Tax Newsletter MARCH 2017

DLO’S Tax Newsletter

Issue 75 March 2017

Inside this Issue

Tax Laws Update

1. Restructuring personal income tax for 2017
2. Measures encouraging natural persons to operate as Juristic Persons
3. Tax measures for corporations investing in the foundation, development or  reconstruction of tourist attractions in rural areas
4. Amendments to personal income tax deduction expense rates for goodwill and other rights expenses
5. Extending the tax measure time period for transforming a property fund into a real estate investment trust
6. Extending the corporate income tax exemption time period for SMEs participating in industry fairs in special development zones
7. Income exemption for donations made to assist recent Thailand flood victims
8. Amendment of issuing one time tax invoice rules
9. Revenue Department e-Tax invoice notification by Email System

Tax News

1. Tax incentive to induce high competence specialist workers to Thailand

Interesting Deka (Supreme Court Judgment)

Deka                      (Supreme Court Judgment No. 1485/2559), in re:

Between                Mr. J                                                               Plaintiff

Revenue Department                                    Defendant

Issue:                    The transfer of land to the legitimate child which was deemed to be a sale of an immovable property in a commercial or profitable manner.

Tax Laws Update

1. Restructuring personal income tax for 2017

The Amendment Act on the Revenue Code (No.44) B.E. 2560 and the Royal Decree (No. 629) B.E.2560 have amended the structure of personal income tax (PIT). They provide the criteria for: deducting expenditure and allowances; determining assessable income related to tax payable; determining the assessable income needed to be filed in a tax return report; and the PIT rate for assessable income received in 2017 which shall be filed in a tax return form for the 2018 tax year.

For more details, please see https://goo.gl/RPYlrr, https://goo.gl/vJLrS0, https://goo.gl/zCoj2f

2. Measures encouraging natural persons to operate as Juristic Persons

The Royal Decree (No.630) B.E.2560 provides exemptions on income tax, value added tax, special business tax and stamp duty for natural persons  where a business is transferred from a natural person (transferor) to instead be operated by a juristic person (transferee) which is registered and established under Thai Law between 10 August 2016 and 31 December 2017.

However, please note that to take advantage of this tax exemption applicants must comply with additional criteria, methods and conditions which will be provided by the government in the future.

For more details, please see https://goo.gl/ETa9vV

3. Tax measures for corporations investing in the foundation, development or reconstruction of tourist attractions in rural areas

The Royal Decree (No.632) B.E.2560 exempts income tax for expenses relating to investments in the foundation, development or reconstruction of tourist attractions in rural areas. The cost of expenses such as providing electricity or water systems can be deducted as a double expense of the original cost of such investments, provided that the ownership of the asset arising from investment is transferred without any remuneration, to the government sector, government organization or local government within the accounting period starting from1 January 2016 until 31 December 2018.

In addition, a juristic person is entitled to an exemption from corporate income tax, value added tax, specific business tax and stamp duty if they transfer assets or sell goods , arising from investment within the period 1 January 2016 to 31 December 2018 without any remuneration, to the government sector, government organizations or local government. Juristic persons (transferor) shall not deduct the cost of such assets or goods that receive such tax exemption, in the computation of corporate income tax.

The taxpayer also needs to comply with all relevant rules, procedures and conditions as prescribed by law.

For more details, please see https://goo.gl/L5wGaJ

4. Amendments to personal income tax deduction expense rates for goodwill and other rights expenses

Royal decree (number 634) B.E. 2560 has been amended to allow a person who receives an income from goodwill, copyright fees or other rights to deduct 50 percent of the amount of claimed expenses up to an amount not exceeding 100,000 Baht. The amendment also allows for the deduction of actual expenses on the condition that evidence is provided to the Revenue Department. Previously the law relating to goodwill deductions allowed for a rate of 40 percent of amounts claimed up to a total amount not exceeding 60,000 Baht and did not allow deductions for actual expenses. Furthermore goodwill and other right fees were not previously allowed to be deducted as lump sum payments.

For more details, please see https://goo.gl/IRNq8G

5. Extending the tax measure time period for transforming a property fund into a real estate investment trust.

Royal decree (number 635) B.E. 2560 extended the income tax exemption time period for property fund unit holders who have received an income for transforming a property fund unit into a real estate investment trust and were therefore exempt from value added tax, specific business tax and stamp duty for the property fund. The time period for transforming a property fund into a real estate investment fund has been extended by one year, from 1 January 2017 until 31 December 2017.

For more details, please see http://goo.gl/lyFLrx and https://goo.gl/v0WRF5

6. Extending the corporate income tax exemption time period for SMEs participating in industry fairs in special development zones.

Royal decree (number 637) B.E. 2560 extended the corporate income tax exemption time period for juristic persons who received an income from the sale of goods and services at industry fairs in special development zones for 5 years. Previously juristic persons who registered between 1 January 2016 and 31 December 2016 were eligible for a one year extension which is due to expire on 31 December2017.

For more details, please see https://goo.gl/zAJrQ9  and https://goo.gl/dDAIvO

7. Income exemption for donations made to assist recent Thailand flood victims

Royal decree (number 638) B.E. 2560 exempts income for donations made to help the victims of the recent flood in Thailand. Taxpayers are able to deduct as an allowance or an expense 1.5 times the amount of money or value of an asset they donate during the period 1 January 2017 until 31 March 2017.

