Tax Newsletter FEBRUARY-MARCH 2016

DLO’S Tax Newsletter

Issue 63 February-March 2016

Tax Law Update

Personal Income Tax Rates

The National Legislative Assembly has issued Royal Decree (No. 600) B.E. 2559 to hold Personal income tax rates at the following rates for income received in B.E. 2559 (2016):

However, taxpayers should be aware that they will still be entitled to receive an exemption of the first 150,000 Baht in calculating personal income tax due to Royal Decree (No.470) B.E.2551, only in the case of calculating personal income tax under section 48(1) of the Revenue Code.

For more details: http://goo.gl/bp0iEr, https://www.dlo.co.th/node/891 and https://www.dlo.co.th/node/894

Tax Benefits for Changing Unit Investment in Property Fund to Trust Certificate

The National Legislative Assembly has issued Royal Decree (No. 599) B.E. 2016 to provide the following tax benefits for investors who have modified their Unit Investment in Property Fund to instead be Trust Certificate:

1. Exemption of Personal Income Tax (PIT) and Corporate Income Tax (CIT) for  holders of a Unit Investment in a Property Fund; for income that arises from modification of a Unit Investment in a Property Fund to a Trust Certificate due to the change of the investment from a Property Fund to instead be a Real Estate Investment Trust (REIT).

2. Exemption of Value Added Tax (VAT), Specific Business Tax and Stamp Duty for investments in a Property Fund; for value of tax base, income or execution of an instrument which arises due to the change of from the investment being in a Property Fund to instead being a REIT.

However, to take advantage of these tax benefits, the investor must follow the conditions as specified in the Royal Decree which is effective from February 25, 2016 until December 31, 2016.

For more details visit: http://goo.gl/lyFLrx

Tax benefits for research & development and technology expenses

The National Legislative Assembly has issued Royal Decree (No. 598) B.E. 2559 to give the following tax benefits to a juristic company or partnership for expenses that arise which relate to research & development and technology:

1. Exemption on  income tax for an amount equal to 100 percent of the expenses incurred that relate to Research, Development and Technology (RD&T) where such RD&T has been conducted by an institute stipulated in the law by the Director – General of the Revenue Department.

2. Additional exemption on income tax for an amount equal to 100 percent of the expenses incurred that relates to RD&T where such expenses have been incurred between January 1, B.E. 2558 through until December 31, B.E. 2562. However, when calculating the expenses from 1. and 2.  they must not exceed the following rates in the same accounting period:

2.1  Expenses must not exceed 60% of income up up to 50 million Baht;

2.2 Expenses must not exceed 9% of income between 50 million Baht up to 200 million Baht

2.3 Expenses must not exceed 6% of an income that exceeds 200 million Baht

3. Those who wish to use this tax benefit must not use all or some of the research & development and technology expenses for expense applicable to their Board of Investment privileges (if applicable).

For more details visit: http://goo.gl/lyFLrx  and https://www.dlo.co.th/node/895

Tax Benefits for Company Operated Venture Capital Businesses and Real Estate Investment Trust

The National Legislative Assembly has issued  Royal Decree (No.597) B.E. 2016 to provide the following tax benefits for company operated venture capital businesses and investments with company operated businesses that are supported by the government’s requirement, for 10 accounting periods:

1. A tax exemption for income received as a result of dividends from the target companies.

2. A tax exemption for profits received from transferring shares of target companies provided that such target companies must carry on businesses which are continuously supported by the government’s requirements and must have income not less than 80 percent of the total income in the accounting period before the company’s  venture capital business received income from transferring of such shares.

Moreover, a person and company or juristic person, which holds shares in a company operated venture capital business or unit trust for a venture capital business, will receive the tax benefits mentioned above and will also be able to receive a tax exemption from income (according to the proportional revaluation excess capital) that is derived from the dissolution of company operated venture capital businesses.

To take advantage of these tax benefits, the criteria and conditions as specified by the Royal Decree which has been effective since February 24, 2016 must be strictly followed.

For more details visit: http://goo.gl/BWrmHK

Tax Benefits for  Donations to Sport Agencies

The National Legislative Assembly has issued Royal Decree (No. 596) B.E. 2016 to extend the period of tax benefits and to provide clear conditions regarding donations to sport agencies such as the Sport Authority of Thailand, Provincial Sport Committee, Sport Association “of Thailand”. The Royal Decree provides as follows:

1. Exemption on Personal Income Tax for assessable income after the deduction of expenses and allowance. A taxpayer is entitled to a deduction of twice the amount actually donated but such deduction cannot exceed 10 percent of the remaining amount after the deduction of expenses and allowances.

2. Exemption on Corporate Income Tax for income. A company is entitled to a deduction of twice the amount actually donated, regardless of whether such donation is made by paying money or transferring an asset provided that when such donation is included with education support expenses as specified by the Ministry of Education and expenses on establishing of child department center (playground), it must be not exceed 10 percent of the net profit before the deducting donation and sport expenses.

3. Exemption on Personal Income Tax, Corporate Income Tax, Specific Business Tax and Stamp Duty for income received from transferring assets, sale of goods or execution of instrument regarding a donation.

To take advantage of these tax benefits, the donation must be made between January 1, 2016 and December 31, 2018 and must follow the guidelines specified in the Royal Decree.

For more details visit: http://goo.gl/VX7SZg

Abolition of Tax Exemptions for some types of Assessable Incomes

The Minister of Finance has issued Ministerial Regulation No. 312 (B.E. 2016) to abolish tax exemption on assessable income incurred from transferring ownership or possession right on real estate to a legitimate child without any compensation.

