Why would Japanese companies need support for tax affairs in Thailand?

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When a Japanese company or Thai subsidiary operates business in Thailand, it is necessary to file tax returns. Of course, Thailand also has elaborate tax rules and regulations, and the additional and late taxes are higher than Japan, so tax affairs in Thailand can be a headache for those companies expanding into the country. Here are some of the key points regarding taxation in Thailand.

Challenges in finding tax and accounting personnel in Thailand

It is not easy to find accountants with sufficient knowledge for Japanese companies in Thailand. The majority of accounting personnel in Thailand are university graduates from the Faculty of Accountancy. Few high school graduates or university graduates from other faculties become accountants. However, the number of university graduates, including accounting graduates, is very small, around 14% of the total population, according to 2016 statistical data. Moreover, Japanese companies in Thailand often face difficult problems in accounting, such as documents written in English, imports/exports, and overseas transactions, which Thai companies do not face.

Thailand has no such experts as tax accountants, administrative scriveners or judicial scriveners like Japan; all are handled by lawyers. Even with regard to tax affairs, this is an area of law, and they are generally what lawyers would handle rather than accountants. Therefore, being a Thai chartered accountant or accountant does not mean that one is an expert in tax affairs, and it is very difficult to deal with and negotiate with tax department officials during tax audits. However, most lawyers have only graduated from law school and passed a simple examination.

Moreover, very few lawyers in charge of taxation are familiar with corporate accounting. Therefore, it is almost impossible to find a law firm in Thailand that has the know-how to handle tax affairs, except for certain foreign firms with very high fees.

Why would Japanese companies need support for tax affairs from a lawyer?

It is important to ask a law firm that has expertise in both corporate accounting and Thai tax law to provide advice on Thai tax matters and to handle tax audits. It is very difficult to provide sufficient support for Thai taxation in a firm where there is a Japanese chartered accountant but no full-time lawyer with expertise in taxation, or where there is a lawyer but doesn't work with an accounting firm or know-how in corporate accounting.

Tax affairs are an area of daily relevance to companies expanding their business into Thailand and they require support. The Revenue Department of Thailand, which has jurisdiction over tax matters, has tremendous authority over tax audits of companies and tax audits are expected to become more stringent, including with the introduction of transfer pricing taxation in 2019.

Tax non-compliance, if detected through tax audits, risks the imposition of significant additional taxes. At the same time, it can be a major factor in prolonged tax refund claims and reduced refund amounts. It is therefore crucial to have tax support on a daily basis to avoid incorrect tax treatments.

Tax and accounting affairs in Thailand

Tax and accounting affairs in Thailand Tax and accounting affairs in Thailand

Companies operating in Thailand must comply with the following accounting and taxation affairs. Accounting must be performed by certain deadlines throughout the year, in accordance with the Thai Companies Act-related regulations, Accounting Act-related regulations and tax laws. In addition, there are monthly and annual tax declarations.

Monthly tax affairs

Monthly tax affairs

Withholding tax

Withholding tax must be paid within seven days from the end of the month in which the transactions subject to withholding tax are paid. Unlike Japanese tax law, the transactions subject to withholding tax include a wide range of transactions such as salaries, royalty payments, contract payments, dividends and interest. This applies not only to payments to individuals but also to payments to companies. Withholding tax obligations are also often imposed on payments made outside Thailand. The rate of withholding tax varies depending on the item of payment, so it is necessary to check with an expert to determine which item each payment made by the company falls under and what rate of tax is applicable.

Value Added Tax (VAT)

This is a tax similar to the consumption tax in Japan. It is collected by the seller or service provider from the payer at a rate of 7% on the price of goods and service fees in Thailand, and the seller or service provider is obliged to declare and pay VAT by the 15th day of the following month in which the goods were sold or the service fee was received. In addition, if a foreign business conducts a VAT-taxable transaction without registering for VAT in Thailand, the importer or payer is obliged to declare and pay VAT on their behalf. In this case, the VAT must be declared and paid by the seventh day of the following month of payment of the service charge. VAT has detailed and complex conditions regarding when VAT is due, what VAT-taxable transactions are and the conditions for the purchase tax that can be deducted or claimed back when filing the monthly VAT return, so assistance from an expert is essential.

