July 2005 Thailand Tax Update

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Quick legislative update.

In July the Government
announced significant tax measures to stimulate the
economy?

Grant Thornton TaxNews is intended to keep our clients up to date with significant tax developments. The information is general in nature and is
not be taken as a substitute for specific advices. Any reader intending to base a decision on information contained in this publication is advised to
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Significant rulings by the Revenue Department Q & A
Significant rulings by the Revenue Department Q & A
Quick legislative update. In July the Government
announced significant tax measures to stimulate the
economy?

Significant rulings by the Revenue Department Q & A
Employees receiving income not exceeding 7,000 Baht
Example 1:
Employee's income
Extra pay allowance
Total
5,000
2,000
7,000

Deductible expense arising from the allowance is 3,000
Baht (2000*150%). Total deductible expense on the salary
is 8,000 Baht.
Example 2:
Employee's income
Extra pay allowance
Total
5,000
3,000
8,000
In this case, 2,000 Baht of extra pay allowance can be
claimed at 150% or 3,000 Baht. The remaining 1,000 of
the allowance is deductible at actual cost which is 1,000
Baht. Total deductible expense on the salary is 9,000 Baht.
Employees receiving income between 7,000 and 10,000 Baht
Example 1:
Employee's income
Extra pay allowance
Total
8,000
2,000
10,000

Total deductible expense on the salary is 11,000 Baht.
Example 2:
Employee's income
Extra pay allowance
Total
9,500
1,000
10,500
In this case, only 500 Baht can be deductible at 150%
because extra pay allowance plus salary should not exceed
10,000 Baht. Total deductible expense on the salary is
10,750 Baht.

To encourage investment in human
capital, deductions of 200% (increased
from 150%) of actual costs will be allowed
for expenses incurred for in house
training and costs for sending employees
for external training.
The old rule requiring a trainee to
be employed by the company for at least 6
months before training costs could be
claimed has been relaxed. Under the
revised rules, training costs for new
employees are now covered.
To encourage companies to pay
extra allowances to low income
employees, the government will allow
taxpayers to deduct 150% of expenses on
extra allowance paid to employees
receiving a monthly income not exceeding
10,000 Baht. There are two income
brackets; for employees receiving income
not exceeding 7,000 Baht and for
employees receiving income between
7,000 to 10,000 Baht.

Tax on factoring business
The Bank of Thailand allows commercial
banks to engage in factoring receivables
with or without recourse. A, a commercial
bank requested ruling on the following:
Q:Are both types of factoring (with and
without recourse) covered by Royal Decree
No. 358 which provides that a factoring
business is subject to specific business tax?
Q:In the case of factoring without recourse,
the bank can charge collection fee for delays
in payment of debt. Is the collection fee
subject to specific business tax or withholding
tax?
A:Both types of factoring (with and without
recourse) are classified as factoring business
subject to Royal Decree No. 358.
A:Collection Fee is not considered as income
subject to specific business tax. It is not
subject to withholding tax.

TaxNews August/September 2005 2

Personal Income Tax
Allowance on Investment in RMF and LTF
Q: Mr A purchased investment units in a
retirement mutual fund (RMF) and long term
equity fund (LTF). Is he entitled to claim on
the total amount of 600,000 Baht (300,000 for
RMF and 300,000 for LTF) in his half year
income tax return?
A: Under Royal Decree 126 No. 2(55) and D-
G Instruction No. 90 and 132, he is allowed to
claim for investments in RMF under the
following conditions:
 the allowance claimed should not
exceed 15% of assessable income;
and
 when combined with pension
investments should not exceed
300,000 Baht.

Royal Decree 126 No. 2(66) and D-G
Instruction No. 133 allow him to deduct
personal allowances for investments in LTF up
to 15% of assessable income, with a maximum
of 300,000 Baht:
 amounts paid or purchase of
investment units in RMF and LTF
between Jan-Jun shall be included
and are deductible for the purpose
of his half year income tax return
(PND90)
 he is entitled to claim personal
allowances for investments in RMF
and LTF up to 600,000 Baht

Value Added Tax on imported goods

A US company (A), entered into a contract
of sale of goods and equipment. to a client
in Thailand. Under the contract, they must
provide a warranty to their client. As they
do not have a branch, office or agent in
Thailand they have signed a contract with a
Thai company (B), to provide services to
their client. The Thai company will provide
technical assistance, field services,
installations and implementation services,
repair and maintenance and inspection
services. B will also process customs
clearance for import and export of goods.
During the warranty period any
replacement products required by company
A's client will be delivered to company B to
pass on to the client. For customs purposes
B will be the registered importer and this
will be reflected in the bill of landing and
customs duty receipt.

Q: Is B entitled to claim input VAT on the
importation of goods under these
circumstances? Should B collect the VAT
on importation from company
A's client?
A: B is entitled to claim input VAT on the
importation of goods under Section 77/1
8(a) of the Revenue Code.
Since the services provided by B to
A's client do not arise out of a contract
with the client, B can not collect VAT on
services rendered to the client. But they can
claim VAT on services provided to A
under Section 82/4 of the Revenue Code.

VAT and specific business tax on
credit cards and personal loans
Credit card businesses charge the following
fees to clients:
 cash advance fee a percentage of
the amount of cash withdrawn,
includes 100Baht ATM fee
 transaction fee of 10-15 Baht
charged on each payment from the
holder to the credit card company
 reprinting fee of 100 Baht for
additional statement copies
 transaction examination fee of 50
Baht for verification
 management fee of 15/20 Baht per
month for printing, postage etc
 collection fee of 15-50 Baht per
month
 litigation fee of 20% where the
company needs to outsource debt
collection

Personal loan businesses charge the following
fees to clients:
 transaction fee each time the
borrower pays the principle of the
loan and interest at a payment centre
or bank
 collection fee of 80 Baht per
month
 litigation fee in cases where the
company needs to outsource
debt collection
Q: Which fees are subject to VAT and
specific business tax?

A: Fees collected on credit cards are
covered by Royal Decree No.246 and are
subject to VAT under section 91/4(2).
Fees collected on personal loans are
subject to specific business tax under
section 91/2(5) and 91/5(5).

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