LATEST TAX ISSUES AND PRACTICAL ASPECTS FOR SUCCESSFUL INVESTMENT

Transcription

1 LATEST TAX ISSUES AND PRACTICAL ASPECTS FOR SUCCESSFUL INVESTMENT Mr. Picharn Sukparangsee Bangkok Global Law Offices Limited At the Conference on INVESTMENT STRATEGY & TAX ASPECTS & LEGAL in THAILAND & AEC 2018 on 29 November 2017

2 Investment and Tax in Thailand 1

3 Investment - Direct investment - Portfolio investment 2

4 Direct investment may deal with, among other things, tax on net profits, dividend and interest. Portfolio investment may relate to tax on dividend, Interest and capital gain. 3

5 - Equity financing - Debt financing - Quasi-equity financing - Derivatives 4

6 Thailand has.. - Investment promotion Act - National Competitiveness Act - The Revenue Code 5

7 Investment promotion Act 6

8 East Economic Corridor (EEC) Tax benefits to be granted from the BOI to a company operating in the EEC 1. Corporate income tax exemption for 10 years for investment in the aviation promotion zone, and the Innovation or Digital Park Thailand in the EEC; 2. Reduction of 50 % of corporation income tax for 5 years after expiry of the period of the tax exemption for investment in the aviation promotion zone, and the Innovation or Digital Park Thailand in the EEC; 7

9 3. Investment in any of 10 targeted industries in the EEC is eligible for an exemption from corporate income tax for 8 years; 4. Investment in any of 10 targeted industries in the EEC is eligible for reduction of 50 % of corporation income tax for 5 years after expiry of the period of the tax exemption; 5. Investment in any general project in any industrial estate in the EEC is eligible for corporate income tax exemption for 8 years and reduction of 50 % of corporation income tax for 3 years after expiry of the period of the tax exemption; and/or 8

10 The privilege packages of the BOI will be effective from 1 January 2018 to 30 December National Competitiveness Act Exemption of corporation income tax can be extended for up to 15 years for any of qualified targeted industries. 9

11 Bill on Transfer Pricing 10

12 The Revenue Department of Thailand opened an online public hearing in relation to a revised draft of a Bill on Transfer Pricing. The purpose of the revised draft of the Bill is to amend the Revenue Code to prevent tax avoidance from transfer pricing transactions between related parties, and to have provisions on how to determine a market price in order to be in compliance with international standards. 11

13 Key features of the draft of the Bill on transfer pricing are set forth below: 1. A tax official will be empowered to adjust an assessable income and deductions of a taxpayer that entered into a transaction with its related entity under different conditions from those in normal transaction between independent parties; 2. The phrase at least 50% direct and indirect capital shareholdings will be added into the definition of Related Business Entity or Related Juristic Partnership ; 12

14 3. An entity with related party transactions which has income exceeding the threshold will be required to submit a report outlining the nature/relationship and quantum of related party transactions within the annual tax return filing deadline and submit the transfer pricing documentation within 60 days or the extended period of 120 days upon the receipt of notice from the tax authority; 4. An entity may request a tax refund within three years from the tax return submission date or within 60 days after the receipt of an adjustment notice from a tax officer; and 5. An entity that fails to comply with Section 71 ter of the Revenue Code or submits incomplete or incorrect documentation without reasonable explanation may be subject to a fine of not exceeding Baht 200,

15 Revenue Code Tax principles of Thailand 14

16 Thailand applies a worldwide taxation which is different from a territorial taxation. Residence of a company - Place of incorporation; - Place of central control and management; and/or - Place of the head office 15

17 A company in Thailand must pay taxes at two levels : - Corporate income tax on net profits of the company; and - Personal income tax or corporate income tax on dividends paid to an individual shareholder and a corporate shareholder Corporate income tax is permanently fixed at 20% of net profits of a company or a partnership. 16

18 Corporate structure - multi levels of companies - holding companies and an operating company Tax matters - Dividend - Interest - Sale of goods - Provisions of services - Royalties - Capital gain 17

19 Dividends Dividend paid by one Thai company to a foreign company is normally charged with 10% withholding tax. 10% withholding tax on dividend received by a foreign company from a Thai company may be reduced to 5% withholding tax under a DTA. 18

20 Dividends 0% withholding tax on the following: - Dividends received in Thailand by a Thai listed company or a Thai company holding at least 25% of the total shares of an affiliated Thai company provided that conditions are met. - Foreign dividend paid from a foreign company to a Thai company If the Thai company holds at least 25% of the total shares of a foreign company on completion of conditions. 19

21 Interest WT on interest: 1% WT on interest paid from another Thai company one Thai company to 15% WT on interest paid from one Thai company to a foreign company in general. However, 15% WT on interest is reduced to 10% WT of interest if Interest is paid from a Thai company to a foreign financial institution. 20