Specific Business Tax (SBT)

This tax is levied on income related to financial and real estate businesses, such as the receipt of interest on loans. The tax rate varies depending on the business. As a general rule, SBT must be declared and paid by the 15th of the following month in which the income is generated.

Annual accounting and taxation affairs

previous term

latter period

latter period

*For foreign corporations such as PEs and representative offices, the deadline for submitting financial statements to the DBD is within five months of the closing date of the headquarters.

Accounting bookkeeping and accounts

Accounting bookkeeping must be recorded on a daily rather than an annual basis. The company must then settle its accounts once a year, with the settlement date set as any date within 12 months of the date of establishment or any other date within 12 months. The bookkeeping and closing of accounts must be carried out in accordance with the Thai Accounting Act and under the responsibility of a person who has previously been registered as the company's bookkeeper, such as by a university graduate of the Faculty of Accountancy. All companies established in Thailand, as well as all businesses in the country, are obliged to prepare accounting books and keep them in their offices for a certain period of time, as required by law, through accounting bookkeeping.

(b) Corporations established under foreign laws operating in Thailand (PE, representative office, etc.) Date of commencement of business in Thailand (c) Joint venture entities as defined in the Revenue Code ibid

Entity responsible for preparing accounting books
(a) All corporations established under Thai law
(b) Corporations established under foreign laws operating in Thailand (PE, representative office, etc.)
(c) Joint venture entities as defined in the Revenue Code ibid
Date of commencement
Date of registration of establishment
Date of commencement of business in Thailand
Same as above

Statutory accounting audits in Thailand

① Financial statement audit

All corporations operating business in Thailand are required to have their financial statements prepared by the settlement of accounts audited by a chartered accountant (*1). In the case of joint stock companies, the audited financial statements must be approved by the general meeting of shareholders within four months of the closing date (*2).

*1: Accounting audits are the exclusive responsibility of Thai chartered accountants. *2: Corporations other than joint stock companies, foreign corporations and joint venture entities operating in Thailand, including PEs and representative offices, are also required to prepare financial statements and have them audited by a chartered accountant. However, approval by a general meeting of shareholders is not required.

② Audited financial statements required under the Revenue Code.

They are submitted together with the declaration of corporate income tax (PND 50) within 150 days of the end of the financial year. On an optional basis, provisional financial statements and interim reviews for interim declarations as permitted by the Revenue Code may also be conducted.

Annual general meeting of shareholders (only in the case of joint-stock companies)

① Deadline for holding an annual general meeting.

An annual general meeting must be held within four months of the end of the financial year to approve the audited financial statements.

② Notice of holding the meeting

Shareholders must be notified of the meeting seven days prior to the date of the meeting by certified mail or by hand delivery at the same time as it is published in a local newspaper.

③ Statutory resolutions

The following matters must be resolved at the annual general meeting of shareholders by law.

Approval of audited financial statements (Article 1197 of the Civil and Commercial Code) Business report (Article 1198 of the Civil and Commercial Code) Replacement of one-third or more of the directors (Articles 1152 and 1153 of the Civil and Commercial Code) Appointment of auditors for the next financial year and determination of their remuneration (Articles 1209 and 1210 of the Civil and Commercial Code)

Submission of approved audited financial statements to the Department of Accounts of the Ministry of Commerce

Joint stock companies are obliged to submit audited financial statements to the Department of Accounts of the Ministry of Commerce within one month of the date of the annual general meeting or within five months of the end of the financial year. Failure to do so will result in a fine from the Ministry of Commerce.

*Foreign corporations such as PEs and representative offices, corporations other than joint stock companies, or joint venture entities are obliged to submit financial statements to the DBD within five months of the closing date of the headquarters.

