Business in Thailand : What you should know b4 setting up a business

:: General Information

As in most countries, there are three kinds of business organisations in Thailand : Sole proprietorships , partnerships , and limited companies. The most popular form of business organisation among foreign investors is the private limited company.  

Private limited companies require a minimum of seven promoters and must file a memorandum of association, convene a statutory meeting, register the company, and obtain a company income tax identity card. They must also follow accounting procedures specified in the Civil and Commercial code, the Revenue Code and the Accounts Act. A balance sheet must be prepared once a year and filed with the Department of Revenue and Commercial Registration. In addition, companies are required to withhold income tax from the salary of all regular employees.  

The Ministry of Industry administers The Factory Act, which governs factory construction and operation , as well as safety and pollution-control requirements. In some cases, factories do not require licenses, in other instances the requirement is simply to notify officials in advance of start-up, and in some cases licenses are required prior to commencing operations. Licenses are valid for five years, and are renewable.  

 


Thailand recognises three kinds of intellectual property rights: patents, trademarks, and copyrights.  

The Patent Act protects both inventions and product designs and pharmaceuticals. The Copyright Act protects literary, artistic works, and performance rights, by making it unlawful to reproduce or publish such works without the owner's permission. The Trademark Act governs registration of, and provides protection for, trademarks.  


The Alien Occupation Law requires all foreigners working in Thailand to obtain a Work Permit prior to starting work in the Kingdom, except when they are applying under the Investment Promotion Law, in which case they have 30 days to apply.  

Non-Immigrant visas provide the holder with eligibility to apply for a work permit, and allow the holder to work while the work permit application is being considered.  

 

:: Taxation in Thailand

The Revenue Code outlines regulations for the imposition of taxes on income. Thailand divides income tax into three categories as follows: 

  • Corporate Income Tax 
  • Value Added Taxes (or Specific Business Taxes) 
  • Personal Income Tax 


1. Corporate Income Tax
Incorporated firms operating in Thailand pay income tax at a rate of 30 percent of net profits. Foundations and Associations pay income taxes at a rate of two to 10 percent of gross business income, depending upon the activity. International transport companies face a rate of three percent of gross ticket receipts and three percent of gross freight charges.

From January 1, 2002,corporate income tax for small and medium-sized enterprises with paid up registered capital not exceeding 5 million bat was cut. Profits of as Much as 1 million will be taxed at 20 percent and profits of more than 3 million baht at 30 percent.

All companies registered under Thai law are subject to taxation as stipulated in the Revenue Code and are subject to income tax on income earned from sources within and out-side of Thailand. Foreign companies not registered or not residing in Thailand are subject to tax only on income derived from sources within Thailand.

Normal business expenses and depreciation allowances, at rates ranging from five to 100 percent, depending on the item, or at rates under any other acceptable depreciation method, are allowed as deductions from gross income. Inventory must be valued at cost or at market price, whichever is lower. Net losses can be carried forward for up to five consecutive years. Interest payments on some foreign loans may be exempt from a firm's income tax.

Inter-corporate dividends are exempt from tax on 50 percent of dividends received. For holding companies and companies listed on the SET, dividends are completely exempt, provided the shares are held three months prior to and after the receipt of dividends.

Deductions for gifts and donations up to a total of four percent of net profit are available, as follows:
- Two percent to approved public charities or for public benefit;
- Two percent to approved education or sports bodies.

No deduction is permitted for any expenditure that is determined on the basis of net profit (e. g. bonuses paid as a percentage of net profit) at the end of an accounting period.

Depreciation of assets of limited companies and partnerships is based on cost. The rates of annual depreciation permitted by the law generally varying from 5 to 20 years.

Entertainment and representation expenses are deductible up to maximum limits as a percentage of gross sales, or of paid-up capital at the closing date of the accounting period, whichever is greater.

Taxes are due on a semi-annual basis within 150 days of the close of a six-month accounting period, and employers are required to withhold personal income tax from their employees Except for newly incorporated companies, an accounting period is defined as a duration of 12 months. Returns must be accompanied by audited financial statements. A corporate taxpayer must file a half-year return and pay 50 percent of the estimated annual income tax by the end of the eighth month of the accounting period. Failure to pay the estimated tax or under-payment by more than 25 percent may subject the taxpayer to a fine amounting to 20 percent of the amount in deficit.

Failure to file a tax return, late filing or filing a return containing false or inadequate information may subject the taxpayer to various penalties. Failure to file a return, and sub-sequent non-compliance with an order to pay the tax assessed, may result in a penalty equal to twice the amount of tax due. Penalties are due within 30 days of assessment.

2. Value Added Taxes
The value added tax (VAT) system, which came into effect on 1 January 1992, largely replaced the old business tax system.

Under this tax regime, value added at every stage of the production process is subject to a seven percent tax rate, This tax affects: Producers, providers of services, wholesalers, retailers, exporters and importers. The VAT must be paid on a monthly basis, calculated as:

Output tax - Input tax = Tax paid

Where output tax is the VAT, which the operator collects from the purchaser when a sale is made, and input tax is the VAT which an operator pays to the seller of a goods or service which is then used in the operator's business.

If the result of this calculation is a positive figure, the operator must submit the remaining tax to the Revenue Department not later than 15 days after the end of each month. However, for a negative balance, the operator is entitled to a refund in the form of cash or a tax credit, which must be paid in the following month.

A. Zero Rate
The following are not subject to VAT

Exports
Services provided in Thailand for persons in foreign countries
International transportation by air and sea by Thai juristic persons. Foreign juristic persons may enjoy zero percent when its country applies zero percent to Thai juristic persons operating there
Sale of goods or services to civil service or state enterprises under foreign loan or aid schemes
Sale of goods or services to the UN and its agencies, foreign embassies and consulates
Sale of goods or services between bonded warehouses, between operators in export processing zones, or between the former and the latter.

operators whose gross earnings from the domestic sale of goods and services exceed 600,000 baht, but are less than 1,200,000 baht per year, can choose between paying gross turnover taxes of 1.5 percent or the normal VAT. However, operators paying the gross turnover tax may not offset this tax by charging VAT to their customers in any step of production.