Tax Newsletter MAY-JUNE 2017

DLO’S Tax Newsletter

Issue 77 – 78 May and June 2017

Inside this Issue:

Tax Laws Update

1. Income tax exemption for expenses for repairs or materials used for repairs of immoveable property which has been damaged due to flooding

2. Personal income tax exemption for expenses for repairs or materials used for repairs of vehicles which have been damaged due to flooding

3. Extension of the applicable period for filing a financial statement or an income statement of a juristic person

4. Stamp duty payment for an instrument relating to corporate registration

5. Clarification on value added tax, specific business tax and stamp duty payments for property funds

6. Incentive for an investment on Electronic Data Capture (EDC)

Tax News

1. Extension of the applicable period for income tax exemption for Community Enterprises

2. The Cabinet has approved a tax exemption of 3 times the expenses incurred on scientific research & development for specified 5 industrial sectors

Interesting Deka (Supreme Court Judgment)

Deka                      (Supreme Court Judgment) No.5148/2559, in re:

Between                Mr. S                                                              Plaintiff

Revenue Department                                    Defendant

Issue:                     How to treat income which is paid in lump sum by an employer to their employee due to the termination of the employee’s employment.

Tax Law Update

1. Income tax exemption for expenses for repairs or materials used for repairs of immovable property which has been damaged due to flooding.

The Notification of the Director General of the Revenue Department (No. 298) provides an exemption on income tax according to the amount actually paid but not exceeding 100,000 Baht for repairs or materials used used for repairs on immovable property, namely buildings or condominiums which have been damaged as a result of flooding which occurred between December 1, 2016 through until May 31, 2017. However, the persons who are entitled to take advantage of this tax exemption must retain evidence of their payments which relate to such repairs and materials.

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

For more details, please see: https://goo.gl/5RFdME

2. Personal income tax exemption for expenses for repairs or materials used on repairs of vehicles which have been damaged from flooding.

The Notification of the Director General of the Revenue Department (No. 299) provides an exemption on personal income tax according to the amount actually paid but not exceeding 30,000 Baht for repairs or material used for such repairs or for facilities provided for vehicles which have suffered damaged due to the flooding which occurred  during December 1, 2016 through until May 31, 2017. Individuals who wish to take advantage of this tax exemption must retain evidence of their payments relating to such repairs and materials.

For more details, please see: https://goo.gl/cxLS11

3. Extension of the period for filing a financial statement or an income statement of a juristic person.

The Notification of the Director General of the Revenue Department has granted an extension with respect to the period for filling financial statements for juristic persons which have their last day of an accounting period within February 25, 2016 to October 30, 2017 which have already filed their corporate income tax return via the internet. Such juristic persons can file their financial statements within October 31, 2017 and will not be subject to a fine. Normally, a juristic person must file its financial statement or income statement along with its corporate income tax return within 150 days from the last day of its accounting period.

For more details, please see: https://goo.gl/oAsI5O and https://goo.gl/8EtZ9K

4. Stamp duty payment for an instrument relating to corporate registration.

The Notification of the Director General of the Revenue Department (No. 56) provides for the payment of stamp duty by cash instead of duty stamps affixed on an instrument such as authorization letter to file a request to the registrar at the Dept. of Business Development for corporate registration etc. The reason for this change is the growing number of applicable instruments (subject to stamp duty) which are made and submitted online and not in paper format. Therefore, if such instruments are submitted to the relevant Government Department online using an electronic method then this notification will be effective from April 18, 2017. However, for an instrument which is subject to stamp duty which is not made and submitted online it will be effective from August 1, 2017.

For more details, please see: https://goo.gl/o5RA1n

5. Clarification on value added tax, specific business tax and stamp duty payments for property fund.

The Royal Decrees (No. 608-610) B.E. 2559 have provided that operators of a property fund established under the Security and Exchange Law shall be subject to pay value added tax, specific business tax and stamp duty, this change has been effective since May 24, 2017.

The Revenue Department has issued the following clarifications regarding such matter together with the details and samples relating to value added tax and stamp duty payable by a property fund:

1) The imposition on value added tax from selling goods or the provision of services of a property fund, shall use input tax in the computation of value added tax, input tax allocation of the property fund and value added tax registration.

2) The requirement for payment of stamp duty for an instrument shall be effective from May 24, 2017.

For more details, please see: https://goo.gl/6Yiox6

6. The incentive for an investment on Electronic Data Capture (EDC)

Royal Decree (No. 640) B.E.2560 provides an income tax exemption for juristic persons, at the rate of 100 percent of the expenses paid for an investment on EDC within the period November 1, 2016 through until December 31, 2018. However, such juristic person shall not be entitled to collect any rental fees on such EDC from a shop operator.

If a shop operator is an individual or a juristic person (SMEs) and uses such EDC, they will be exempted for income tax at the rate of 100 percent on fees which arise from receiving payment by debit cards via EDC. Such fees must be paid within the period November 1, 2016 through until December 31, 2021.

To take advantage of this income tax exemption a relevant taxpayer needs to comply with the rules, procedures, and conditions as prescribed by the Notification of Director General of the Revenue Department as shall be specified in the future.

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

Tax News

1. Extension period on income tax exemption for Community Enterprises

On April 18, 2017, the Cabinet approved in principle an exemption on income tax for Community Enterprises which fall under the law relating to Promotion of Community Enterprises. This exemption is targeted at ordinary partnerships or a group of persons which receive income not exceeding 1,800,000 Baht, as it extends the period by 3 years for assessable income received from January 1, 2017 through until December 31, 2019.

