Tax Newsletter JULY 2018

DLO’s Tax Newsletter

                                                                                                                                                                                                                                                                    Issue 91 July 2018

Inside this Issue

Tax Laws Update

1. Regulation regarding requirements to request a substitute Value Added Tax (VAT) registration certificate

2. Regulation regarding Personal Income Tax (PIT) exemptions for disabled who are foreigners and resident in Thailand.

3. Regulation regarding Corporate Income Tax (CIT) exemptions for a company or juristic partnership, which has a business in certain targeted industries.

4. Regulation regarding CIT exemption for expenses relating to buying or hiring for the development of a computer program or service fee for using a computer program.

5. Regulation regarding income tax exemptions on income paid as a service fee or as an accommodation cost in a secondary tourism province.

6. Regulation regarding CIT exemptions on income paid for the purpose of holding training seminars for employee in a secondary tourism province.

Tax News

1. Draft Royal Decree (No….) B.E…. (Cancellation of tax incentives according to Royal Decrees (No. 454) BE 2549 in the case of tax privileges for international banking facilities).

2. Draft Proposed Rule Amendment to the Revenue Code (No…) B.E….., which shall allow Companies or Juristic Partnerships to use foreign currency to calculate corporate income tax, was opened for public comment.

3. Draft Petroleum Income Tax Act (No…) B.E…., which stipulates measures to permit the use of non-Thai currency for the purpose of calculating income, expenses and net profit for petroleum income tax, was opened for public comment.

4. Draft Royal Decree Issued under the Revenue Code (No…) B.E…. (Improved tax measures to promote the establishment of International Headquarters in Thailand through advantageous tax measures relating to royalties received from affiliated entities).

Interesting Deka

Dika                   (Supreme Court Judgment) No. 2636/2560, in re:

Between            Mr. Gor                                                 Plaintiff

Revenue Department                              Defendant

Issue:                Differentiating assessable income under sections 40 (2) and (6) of the Revenue Code.

Tax Laws Update

1. Regulation regarding requirements to request a substitute Value Added Tax (VAT) registration certificate

The Notification of the Director-General of Revenue Department on VAT (No. 221) provides that for VAT registrants who wish to request a substitute VAT registration certificate (P.P.04 form) in cases where it is lost, destroyed or essentially damaged, the request must be made to the Revenue Department within 15 days from when the certificate is lost, destroyed or damaged; moreover such request can be submitted either in hard copy (paper) or electronically.

For more details, please see: https://bit.ly/2M7CL4j

2. Regulation regarding Personal Income Tax (PIT) exemptions for disabled who are foreigners and resident in Thailand.

The Notification of the Director-General of Revenue Department on income (No. 319) provides that a disabled income-earner who is a foreigner and resident in Thailand who has been issued with a certificate of disability by the Department for Empowerment of Persons with Disabilities (under the Ministry of Social Development and Human Security) and who is not older than 65 years of age, shall be granted a PIT exclusion for that portion of their income that does not exceed 190,000 baht.

For more details, please see: https://bit.ly/2M40eDv

3. Regulation regarding Corporate Income Tax (CIT) exemptions for a company or juristic partnership, which has a business in certain targeted industries.

The Notification of the Director-General of Revenue Department (No.320) provides that companies or juristic partnerships that wish to be granted a CIT exemption for 5 accounting periods for their business, which falls under the targeted (promoted) industries, can submit their request to the Director-General of Revenue Department (using form R.M.1) within December 31, 2018. After receiving permission, if an eligible corporate taxpayer wishes to expand their business or the type of product or service under the targeted/promoted industries, then the taxpayer can submit their request to the Director-General of Revenue Department (using form R.M.2) through the website of the Revenue Department.

To be eligible, corporate taxpayers must also comply with all relevant rules, procedures and conditions as prescribed by law.

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

4. Regulation regarding CIT exemption for expenses relating to buying or hiring for the development of a computer program or service fee for using a computer program.

The Notification of the Director-General of Revenue Department on income (No. 321) provides a CIT deduction for companies or juristic partnerships, which are SMEs, such deduction shall be calculated at the rate of twice the amount of expenses utilized for the purpose of buying or hiring for the development of a computer program or the service fee for using a computer program, however, this CIT deduction shall not apply to annual maintenance service fees. This CIT exemption shall only apply to the portion of expenses that do not exceed 100,000 baht per accounting period with respect to the accounting periods within January 1, 2017 – through until December 31, 2019. Moreover, to be eligible the following conditions must also be complied with

1. The computer program must be created and developed in Thailand for management of the business;
2. The computer program must be able to deduct the depreciation of asset and its condition must be ready to use at the received time and within the paid accounting period;
3. The computer program must not be used in a business that receives CIT exemptions from the Board of Investment (BOI);
4. The computer program must not be the same program that has been used in a previous accounting period.

