ACCOUNTING IN THAILAND
There seems to be a misconception that because Koh Samui provides a very relaxed tropical island lifestyle that people do not need to take the law and accounting practices seriously! Accounting in Thailand is much the same as other countries and requires each and every tax payer to understand the system to ultimately avoid fines and investigation from the authorities. So, what should you know and who can help you understand accounting laws and the compliance thereof? Samui Law Firm have experienced people who always look to the source (the Revenue Department - judge and jury) to qualify specific requirements where doubt may surface.
Prior to the creation of a company, you must first determine how many foreign Work Permits are required to establish the"paid up capital' (the size) of the company. The equation is fairly simple: each Work Permit requires 2,000,000 THB in 'paid up capital', therefore a one Work Permit company shall be 2,000,000 THB (in size) and, a two Work Permit company shall be 4,000,000 THB (in size) etc.
Given the recent crackdowns on 'Thai Nominee' shareholders, it is preferable that each and every company, upon creation, pays up their registered capital as well as their Thai shareholders to avoid these issues. But again, don't panic, Samui Law Firm will walk you through and facilitate this important part of the company creation process!
Note: it is a criminal offense in Thailand to act as a 'Thai Nominee' shareholder for a foreign directed company and jail terms of up to 10 years may be given to the offending nominee(s)!
Withholding Tax (WHT)
Withholding Tax (WHT) is a common name for a myriad of taxes you'll encounter, either as an individual or, if you decide to open a Thai company. Any foreigner applying for and obtaining a Work Permit within a Thai company must pay WHT each and every month on the minimum salary stated on the second page of their Work Permit irrespective of whether they are currently earning the stated amount, or not. For most westerners the minimum salary is 50,000 THB (per month), and the WHT (also called income tax) applicable to that salary, for 2019, is calculated at 1,792 THB (approx 3.6% of the minimum salary). Some nationalities have a lower minimum salary therefore, their WHT (income tax) amount will also be lower than the above stated amount. The other variety of WHT is based on invoicing another company for the services (not products) that your company provides. The percentage of WHT depends primarily on the type of service being offered. Examples are as follows:
1% WHT on Transportation (like delivery services - excluding public transportation)
2% WHT on Advertising Fees (like promotion of your business in a magazine)
3% WHT on Professional Services (like Samui Law Firm)
5% WHT on the Lease of Assets (like a property)
the applicable WHT must be calculated every month and paid to the Revenue Department on or before the 7th of the proceeding month.
Value Added Tax (VAT)
Once you, or your company, reach a turnover threshold of 1,800,000 THB in any given financial year (with some minor exceptions) then, you must register yourself or your company for VAT. VAT in Thailand is 7% and this input output tax must be added onto each and every invoice once registration has been activated. This tax is very similar to other countries like England (VAT) or Australia (GST). You can choose to add the VAT on top of each product or service you sell or absorb the VAT within your current pricing model but, whichever you decide, the 7% VAT must be reconciled every month and paid to the Revenue Department on or before the 15th of the proceeding month.
Profitability (End of the Financial Year)
If you own a Thai company, the Department of Business Development (DBD), where the company was created, will allow this company a period of up to 3 years to reach profitability before the DBD 'reserves the right' to close the company as a non viable entity.
Further to the above, in the event that the company runs at a loss (is not profitable), for 2 consecutive years then, the Labor Office also 'reserves the right' not to reissue/renew any foreign Work Permit within a loss making company.
Before you panic..! 'reserves the right' does not necessarily mean they (DBD) will definitely close your company down but, it does mean that they (DBD), maintain the option to do so should they (DBD) wish to exercise it!
Balance Sheet (End-of-Year)
Similarly to 'Profitability, If you own a Thai company, the Department of Business Development (DBD), where the company was created, 'reserves the right' to close the company down if the company has not submitted an End-of-Year Balance Sheet & Audit for 3 consecutive years.
Once the fiscal year has drawn to a close (January 1st - December 31st), and the company has shown a profit, in line with 'Profitability' above, there shall be an incremental sum of Corporate Tax to pay on the total amount profit. The amount of tax depends on 2 factors a) the size of the company (in Registered Capital) and the amount of profit made by the company. If the company is below 5,000,000 THB in Registered Capital then, the tax brackets are different to those above 5,000,000 THB as shown below:
Companies with less than (<) 5,000,000 THB in Registered Capital are taxed as follows:
> 0 THB < 300,000 THB in annual profit = 0% Corporate Tax
> 300,000 THB < 3,000,000 THB in annual profit = 15% Corporate Tax
> 3,000,000 THB in annual profit = 20% Corporate Tax
Companies with greater than (>) 5,000,000 THB in Registered Capital are taxed as follows:
> 0 THB in annual profit = 20% Corporate Tax
Note: profit is a) company turnover for the fiscal year, minus b) all 'Claimable Expenses' equals c) annual profit
Claimable company expenses can be tricky to understand for foreigners, predominantly because Thai lawyers and/or accountants do find it to difficult to explain the finite details of what makes an expense claimable in a second (not their native) language. Understanding what makes an expense "claimable" in the eyes of the Revenue Department (The Tax Office in Thailand) can be daunting so, put as simply as possible, a "claimable" expense is any 'qualifying' (your company is allowed to claim the expense you are purchasing) expense and/or fixed asset that has been sold (by another individual or company), and purchased (by your company), that includes ALL of the required information on the 'Receipt' (non VAT registered seller) or 'Tax Invoice/Receipt' (for VAT registered seller) to the purchaser. Information like the seller's full company name, tax id and registered company address, the purchaser's full company name, tax id and registered company address and details on the service and/or products being sold and purchased as well as any/all applicable taxes like withholding tax (WHT), and/or value added tax (VAT), to be paid at the time of sale/purchase.
For more information on accounting and tax laws in Thailand, click here for the most recent Thai Tax Booklet (2017-18), English version, written by Price Waterhouse Coopers (PWC).
MORE INFO COMING SOON..!