Tax on Corporate Income in Thailand

Thailand has attracted significant foreign investment due to its relatively inexpensive labor force and abundance of natural resources. When starting a business in Thailand, it is important to ensure compliance with all relevant local rules and regulations. One of the most important factors to consider is the tax obligations of your organization. Here we will discuss questions surrounding the Thai corporate income tax system.

TAXABLE SUBJECTS
The following entities are liable to pay corporate income tax or CIT:

1. A company or juristic partnership incorporated or registered in accordance with Thai law which is any of the following:

• limited liabilty company
• public limited company
• limited liability partnership
• registered ordinary partnership

2. A firm or partnership registered under foreign law that conducts business in Thailand or has a revenue source in Thailand.

3. A joint venture which is an entity that operates profitably amongst business entities, such as a company partnering with another company on a construction project or a limited liability partnership. Normally, a joint venture is not a legal entity, but for tax purposes, the Revenue Code expressly classifies it as such.

4. A foundation or group that operates a revenue-generating company (excluding a public charitable foundation or association)

TAX BASES
With respect to corporations and legal partnerships organized under Thai law, CIT is imposed on net profits. During an accounting period, net profits are determined by deducting income from business operations and expenses. A typical accounting period is twelve months. To calculate the income and expenses, an accrual basis is applied, which means that any income derived during the accounting period, even if it has not yet been received, is included as income, and any expenses, even if they have not yet been paid, are included as expenses. In contrast, foundations and associations pay CIT based on their gross income rather than their net profits (any income received before deducting expenses).

EXEMPTIONS
Here are some examples of CIT exemptions:

•  Small and medium enterprises (SMEs) - SMEs are exempt from CIT levied on net profits of not more than THB 300,000, provided that the SME has paid-up capital of not more than THB 5,000,000 and income derived from sales of goods and services of not more than THB 30 million in an accounting period

• BOI promoted companies - to encourage the importation of innovation and know-how, Thailand offers numerous benefits as incentives to attract investment from foreign enterprises. Companies in promoted industries, such as computer software and electric vehicles, are exempt from CIT for up to eight years

• Membership fees, donations, and gifts given to a foundation or an association are not included in its taxable income

• Other – CIT exemptions are also included in Royal Decrees. Royal Decree No.284, for instance, exempts net revenues from CIT when operating a private school

DEDUCTIONS
To determine net profits and losses, one must subtract expenses from taxable revenue. The following are examples of deductibility under the Revenue Code:

• Asset depreciation — because assets depreciate over time, depreciation is a tax-deductible expense. For example, a durable building has a depreciation rate of 5% and is deductible in proportion to the period from the acquisition

• Donations to political parties are deductible in an amount not to exceed THB 50,000

• Expenses for public charity, educational, or sports purposes are deductible in an amount not to exceed 2% of net profit

• Expenses paid in the course of making profits or operating the business (for instance, if a company has to rent a building from a third party to operate its business, the rent paid is a deductible expense)

• Reasonable costs of acquiring assets

Deductible expenses under Royal Decrees include:

• Expenses paid for the acquisition of computer software produced in Thailand (Royal Decree No.725/2021)

• Expenses paid for research and development (Royal Decree No.598/2016)

• Expenses paid for employee training or education (Royal Decree No.437/2005)

It is important to remember that certain expenses, such as those incurred for investing, are not tax deductible. For example, if a real estate business builds a commercial building to rent to tenants, the construction costs are not deductible because they were incurred for investment purposes. Monetary penalties such as fines or surcharges are also non-deductible.

TAX RATES
The progressive tax rate for a SME with paid-up capital not exceeding 5,000,000 and income not exceeding THB 30,000,000 is depicted below.

For a typical corporation or legal partnership, however, the CIT rate is 20% of net income. Obviously, firms running at a loss are exempt from CIT.

The CIT rate for foundations and associations (that are not public charities) is 10% of their gross income.

FILING TAX RETURNS & PAYMENT
A corporation or legal partnership incorporated or registered in accordance with Thai law is required to file a tax return within two months of the end of a six-month accounting period. This tax will be credited against tax due at the conclusion of the accounting period. The aforementioned corporation or legal partnership is obligated to file a tax return within 150 days of the end of the yearly accounting period (12-months).

Please feel free to contact us for advice on, or assistance with, any issues relating to the calculation or payment of corporate income tax in Thailand.