Corporate income tax returns

① Interim declaration (PND 51)

Within two months of the last day of the first half, the company is obliged to declare and pay CIT on one half of the estimated profit at the end of the financial year as a calculation.

② Declaration at the end of the financial year (PND50)

Within 150 days of the end of the financial year, CIT must be calculated and declared on the net profit together with the audited financial statements.

Tax differences between Thailand and Japan

national tax national tax local tax local tax

Thailand has a similar tax system to Japan. Corporate income tax, VAT (the same as Japan's consumption tax), customs duties, stamp duty, excise duty (now abolished in Japan), liquor tax and land and building tax (equivalent to Japan's property tax) are familiar tax items for businesses in Japan. However, the tax invoice system is strictly applied for VAT and monthly tax returns are mandatory, while there is also a specific business tax (SBT), which is imposed only on specific transactions such as the receipt of interest, and a signboard tax on signboards. There is no corporate business tax.

Thai tax laws and systems

Revenue Code
It regulates the basic national taxes in Thailand, namely personal income tax, corporate income tax, VAT (value-added tax,) SBT (specific business tax) and stamp duty. It also provides for taxation methods, declaration and payment methods, tax audits, additional and overdue taxes and other penalties. In addition to the Revenue Code, there is also Customs Act, Land and Building Tax Act, Inheritance Tax Act, Signboard Tax Act. For international transactions, there is a tax treaty that Thailand has concluded.
Royal Decree
It is enacted by decision of the Cabinet on matters delegated to the Cabinet by the Revenue Code, without deliberation and approval by Parliament. Most decisions are related to tax exemptions.
Ministerial Decrees
It is enacted by decision of the Minister of Finance in respect of matters delegated to the Minister of Finance by the Revenue Code.
Rules of the Director General of the Revenue Department Department of Revenue Regulations
Decisions are made and enacted by the Director General of Revenue in respect of matters delegated to the Director General of Revenue or the Revenue Department by Revenue Code, Royal Decree or Ministerial Order.
Revenue Directorate Circulars
Circulars are not laws, but rather operational and interpretations issued by the Revenue Directorate. When there are differences in interpretation in practice, such as during a tax audit, these can often be resolved if the matter is dealt with in accordance with the Circulars. However, as it is only a summary of the Revenue Department's interpretation, it is not legally binding. If there are objections, they can be challenged in court. Unlike Japan, the Royal Decree, Ministerial Decree, Directorate General of Revenue Regulations, Revenue Department Regulations and Revenue Department Circulars under the Revenue Code, which is law, are not systematically and exhaustively enacted at the time of enactment of the law. They are enacted and amended individually as required. It is therefore necessary to ask experts on a daily basis for updates on these enactments and amendments. This also makes the Thai tax system difficult for taxpayers to understand, as many aspects of the Revenue Department's policies and interpretations regarding tax treatment are unclear.

Taxation in Thailand

Thailand's tax laws are the same as Japan in terms of the main tax categories. However, taxation in Japan is based on the declaration and payment system, whereas taxation in Thailand is based on the levy system. As a result, the Revenue Department has significant authority over how tax audits are conducted and the final decision to levy tax (similar to the rehabilitation process in Japan). In addition, the additional tax is in principle 100% and the delinquency tax is 1.5% per month, which is a large amount compared to Japan. Tax audits tend to be strictly enforced, and if additional tax is levied, the additional tax and late payment tax may result in a situation where a large amount of money has to be paid to the Revenue Department at a later date. Therefore, it is necessary to take measures to deal with taxation, taking tax audits into account.

Now, in this section, the main types of taxation, ① corporate income tax, ② personal income tax and ③VAT, will be explained.

