture
- A foundation or association carrying on revenue generating business, but does not include the foundation or association as prescribed by the Minister in accordance with Section 47 (7) (b) under Revenue Code
Certain types of income are exempt from CIT, and calculated as exempt. The revenue department website list the following:
- Ordinary and necessary expenses. However, the deductible amount of the following expenses is allowed at a special rate:
- 200% deduction of Research and Development expense,
- 200% deduction of job training expense,
- 200% deduction of expenditure on the provision of equipment for the disabled;
- Interest, except interest on capital reserves or funds of the company;
- Taxes, except for Corporate Income Tax and Value Added Tax paid to the Thai government;
- Net losses carried forward from the last five accounting periods;
- Bad debts;
6. Wear and tear;
7. Donations of up to 2% of net profits
8. Provident fund contributions;
9. Entertainment expenses up to 0.3% of gross receipt but not exceeding 10 million baht;
10. Further tax deduction for donations made to public education institutions, and also for any expenses used for the maintenance of public parks, public playgrounds, and/or sports grounds;
11. Depreciation: Provided that in no case shall the deduction exceed the following percentage of cost as shown below. However, if a company adopts an accounting method, which the depreciation rates vary from year to year, the company is allowed to do so provided that the number of years over which an asset depreciated shall not be less than 100 divided by the percentage prescribed below.”
In addition to the above exemptions, there are a number of other tax exemptions and incentives available to businesses in Thailand. For example, foreign companies engaged in international transportation are exempt from CIT on their gross receipts, and businesses that invest in research and development activities may be eligible for a tax credit.
Companies are allowed to deduct certain expenses from their taxable income, including:
- Salaries and wages paid to employees
- Social security contributions paid on behalf of employees
- Rent and utilities expenses
- Travel and entertainment expenses
- Depreciation and amortization expenses
- Research and development expenses
Tax Filing and Payment
Companies are required to file CIT returns and pay CIT within 150 days from the closing date of the accounting period. The fiscal year in Thailand is from 1st January to 31st December, for individuals or juristic persons. Juristic persons must make their annual tax filling before the 31st of May of each year for the previous year. The tax rate will depends on many factors and we suggest to consult an accountant as it can be extremely complicated. For a summary, here is a good starting point.
Thailand has double tax treaties with Thailand for at least 61 countries according to the revenue department. These treaties can help to reduce the amount of CIT that companies have to pay by preventing double taxation of the same income.
Thailand has a relatively competitive corporate tax regime, with a CIT rate of 20% and a number of tax exemptions and incentives available to businesses. However, it is important for businesses to carefully consider their CIT liability when operating in Thailand. ThaiLawOnline does not do accounting but we can help you to set up a company anywhere in Thailand. For accounting we suggest you to use Asia Accounts with Alan Lonie.