These changes have been effective with respect to assessable income received since February 1, 2016.

For more details please see: http://goo.gl/KdDNDb and https://goo.gl/2Qerff

Additional Guidelines and Conditions on Inheritance Tax

After the National Legislative Assembly passed the Inheritance Tax Act B.E. 2016, many guidelines (as determined by laws) have been issued, these are as follows:

1. Ministerial Regulation will determine what type of properties or assets in Thailand must be taxed according to the Inheritance Tax Act.

2. Ministerial Regulations will determine the deduction of the charge on immovable property in calculation of immovable property’s value acquired from inheritance.

3. Ministerial Regulations will determine the guidelines for calculating the value of property or assets which must be taxed under the Inheritance Tax Act.

4. Notifications of the Director General of the Revenue Department will determine the applicable exchange rate in cases where inheritance is received in a foreign currency.

5. Notifications of the Director General of the Revenue Department will determine the Form of an Inheritance Tax Return (Por. Mor. 60)

6. Notifications of the Director General of the Revenue Department will determine the guidelines and methodology of inheritance tax refunds.

7. Notifications of the Director General of the Revenue Department will determine the form of appeal and the place to submit an assessment inheritance tax appeal.

These guidelines have been effective since 1 February 2016.

For more details please see: http://goo.gl/11pfmT, http://goo.gl/3tBPs7, http://goo.gl/3Jz6iW, http://goo.gl/E62GlK, http://goo.gl/CgFqcZ, http://goo.gl/ime1FQ and http://goo.gl/o52R3n

Tax News

Reduce Corporate Tax Rate

The National Legislative Assembly has agreed to the Draft of the Royal Decree amending the Revenue Code in relation to reducing the corporate tax rate from 30 percent to 20 percent of net profit. This must be applied in the accounting period starting on or after January 1, 2016, and onward.

For more details please visit: http://goo.gl/SBmEDs

Giving Additional Tax Benefits to Thai Goods by EU

The Director – General of the Trade Department has said that the European Union has announced an update relating to the Autonomous Tariff Suspension for the importing of Thai goods. As a result, there are more than 2,000 products, that are exempted and deductible with respect to import tax.

For more details see: http://goo.gl/U11cTt

Interesting Dika (Supreme Court) Judgments

Dika (Supreme) Court Judgment No. 13936/2555, in re:

Issue: Assessable income which is a dividend

Ms. A                                                   Plaintiff

The Revenue Department                  Defendant

The Court considered what assessable income is a dividend or other gain derived from a company or juristic partnership under section 40 (4) (b) of the Revenue Code. According to the law a taxpayer is entitled to receive a tax credit under Section 47 bis but only with respect to the assessable income which it derives from a company or juristic partnership paying compensation to its shareholders under the Civil and Commercial Code, Section 1084, if the assessable income is derived from income and not a divided or left over from profit, it will not be considered to be a dividend under Article 40 (4) (b) of the Revenue Code.

The Court found that the Plaintiff had received a share of the profits amounting to 66,188.86 Baht from a limited partnership, she then filed a personal income tax return (form P.N.D 90) and in such return she used the tax credit from such share of the profits, and requested a tax refund of 12,436.44 Baht. However, it appeared that the plaintiff had received the share of the profit while the limited partnership B was in cessation and in the middle of notifying the liquidation of the business. Hence, the Court found that because such income  was not paid in accordance with the payment of dividends or share of profits according to section 1084 of the Civil and Commercial Code, the amount received was thus determined not to be a dividend received from a company or juristic partnership under section 40(4)(b) of the Revenue Code instead the Court held that such money was a  benefit received by the plaintiff as a result of  the cessation of the limited partnership. The Court further decided that only the gains derived from the transfer of the partnership holding or shares under section 40(4)(b) will be entitled to receive a  tax credit under section 47 bis of the Revenue Code.

Legal Opinion

From this case, the fact appears that limited partnership B lost money from running its business. It has thus closed down, and thereafter it has shared the profit from the last procedure of the liquidation process with all partners. The key issue considered by the Court  was whether the received profit was to be considered as  income under Section 40 (4) (B) of the Revenue Code such that it can take advantage of the  tax credit provided under section 47 bis of the Revenue Code.

In the writer’s  opinion, for the sharing of profits that can take advantage of the  tax credit , these must arise directly from the running of a business according to Section 1084 of the Civil and Commercial Code and  such profit sharing must be made in proportion to the respective size of  the investments. However, if the business has lost money, it cannot pay any dividends or share any profits.

In this case, the limited partnership B was liquidated and as a result a profit arose from the last procedure of the liquidation process, this profit was then shared amongst the partners according to their respective proportion of the investment in the partnership. The profit arose as a result of selling an investment property of the partners. This profit did not arise as a result of running the business according to section 40 (4) (f) of the Revenue Code as thus is not entitled to the applied for tax credit.

Therefore, the writer contends that if a company or a partnership is going close down their business while they have a profit, they should share such profit to their shareholders/partners before their business has its dissolution registered. The reason for this being that the shareholders/partners can use the dividend or share of profits to apply for a credit tax for tax calculation or they can elect to pay tax instead of calculating the amount of tax under Section 48 (1) of the Revenue Code.

Ms. Chatwalee Maitri
Lawyer

 Should you require any legal advice on tax law then please contact us at Dharmniti Law Office Co., Ltd. 2/2 Bhakdi Building 2^nd Floor, Witthayu Road, Lumphini, Pathumwan, Bangkok, Tel : (66) 2680 9751, (66) 2680 9753 Email: budhimak@dlo.co.th or sureelukt@dlo.co.th