To be eligible, the taxpayer must also comply with all relevant rules, procedures and conditions as prescribed by law.

For more details, please see: https://bit.ly/2M8uFHS

5. Regulation regarding income tax exemptions on income paid as a service fee or as an accommodation cost in a secondary tourism province.

The Notification of the Director-General of Revenue Department on income (No. 322) provides a PIT exemption, for income paid as a service fee for accommodation costs for a trip for pleasure/tourism in any locality in a stipulated secondary tourism province within Thailand or in any other area of tourism as has been notified by the Director-General. This PIT exemption shall be according to the amount as actually paid by the eligible taxpayer, but it is subject to a maximum cap of 15,000 baht in aggregate. This entitlement only applies to service fees or accommodation costs paid from January 1, 2018 to December 31, 2018. This exemption shall not apply to non-juristic persons and ordinary partnerships.

To be eligible, eligible taxpayers must also comply with all relevant rules, procedures and conditions as prescribed by law.

For more details, please see: https://bit.ly/2IfhO4u

6. Regulation regarding CIT exemptions on income paid for the purpose of holding training seminars for employees in a secondary tourism province.

The Notification of the Director-General of Revenue Department on income (No. 323) provides a CIT exemption for companies or juristic partnerships for income paid for holding training seminar(s) for their employees according to the cost of the seminar room, accommodation, transportation or other related costs provided that such seminars are held in a secondary tourism province or in any other area of tourism as has been notified by the Director-General. This CIT exemption shall be calculated according to twice the amount as actually paid to entrepreneurs whose business is in the tourism business. This entitlement only applies to service fees or accommodation costs paid from January 1, 2018 through until December 31, 2018.

Eligible taxpayers must also comply with all relevant rules, procedures and conditions as prescribed by law.

For more details, please see: https://bit.ly/2tiiv8f

Tax News

1. Draft Royal Decree (No….) B.E…. (Cancellation of tax incentives according to Royal Decrees (No. 454) B.E. 2549 in the case of tax privileges for international banking facilities).

On 5 June 2018, the Cabinet approved the draft Royal Decree. (No…) B.E…. to cancel the Royal Decree (No. 454) B.E. 2549 but it shall continue to apply with respect to deposits or loans from foreign countries for the purpose of borrowing in a foreign country until the maturity of the relevant loan contract up until 31 December 2020. However, this tax exemption shall only apply to deposits or loans from foreign country agreements that have been renewed or where a debt restructuring agreement has been entered into, and those that have been made before this Royal Decree entered into force will not be effect by this cancellation.

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

For more details, please see: https://bit.ly/2JkXU9u

2. Draft Proposed Rule Amendment to the Revenue Code (No…) B.E….., which shall allow Companies or Juristic Partnerships to use foreign currency to calculate corporate income tax, was opened for public comment.

On 5-20 June 2018, the Revenue Department opened for public comment the proposed rule amendment to the Revenue Code regarding the use of currencies other than Thai baht as the currency for business operations, including exchange rate for calculating the value or price of currency, property or debt, calculation method and making corporate or juristic partnership’s tax payment that use currencies other than Thai baht as a currency for business operations.

This Royal decree is proposed in order to allow the use of currencies other than Thai currency as the operating currency such that it will be possible to complete all manner of business operations in other foreign currencies except the payment of tax because from 1 January 2018 it has been stipulated by law that such payment must be made in Thai baht

For more details, please see: https://bit.ly/2JvP1y1

3. Draft Petroleum Income Tax Act (No…) B.E…., which stipulates measures to permit the use of non-Thai currency for the purpose of calculating income, expenses and net profit for petroleum income tax, was opened for public comment.

On 7-25 June 2018, the Revenue Department opened for public comment the Draft Petroleum Income Tax Act (No…) B.E….. This draft law proposes to allow for non-Thai currency to be used to calculate income, expenses and net profit when paying petroleum income tax, by stipulating that a Company that is authorized to use foreign currency for their business operation shall be permitted to use that currency to calculate the net income to pay income tax. Furthermore, this draft law provides that the Minister shall have the power to declare the rules and procedures for calculating currency, debts or claims that can be denominated from foreign currencies into Thai currency in order to comply with required accounting standards.

