Tax Newsletter MAY 2018

DLO’S Tax Newsletter

Issue 89 May 2018

Inside this Issue

Tax Laws Update

1. Personal Income Tax (PIT) exemptions for income paid for shares or investing in companies or juristic partnerships, which is a new entrepreneur, in certain targeted industries.

Tax News

1.  Tax measures to support the merger of Thai commercial banks.

2.  The extension of tax measures encouraging natural persons to operate as Juristic Persons.

Interesting Deka (Supreme Court Judgment)

Dika                   (Supreme Court Judgment) No. 576/2560 in re:

Between            Mrs. Gor.                                              Plaintiff

Revenue Department                            Defendant

Issue:                 Whether personal income tax (PIT) in relevant to income or any other benefits received from a Provident Fund

Tax Laws Update

1. Personal Income Tax (PIT) exemptions for income paid for shares or investing in the company or juristic partnership, which is a new entrepreneur in certain targeted industries.

Ministerial Regulation No. 337 provides a PIT exemption for natural persons according to the actual amount paid but not exceeding 10,000 baht, for the payment of shares or an investment in the establishment or increasing the registered capital of a company or juristic partnership, which is a new entrepreneur in certain targeted industries. To be eligible for the exemption the expenses must be paid within January 1, 2018 to December 31, 2019.

            For more details, please see: https://bit.ly/2HLYOPw

Tax News

1. Tax measures to support the merger of Thai commercial bank.

On April 17, 2018, the Cabinet approved in principle the drafted Royal Decree issued under the Revenue Code (No….) B.E….It provides the following tax support measures:

1. Provides exemptions on income tax for shareholders of a commercial bank for the benefit received as a result of a merger or the whole transfer of the business of such commercial bank, which have a monetary value which exceeds the registered capital.
2. Provides exemptions on corporate income tax, special business tax and stamp duty to commercial banks for the assessable income, income or executing the instrument that is derived or caused by the merger, either partly or wholly or the transfer of the business of such commercial bank.
3. Provides exemptions on income tax equal to expenses that are paid for the investment or changes or improvement of an asset caused by the merger or whole transfer of business, however, such exemption shall not apply to repairs in order to maintain its present condition. Moreover, such expenses must comply with the prescription and must be paid from the date of the merger or the part or whole transfer until December 31, 2022.

For more details, please see: https://bit.ly/2EXDXm6

2. The extension of tax measures encouraging natural persons to operate as Juristic Persons.

On May 1, 2018, the Cabinet approved in principle the drafted Royal Decree issued under the Revenue Code (No….) B.E….which provides the following:

1. Provides exemptions on income tax and value added tax (VAT) for a natural person and an ordinary partnerships or non-juristic body of persons for income derived from transferring assets or executing the instrument. To be eligible, taxpayers must transfer the assets to a company or juristic person, registered under Thai law, and receive payment in the form of shares of such company or juristic person. Moreover, the expenses must be paid within January 1, 2018 to December 31, 2019.
2. Provides exemptions of 3 times the expenses incurred on the registration of the juristic person and accounting and auditing expenses for 5 accounting periods, in order starting from the first accounting period of establishment. The exemption shall be applied to a company or juristic partnership having year-end paid-up capital of not more than 5 million baht and earning income of not more than 30 million baht from the sale of goods or the provision of services in the relevant accounting period. Moreover, such company or juristic partnership must register and be established under Thai Law within January 1, 2018 to December 31, 2019.

For more details, please see: https://bit.ly/2riuLEQ

Interesting Deka (Supreme Court Judgment)

Dika                   (Supreme Court Judgment) No. 576/2560 in re:

Between            Mrs Gor.                                                       Plaintiff

Revenue Department                                   Defendant

Issue:                 Personal income tax (PIT) in relevant to income or any other benefits receiving from the Provident Fund

The Plaintiff is an employee of Bank Kor. and was registered under the early retirement program, which approved her resignation on September 15, 2018. At that time, the Plaintiff was 58 years old and had been a member of the provident fund for at least 5 years. According to law the money or any benefits received from such provident fund shall be exempted from assessable income when calculating PIT, therefore, the Plaintiff submitted a PIT refund form for the amount of tax deducted by Bank Kor from her income from the provident fund to the Revenue Department in 2008.

The Court held that even though the Plaintiff had retired before she turned 60 years of age, such resignation was according to the Bank’s early retirement program of B.E. 2551. Therefore, the Court found that it was not a normal resignation but was instead deemed as being part of the conditions of retirement at 60 years old or before 60 years old. Hence, when the Plaintiff used her right under this program, it was deemed as her leaving her job when the written contract of hire of service had ended. Thus, given that the Plaintiff, whose age at that time she undertook early retirement was not less than 55 years old coupled with the fact that she was a member of the provident fund for not less than 5 years, received the money or any benefit from the provident fund, then such money or benefit shall be exempted from the calculation of PIT..

Legal Opinion

The author agrees with the Court’s judgment as follows; the money or any benefit that an employee receives from the provident fund, under the provident fund law, after the employee resigns due to retirement, disability or death shall be exempted from the calculation of PIT in accordance with Section 42 (17) of the Revenue Code in conjunction with Clause 2 (36) of the Ministry Regulation No. 126 (B.E. 2509).

Moreover, the Notification of the Director-General of the Revenue Department on income tax (No. 52) (which was an enforced law at that time) prescribed the conditions in Clause 1 as follows; for the case of retirement, such employee must be at least 55 years old and must leave their job due to the end of the period of work according to their written hire of service contract. Moreover, the employee must be the member of a provident fund according to the law of provident funds for a period of not less than 5 years.

In this case even though the Plaintiff resigned before the official retirement age (at 58 years of age), such period of work, according to the written hire of service contract had not yet ended, however her resignation was done in accordance with the early retirement program of B.E. 2551 which was created by Bank Kor. for the purpose of providing a choice for its employees who had worked for the bank for a long period of time and would like to retire early or for those staff suffering a health problem. Moreover, the early retirement program was used by the Bank so that it could adjust its manpower levels according to the Bank’s circumstances and requirements. Therefore, the author notes that Bank used this program to persuade its employees to resign by themselves in order to reduce the number of employees and thereby cut unnecessary expenses.

Hence the author would like to point out that this type of resignation is different from a normal employee resignation because under a normal resignation it is a unilateral decision of the employee to leave their employment. However, in this case the resignation of the Plaintiff under the Bank’s early retirement program of B.E. 2551 wasn’t considered as a normal resignation but rather was due to the wishes of Bank Kor. such that the conditions of such resignation would be the same as those of staff who retire upon reaching age 60 or before age 60 (as the case may be). Thus, when the Plaintiff used her right under such early retirement program, the Plaintiff shall be deemed to have retired by leaving her job at the end of the period of working in accordance with the written hire of service contract. Moreover, because the Plaintiff was an employee who was at least 55 years of age when she took early retirement and was a member in the provident fund for not less than 5 years, the money or any benefit that the Plaintiff received from the provident fund should be exempted from the calculation of PIT.

Author: Panida Narmpung

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