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Corporate Income Tax Categories

Corporation are taxed in one of two ways, depending on weather the company is considered to be conducting business in Thailand “onshore” or “offshore”. The definition contained in the Revenue Code of “conducting business in Thailand” is very broad and stipulates that:  “If a juristic company or partnership incorporated under a foreign law has, in Thailand, for carrying on its business, an employee, a representative or a go-between and thereby derives income or gain in Thailand, such juristic company or partnership shall be deemed to be carrying on business in Thailand….”

 A company operating “onshore” pays the normal spectrum of corporate income tax and must withhold certain amounts at source on account of income tax on some transaction. An offshore entity receiving income from Thailand must pay income tax only at fix percentage of gross income, and the party in Thailand who pays the income is generally required to withhold the tax at source.

 Corporate Income Tax

Corporate income tax applies to companies and juristic partnerships that are registered under Thai law or that conduct business in Thailand, even if formed under foreign laws. This tax also applies to members of an unincorporated joint venture, registered partnership, foundations, and associations engaged in business activities. If the taxable entity is incorporated or established under foreign laws, but is conducting business in Thailand, then only income derived or gained in or from Thailand is taxable. 

 Corporate Income Tax Rates

All companies and registered partnerships regardless of whether they are listed on the SET pay flat rate of 30% of net profits.

There are special provisions for standard deductions for foreign-incorporated companies or partnerships that conduct business in Thailand but cannot prove their expenses for the tax year. Standard deductions are allowed depending on the type of business activity that gives rise to income. The resultant net profits are taxed at the normal rate of 30%. 

Any Thai for foreign-incorporated company or registered partnership conducting business in Thailand that fails to the file a return in accordance with the law may, with the approval of the Director-General, be assessed income tax at a rate of five percent of the aggregate of either its gross  receipts or total sales, without any deductions.

Certain types of business are subject to corporate income tax on their gross receipts or gross sales instead of net profits. For example companies engaged in the business of international transportation of passengers or goods, pay at 3% corporate income tax on gross receipts collected on gross freight or passengers carried out of Thailand. Foundations and associations pay corporate income tax at a rate of two percent or 10% of gross income, depending on the type of business activity in which they are involved.

Small and medium-sized enterprises (SMEs) with registered capital not exceeding Baht 5,000,000 are subject to progressive corporate income tax at the rate of 15% for their first net profit of Baht 1,000,000, 25% for net profits over Baht 1,000,000 but up to Baht 3,000,000, and 30% for net profits over Baht 3,000,000. However, in 2005, the 20% tax rate on any SME’s first Baht 1,000,000 net profits will be reduced to 10%.

In order to stimulate the growth of investment in the Stock Exchange of Thailand (SET) and the Market for Alternative Investment (MAI), the normal corporate income tax has been reduced to 25% for existing SET-listed companies and newly SET-listed companies and to 20% for newly MAI-listed companies. However, eligible listed companies must satisfy certain conditions.

Determination of Net Profit for Corporate Income Tax

Corporate tax is usually imposed on net profits of the business for the tax year. The tax year can be any 12-month period selected by the company.

Net profits are ascertained according to the conditions imposed in the Revenue Code An all-inclusive concept of income is used and all realized economic gains are treated as income (including capital gains) whether they occur regularly or only occasionally. Corporate income tax is generally computed on an accrual basis, i.e. income accruing in any accounting period is included as income in that period, whether or not it has been received, and expenses may be deducted as they accrue whether or not they have actually been paid out.

A general matter, expenses incurred for the purpose of acquiring profits or from conducting business in Thailand (other than those specifically excluded) are deductible for determining net profit. Therefore, normal business expenses, qualifying bad debts and depreciation at maximum rates ranging from five to 20% per annum (depending on the item) are allowed as deductions. Any accounting method may be used to calculate depreciation, as long as the resulting depreciation is not faster than that provided by using the straight-line method at the rate prescribed in the Revenue Code. The following items among others are not allowed as deductions:

Entertainment expenses, up to a maximum of between 0.3% of gross revenue and paid-up capital of the company, whichever is higher, are deductible if they are generally necessary for that type of business, but such entertainment expenses can be deductible only up to 10 million Baht.

Certain bad debts can generally be written off if reasonable efforts have been made to recover them or if such action is clearly impractical, such as in the case of the bankruptcy or death of the debtor.

Net losses may be carried forward for five consecutive years. However, there is no provision for the carry-back of losses.

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