To take advantage of this exemption taxpayers need to comply with the rules, procedures, and conditions as prescribed by law.

For more details, please see https://goo.gl/bI3mPj

8. Amendment of issuing one time tax invoice rules

The Departmental Instructions No.155/2560 have amended the Departmental Instructions No.86/2542 to accommodate VAT registrants who sell identical goods or provide services to a purchaser on multiple occasions in a single day. Where this occurs a one-time tax invoice may be issued to cover the multiple identical  purchasers made by a purchaser in a single day.

For more details, please see https://goo.gl/rcqgKm

9. Revenue Departmental e-Tax invoice notification by Email System

The Revenue Department has issued the Revenue Departmental Notification to support e-Tax Invoice usage through e-Tax Invoice by Email System from 1 March 2017.

This notification shall be subject to the criteria, methods and conditions stipulated by the Revenue Departments Regulations of producing, providing, and preserving e-Tax Invoices through the e-Tax Invoice Email System 2017.

For more details, please see https://goo.gl/n3BWWG

Tax News

1. Tax incentive to induce high competence specialist workers to Thailand

The Cabinet has resolved to approve tax measures of the Royal Decree (No. …) B.E. …. on February 28 B.E. 2560, to encourage world class high competence specialist workers to undertake employment in target industries in the Eastern Economic Corridor. Eligible workers will be entitled to pay a personal income tax rate of 17%.

This tax measure shall also be subject to additional criteria, methods and conditions that the government may provide in the future.

For more details, please see https://goo.gl/6Q4niX

Interesting Deka (Supreme Court Judgment)

Deka                      (Supreme Court Judgment No. 1485/2559), in re:

Between                Mr. J                                                               Plaintiff

Revenue Department                                    Defendant

Issue:                    The transfer of land to the legitimate child which was deemed to be a sale of an immovable property in a commercial or profitable manner.

The plaintiff purchased land which they divided into about 70 plots, they also filed an application to expand the distribution of electricity into the land which was considered to be an indication that the plaintiff intended to sell the property. The plaintiff used divided sections of the land to build a road and other public facilities that were to be transferred to the public. This was considered a business sale of immovable property in a commercial or profitable manner under sections 91/4 and 3(4)  of the Royal Decree, issued under the Revenue Code on the Sale of Commercial or Profitable Real Estate (No.244) B.E. 2534 and Section 4(4) of the Royal Decree issued under the Revenue Code on the Sale of an immovable property in a commercial or profitable manner (No.342) B.E. 2541.

The plaintiff gave 49 plots of land to his lawful children at no cost which was considered to be a sale pursuant to section 91/1 of revenue code. The transaction was categorized as a sale of an immovable property in a commercial or profitable manner under section 4(4) of the Royal Decree issued under the Revenue Code on the sale of an immovable property in a commercial or profitable manner (N0. 342) B.E. 2541, it was not considered to be an exemption for specific business tax according to section 4(6) (d) of the Royal Decree. Therefore, the court held that the plaintiff had to pay personal income tax and specific business tax in relation to  his transferal of the 49 plots of land to his lawful children. The plaintiff was also required to include income they received in relation to transferring the plots of land to his children when calculating his personal income tax under section 48 (1) (2) of the Revenue Code.

Legal Opinion

This Supreme Court Judgment deals with the issue of the transfer of land to legitimate children. Generally where the ownership or a possessory right in immovable property is transferred to a legitimate child without consideration it shall be exempt from Specific Business Tax according to Section 4(6) (d) of the Royal Decree (No. 342) B.E. 2541. However in this case the Supreme Court deemed that the transfer of the land from the plaintiff to his lawful children to be a sale of immovable property in a commercial or profitable manner according to Section 91/2(6) of the Revenue Code. This was due to the fact that prior to the transfer of the land, the plaintiff had allotted part by part of the land for sale where roads or other public facilities were made available according to Section 4(4) of the Royal Decree (No. 342) B.E. 2541.

The author agrees with the opinion of the Supreme Court which confirmed that the transfer of land by the plaintiff to his legitimate children, despite being done without any consideration, was to be deemed to be both a sale of an immovable property according to Section 91/1(4) of the Revenue Code and a sale of an immovable property in a commercial or profitable manner and therefore subject to Specific Business Tax. Consequently, the transfer of land which was allotted part by part for sale to a legitimate child will not be eligible for an exemption in relation to Specific Business Tax.

Therefore, if a parent wishes to transfer land to their legitimate children and not have it recognized as a sale of an immovable property, such land cannot be allotted part by part for sale prior to the transfer. It would be considered unreasonable for the parent to claim that a transfer of land to their legitimate child is not a transfer for sale after they have made the allocation of land and been unsuccessful in selling it.

Krittiya Varapiang

                Should you require any legal advice on Thai tax law then please contact us at Dharmniti Law Office Co., Ltd. 2/2 Bhakdi Building 2^nd Floor, Witthayu Road, Lumphini, Pathumwan, Bangkok 10330 Tel: (66) 2680 9777 Fax: (66) 2680 9711  Email: budhimak@dlo.co.th or chatwaleem@dlo.co.th