For many businesses, looking for prospects outside of their own country is a natural part of the growth process. Businesses can boost sales and profits by expanding their markets. Additionally, it is also possible by interacting with new clients while reducing risk by not relying on a single market. Along with the opportunities, the taxation policies of an economy also ascertains this feasibility. This article will explain a unique feature of taxation in Thailand.
Furthermore, conducting business in diverse countries and areas comes with its own set of challenges. Commercial contexts differ, and regulatory regimes can be challenging to comprehend. Sometimes it is even more difficult to keep up with as they evolve. Proper knowledge of the business administration and regulations of the nation can ward off this issue.
In this article, we will discuss the potential pitfalls of taxation in Thailand and methods to mitigate them. Particularly, this involves transfer pricing and the use of tax losses. It can be despite the fact that such transactions benefit from a variety of tax breaks. This includes asset and goodwill amortisations, and tax exemptions for mergers and demergers.
We also stress the need of engaging with different levels of control using the information provided. We also suggest broadening the scope of due diligence to include crucial areas. Additionally, working on the ground with local specialists and consultants can also be a good primary measure against such traps.
Transfer Pricing Documentation
Description:
Thailand’s income tax law was amended on November 21, 2018, to include specific transfer pricing requirements. These rules apply to fiscal years beginning on or after January 1, 2019. The arm’s-length principle is used in the transfer pricing rules. If the yearly turnover is THB 200 million or higher, a transfer pricing disclosure form must be filed along with the annual CIT return; this is required. In the event of a tax audit, transfer price proof will also be mandatory. The format of transfer pricing documents, on the other hand, awaits declaration and announcement.
Impact:
Transfer pricing requirements differ nation-wise. Moreover, in some situations, up-to-date transfer pricing documentation is accessible at the corporate taxpayer level. This is to substantiate all mandatory inter-company transactions. In practice, for CIT purposes, the portion of the inter-company expense exceeding the level of identical expenses is added back to the corporate taxpayer’s income. However, indirect subsidies resulting from prices set below arm’s length terms may be disallowed for CIT purposes at the corporate taxpayer’s level.
Finally, additional fines may apply in certain circumstances (e.g., a lack of transfer pricing documents). However, tax treaties may allow for symmetrical corrections of local transfer pricing reassessments as part of a mutual agreement procedure.
Solutions:
To minimise the tax hazards of transfer pricing, businesses must adhere to the arm’s length principle. To explain the transfer pricing policy in use, it must have proper documentation support.
Tax Treaties
Description:
Because taxes fund state budgets, the governmental authorities and politicians are the decision-makers. This is with jurisdiction over a single country. As a result, conflicting provisions from different countries may cause concerns with double taxes. States frequently join into tax treaties to avoid double taxation in order to avoid such problems. Models of the OECD and, more rarely, the United Nations governs such Tax Treaties.
Impact:
In practice, the provisions of the tax treaties under consideration allow for the achievement of two goals.
Primarily, one can avoid double taxation through exclusive taxation of income calculation in the state that is a member of the tax treaty.
Additionally, it is also possible by granting tax credits that aim to neutralise the impact of taxes withheld at source at the level of the taxpayer. This is applicable for a taxpayer who generates the income at the level of the beneficiary of the income.
Secondly, the reduction in withholding tax rates are also a concern. Tax treaties frequently include low withholding tax rates for specific types of income, such as dividends, interest, and royalties.
Solutions:
A proper tax structure could reduce tax leakage on profit repatriation. Particularly, it is through profit rerouting, which could result in withholding tax savings.
Stamp Duties
Description:
Imposition of such tax is on the transfer of residences, buildings, copyrights, land, patents, and securities while its enactment. When this tax is in place, the transfer of documents between places is possible only if they bear the stamp as proof of tax payment.
Stamp duties are frequently seen as supplementary taxes because they usually correspond to set quantities or modest expenses. However, depending on the regulations of the countries, structuring transactions frequently involve stamp duties. Asset deals, share deals, capital decreases, mergers are such structuring transactions. These costs may be significant in some situations, and they may have an impact on the transaction’s completion.
Most documents of firms with government agencies or entities, as well as official documents of the company, are subject to Thai stamp duty. Instruments, not transactions or people, are subject to stamp duty. Only those instruments with mentions in the revenue code’s stamp duty schedule are subject to stamp duty. Additionally, the instrument in affiliation, or the persons executing the instrument, the holders of the instrument, or the beneficiary, have to pay it. Certain legal instruments are subject to stamp duty at various rates.
Impact:
Stamp duties are an actual transaction fee that has a direct cash effect at the paying party’s level. In some nations, both parties to a transaction are jointly liable for the payment of stamp duties associated with the transaction.
Solutions:
In practice, corporations should take the most cost-effective options that require the least amount of stamp duty, either by relocating the transaction or changing the assets transferred.
Your Take!
These were the traps that can bother a foreign investor when it comes to taxation in Thailand. To understand the nature, impact and solutions of these traps, you will surely need to understand the taxation laws in Thailand deeply. This is never possible for a foreigner or ex-pat in Thailand.
As an overall solution, it is a recommendation, that as a foreigner in Thailand, you must take local legal, accounting and taxation support in Thailand. For this purpose, you may reach out to reputed law firms like Konrad Legal. Mail us at [email protected] and we will protect you from falling into any of the tax traps in Thailand.