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

4. Draft Royal Decree Issued under the Revenue Code (No…) BE …. (Improved tax measures to promote the establishment of International Headquarters in Thailand through advantageous tax measures relating to royalties received from affiliated entities.)

On 19 June 2018, the Cabinet approved the Draft Royal Decree issued under the Revenue Code on Rate Reduction and Exemption (No. …) BE …. (Improved tax measures to promote the establishment of international headquarters with respect to royalties received from affiliated entities). The Decree makes changes to the terms and conditions relating to the tax incentives for companies or juristic partnerships that operate as an International Headquarters (“IHQ”). This Decree changes tax incentives for IHQ’s by providing that royalty income that is derived from affiliated entities established under Thai law or established under foreign laws, limited to royalty’s income from research result and technology development in Thailand, whether that research or development has been done by IHQ or by hiring others.

However, eligible IHQ’s should bear in mind that these tax measures are subject to the rules, procedures and conditions as further prescribed by the law.

For more details, please see: https://bit.ly/2yzrO96

Interesting Supreme Court Judgment

Dika                  (Supreme Court Judgment) No. 2636/2560 in re:

Between           Mr. Kor.                                    Plaintiff

Revenue Department                  Defendant

Issue:                Differentiating Assessable income under Sections 40 (2) and (6) of the Revenue Code

Assessable income under Section 40 (2) is income which is derived from a post or from performance of work, whereas assessable income under Section 40 (6) is for income which is derived from liberal professions including accounting. The law allows for different deduction of expense, whereby the deduction of expenses for tax calculation shall be different depending on the type of assessable income. Therefore, in order to determine what type of assessable income such income is, it is necessary to consider the characteristics of the work such as whether the work involved professional knowledge and expertise as well as the amount of income received from the work completion, moreover it is also necessary to consider the expenses relating to generating the professional income. If the expenses are not considered then some taxpayers who receive income from low-paid work might claim that it is the assessable income under Section 40 (6) which would thus allow them to deduct expenses which are greater than what is actually incurred.

In this case, the assessable income that the Plaintiff received from Company Hor. was income from consulting with respect to the accounting system. This income was received monthly at a fixed rate without considering the amount of work that was completed/ delivered and the Plaintiff did not evidence that it had incurred expenses in the performance of the work. Therefore, the Supreme Court held that the Plaintiff’s income was the assessable income under Section 40 (2), rather than assessable income under Section 40 (6).

Legal Opinion

The writer agrees with the Supreme Court’s judgement because the consideration of the type of assessable income depends on different conditions and the Revenue Code provides deductions for expenses according to each type of assessable income. Given that people who derive assessable income have different professions, thus the principal relating to the cost of work creation and the difficulty of the professions vary. Hence, if a taxpayer does not consider the categories of their assessable income, it can cause unfairness to other taxpayers because they might use this gap to avoid/minimize their tax liability by changing the category of their assessable income in order to be able to deduct more expenses so that they are also to reduce their tax burden.

The Tax Division of the Supreme Court made a decision which held that despite the fact that the Plaintiff was hired as a consultant with respect to the accounting system which is a characteristic of the accounting profession, their income could be considered as assessable income which is derived from a liberal profession in accordance with Sections 40 (6) of Revenue Code. If such, Section 44 of Revenue Code provides that the expenses shall be deductible at a lump-sum rate of 30 percent, moreover, in some cases where the taxpayer can prove that there are more expenses, such expenses may also be deducted as necessary and appropriate. However, when considering the facts in this case, the Court noted that the received payment by the Plaintiff was given on a monthly basis at a fixed rate without being linked to the amount of work he completed, and the Plaintiff was unable to prove the expenditure he incurred from his liberal profession. Therefore, the Court held that the compensation received appeared to be assessable income derived from a post or from performance of work done in accordance with Section 40 (2) (former)[1] of the Revenue Code which shall be deductible at a rate of 40 percent but not over 60,000 baht. Hence, the Plaintiff’s assessable income was not an assessable income that was derived from a liberal profession in accounting and thus the Plaintiff was not allowed to take advantage of expense deductions according to the rule under Section 44 of the Revenue Code.

Therefore, in summation, the writer would like to advise taxpayers that in order to comply with the criteria of the Revenue Code, taxpayers or Revenue Officers should strictly consider the assessable income categories, facts, as well as other conditions.

Author: Maysaya Seelavun

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