Corporate income tax

Corporate tax is a type of income tax, officially known as corporate income tax. As in Japan, it is levied on the final net profit of a corporation for each financial year. The tax rate is currently 20%. For small and medium-sized companies (with capital of less than THB 5 million and income of THB 300,000 or less), a reduced tax rate is applied depending on the amount of net profit (THB 300,000 or less: tax free; over THB 300,000 but less than THB 1 million: 15%; over THB 1 million: 20%). One of the unique features of Thai tax law compared to Japan is that withholding tax is levied on a wide range of corporate income. Withholding tax is levied by the payer on advertising fees, sales promotion expenses, service fees (e.g. contract fees) and domestic transportation costs at a predetermined tax rate depending on the income. For example, withholding tax of 3% is levied on contracting fees and 1% on domestic transport fees apply. Therefore, companies with a large net profit or loss carry-forwards often need to claim a refund of withholding tax when filing their corporate tax return.

Personal income tax

As in Japan, Thailand's personal income tax is subject to an “excess progressive tax rate”, which rises in stages according to the stage of income.

Below THB 150,000 of taxable income
5% of taxable income, but currently exempt from taxation
Over THB 150,000 and below THB 300,000 of taxable income
5%
Over THB 300,000 but less than THB 500,000 of taxable income
10%
Taxable income exceeding THB 500,000 but not exceeding THB 750,000
15%
Taxable income exceeding THB 750,000 but not exceeding THB 1 million
20%
Taxable income exceeding THB 1 million but not exceeding THB 2 million
25%
Over THB 2 million and up to THB 5 million of taxable income
30%
Taxable income exceeding THB 5 million
35%

Companies are required to declare and pay withholding tax on monthly salaries by the 7th of the following month as part of their monthly duties. In addition, there are various income tax credits, such as basic tax credits, personal tax credits and spousal tax credits. However, unlike in Japan, all taxpayers are obliged to file a final tax return by March of the following year. It does not end with a year-end adjustment like Japan. If an expatriate employee receives a salary from the Japanese parent company in addition to the salary paid by the Thai subsidiary, it is not uncommon for him or her to declare and pay additional income tax on the combined Japanese salary when filing his or her tax return.

VAT (value-added tax)

VAT stands for Value Added Tax and is equivalent to the Japanese consumption tax. At present, a tax rate of 7% is levied on the cost of goods and services. Thai VAT has been based on the tax invoice system since its introduction, rather than the book-entry system. Under the tax invoice system, VAT taxable businesses such as sellers and service providers are required to issue a tax invoice for all VAT taxable transactions, which is used to calculate the amount of VAT to be paid.

The obligation to declare and pay Thai VAT is one of the company's monthly tax reporting requirements, together with withholding tax, as the company must declare and pay the VAT incurred on transactions in the previous month in the following month. The legality of tax invoices is strictly regulated by law. Businesses that issue tax invoices in breach of the legal conditions are subject to additional tax and criminal penalties. In addition, VAT returns calculated on the basis of illegal tax invoices are often underreported, resulting in the risk of additional taxes such as large additional taxes and late payment taxes. The Thai VAT system also presents other complex issues. In addition to the legality of tax invoices mentioned above, it is essential to consult a lawyer who is familiar with tax affairs on a regular basis.

Accounting affairs in Thailand

The Accounting Act requires all corporations operating business in Thailand to prepare and submit financial statements to the Ministry of Commerce and to keep accounting books, including a general ledger (G/L). In addition, unlike in Japan, a qualified accounting officer, such as a Thai accounting graduate, must be appointed as the person responsible for keeping the accounting books. If such a qualified person is not available in the company, an external accounting firm is often asked to act as a bookkeeper.

In addition, all corporations operating business in Thailand are required to have their accounts audited by a Thai chartered accountant in respect of the financial statements prepared at the end of each financial year. The audited financial statements are then required to be submitted to the Ministry of Commerce by a certain deadline and must also be attached to the company's corporate tax return. If the Japanese parent company is a listed company or similar, an internal audit of the Thai subsidiary's internal controls and compliance with laws and regulations may be requested as part of the Japanese parent company's accounting audit. In such cases, it may be necessary to conduct an internal audit of the Thai subsidiary in collaboration with external lawyers.

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