22 Interest 15% WT on interest may be reduced to 0% if the interest is beneficially owned by a resident of the other contracting state and is paid with respect to indebtedness arising as a consequence of a sale on credit of any equipment, merchandise or service except where the sale was between persons not dealing with each other at arm s length. 21

23 What are financial institutions? Is a bond discount regarded as capital gain or interest? Interest or service fee: - Front-end fee - Management fee - Underwriting fee - Standby fee 22

24 Debt to equity ratio tax law of Thailand has no provisions on debt to equity ratio. however, debt to equity ratio may exist in an investment certificate of the BOI or a foreign business license. 23

25 Limitation on interest - A lot of countries impose limitation on interest. - However, tax law of Thailand does not impose limitation on interest. 24

26 Sale of goods - Sale of goods in Thailand is generally exempt from WT but export of some goods from Thailand is subject to WT. - Sale of goods from a Thai company to a foreign company is exempted from WT unless the foreign company has its PE in Thailand. 25

27 Payment for goods or payment of interest Payments of three installments were made at 35%, 35% and 35% each for the price of goods of 100 %. Is 5% exceeding 100% regarded as payments for goods or payment of interest? 26

28 Service - Service fee in Thailand is subject to 3% WT - Service fee paid from a Thai company to a foreign company is subject to 15% withholding tax unless the foreign company is incorporated in a foreign country with a DTA with Thailand and does not have a PE in Thailand, the service fee is exempted from Thai tax. 27

29 Royalty Royalty in Thailand paid by one Thai company to another Thai company is subject to 3%WT Royalty paid by a Thai company to a foreign company is subject to 15 %WT but 15% WT may be reduced to: - 5 % WT for payment for use of software; - 8 % WT for payment for use of industrial, commercial or scientific equipment; or - 15% for payment for use of trade mark, patent and knowhow 28

30 Royalty or service fee: - Payment for use of software - Payment for software training 29

31 Issues Details of provisions of any relevant DTA between Thailand and its counterparty must be reviewed to determine whether payment for lease of machinery and equipment may be business profit or royalty. Payment under a Technical Assistant Agreement may be regarded as business profit or royalty which depends upon provisions of the technical Assistant Agreement 30

32 Capital gains Capital gains on sale of shares - Capital gains on sale of shares from a Thai company to a foreign company are subject to withholding tax in Thailand unless withholding tax is exempted under provisions of any double taxation agreement. 31

33 Capital gains on sale of shares - Under one DTA, capital gain on a sale of shares is exempted from WT - Under another DTA, capital gain on a sale of shares is still subject to WT Tax planning for capital gains on shares should be properly and carefully prepared. 32

34 Capital gains on sale of real estate: - Capital gains on sale of real estate are subject to withholding tax of a country where the real estate is located 33

35 VAT 10% standard rate of VAT has been long reduced to 7% on payment for goods, for services, for importation of goods and/or importation of services from 1992 to 30 September 2018 and 10% VAT will be applicable unless the reduction will be further extended after 30 September

36 VAT Questions: - What are services rendered in Thailand and used in a foreign country? - What are services rendered in Thailand but are not used in a foreign country? 35

37 DTA Beneficial ownership is not enacted in the Revenue Code of Thailand but is inserted in some of DTAs between Thailand and its counterparties. At present, Thailand has a double taxation agreement with 60 jurisdictions. DTA between Singapore and Thailand is effective from 1 January

38 Permanent Establishment (PE) PE under a DTA between Thailand and its counterparty may cover: - a building site, a construction, assembly and installation project for a period or periods aggregating more than 120 days within any 12-month period; or - furnishing of services including consultancy services by an enterprise through employees if the activities continue for a period or periods aggregating more than 90 days within any 12-month period 37

39 As of the date of this material, Thailand does not have: - Thin capitalization rules - Controlled foreign companies rules - GAAR - SAAR Thailand is a member of the Global Forum on BEPS Action Plans. Thailand is in the process of studying 15 BEPS Action Plans. Thailand does not adopt multilateral instruments on BEPS. 38

40 Chart 1: Chart on group of companies Co E Co D1 Co D2 Co C1 Co C2 Co C3 100 % 100% 100% Co B1 Co B2 Co B3 100% 100% 100% Co A 39

41 Chart 2: Chart on Multi-levels of company Co 5 Country Country 5 Co 4 C Country 4 Co 3 Country 3 Co 2 Country 2 Country 1 Thai Co as Co 1 Country 1 40

42 C o m p a n y 2 Chart 3: Chart on Companies and dividend fees and royalties Company 2 Dividend Company 3 Company 1 Company 4 Fee Royalties 41

43 Chart 4: Chart on Company, sale, service, royalty, dividend, interest, capital gain Pays for goods Co 1 Payment for services Co 2 Payment of royalty Co 3 Payment of dividend Co 4 Payment of interest Co 5 Payment of capital gain Co 6 42

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