This income tax exemption shall be subject to the rules, procedures and conditions as shall be prescribed by law.

For more details, please see: https://goo.gl/iWWXYh and https://goo.gl/AwWt2t

2. The Cabinet has approved tax exemption of 3 times on science researching and developing expense for 5 industrial sectors.

On May 9, 2017 the Cabinet approved the draft of the Royal Decree issued in accordance with the Revenue Code (No. …) B.E. ….This Decree exempts corporate income tax for five target industries (such as the digital industry and the health industry) by entitling these industry sectors to use research and development expenses as a deductible expense at the rate of 3 times the amount of such expenses and for 3 accounting periods, provided that such accounting periods start on or after January 1, 2017 through until December 31, 2019.

Therefore, such expense of an eligible juristic person shall exceed the incentives for expense incurred on research and development of technology and innovation by the government sector under Royal Decree (No. 598) B.E.2559.

For more details, please see: https://goo.gl/sbEKZ4

Interesting Deka (Supreme Court Judgment)

Deka                      (Supreme Court Judgment) No.5148/2559, in re:

Between                Mr. S                                                              Plaintiff

Revenue Department                                    Defendant

Issue:                     How to treat income which is paid in lump sum by an employer to their employee due to the termination of the employee’s employment.

Note: according to the Labor Protection Act B.E. 2541 “severance pay” is defined as meaning the money, which an employer pays to an employee upon the termination of employment, in addition to other monies, which the employer agrees to pay the employee.

When the Plaintiff had his employment terminated as a result of his retirement under his employing company’s regulations, the Plaintiff received income paid out by their employer in a single lump sum payment. The retirement of the Plaintiff which was considered as a termination of his employment contact resulted in the Plaintiff receiving a payment totaling 3,118,040 THB, the pay-in slip evidenced that he received compensation in the amount of 1,792,000 THB and a pension in the amount of 1,326,040 THB.

The amount of 1,792,000 THB was paid under the employer company’s regulations for an employee who has worked for a period of ten years or more. The regulation provided that he or she shall be entitled to receive payment of not less than his or her last rate of wages for three hundred days in accordance with Section 118 (5) of Labor Protect Act B.E. 2541. Moreover, the Court held that the income that he received due to the termination of his employment is to be considered as severance pay according to Thai labor law and the notification of Director-General of the Revenue Department No.45.

In this case, the Plaintiff correctly submitted his personal income tax return and had taken this assessable income in the amount of 1,792,000 THB to be listed in the form and calculated as an expense according to section 48 (5) of the Revenue Code and the notification of Director-General of Revenue Department No.45.

Legal Opinion

If a severance payment made to an employee under the Labor Protection Act B.E. 2541 is a payment made due to the employee working for their employer for at least five consecutive years then the tax payer may elect to pay tax according to section 48(5) of the Revenue code instead of calculating the amount of tax payable according to section 48(1) and (2) of the Revenue Code, which is calculated by deducting the severance payment with expenses which are calculated by 7,000 THB multiplied by the number of years of employment but not exceeding the amount of the actual severance payment. A further deduction is allowed at the rate of 50 percent of the remaining income, which is then multiplied by the tax rate according to section 48(5) of the Revenue Code and clause 1(c) and clause 2(a) of the Notification of the Director-General of Revenue Department No. 45.

The Revenue Department has issued an opinion in the case of situations where an employee is terminated because of retirement and the company regulations specify that the employee is to receive a special payment in accordance with the Labour Protect Act B.E. 2541. The opinion of the Revenue Department provides that such special payment is not to be considered as a severance payment under clause 1 (c) of the notification of the Director-General of the Revenue Department No. 45. However, this special payment is to be considered as assessable income paid out in a single payment by reason of the termination of employment which is calculated by a method which is different from that mentioned in clause 1(d) of the notification of the Director-General of the Revenue Department No.45.

According to the above Supreme Court Judgment, the Plaintiff worked for their employer for more than 10 years which therefore entitled them to receive a lump sum payment from their employer due to the termination of the Plaintiff’s employment contract, such payment was in the amount of 3,118,040 THB. Such assessable income can be divided into 2 parts, a severance pay in the amount of 1,792,000 THB and pension in the amount of 1,326,040 THB.

The writer agrees with the Court Judgment which determined that the severance pay portion in the amount of 1,792,000 THB paid in accordance with Section 118 (5) of Labor Protect Act B.E. 2541, is a severance payment that comes from the termination of employment under the said Act. Moreover, the writer also agrees with the Supreme Court when it held that for cases where employees who have their employment terminated without it being due to their fault who receives severance pay the calculation under section 48(5) should not only be limited to the situation where the employer can no longer operate its business or department but it should include an employees retirement and/or termination of employment contact. If the calculation under section 48(5) does not include retirement payments, the writer is of the opinion that it will result in monies being taxed unfairly and without the necessary legal power/ authority given that the current laws do not prescribe explicit details in relation to the tax calculation under section 48 (5) of the Revenue Code and the notification of the Director-General of the Revenue Department No.45.

Mr. Thaninrath Leongthavornpot

Should you require any legal advice on Thai tax law then please contact us at Dharmniti Law Office Co., Ltd. 2/2 Bhakdi Building 2nd 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