Update new tax laws and regulations

17 th Annual Conference Maximise Shareholder Value 2016 www.pwc.com/th Update new tax laws and regulations

Agenda Part I 1. Tax rate update SME, VAT 2. Tax incentives 2.1. IHQ 2.2. ITC 2.3. Special Economic Development Zones 3. Deductions for domestic travelling/accommodation 4. Additional reasonable excuse for under-estimation of half year tax 5. VAT 5.1. E-book - Exempt from VAT 5.2. The position of director Not treated as provision of service 5.3. Discount for re-insurance premiums Not included in VAT base 2

Agenda (Cont d) 6. Stamp duty 7. Personal income tax 7.1. LTF/ RMF 7.2. Qualified pension life insurance premiums 7.3. Measuring duration of employment 7.4. Ordinary partnership/ Non-juristic body of persons 8. Inheritance tax / Gift tax 9. Other matters Part II Draft Act to amend the Revenue Code/ Draft regulations 3

PART I 4

1 Tax rate update 1.1. SME corporate tax rate (Royal Decrees Nos. 583 and 564) Purpose: To relieve the tax burden and increase financial liquidity of SMEs as well as to increase their ability to compete in the country and attract investment For accounting periods beginning on or after 1 January 2015: Net profit (THB) CIT rates (%) 0 300,000 Nil 300,001 3,000,000 15% Over 3,000,000 20% To be eligible for the reduced rates of tax, the SME must meet the following criteria: 1.Paid-up capital on the last day of any accounting period must not exceed THB 5 million, and 2. Income from the sale of goods and provision of services must not exceed THB 30 million in any accounting period. 5

1. Tax rate update 1.2. 7% VAT rate extension (Royal Decree No. 592) Purpose: To stimulate the economy by giving the people purchasing power and thus enable a continuous and stable expansion of economic growth. The 7% VAT rate will continue to apply for one more year from 1 October 2015 until 30 September 2016. 6

2. Tax incentives 2.1. International Headquarters (IHQ) (Royal Decree No. 586, Notification of the DG dated 29 May 2015) Purpose: To grant tax incentives to attract foreign firms to establish IHQ in Thailand IHQ: A company incorporated under the law of Thailand for the purpose of providing managerial, technical or supporting services or financial management to its associated enterprises or branches in Thailand and/or abroad. This includes carrying on business as an international trading company. Effective: 2 May 2015 7

2. Tax incentives 2.1. International Headquarters (IHQ) (Royal Decree No. 586, Notification of the DG dated 29 May 2015) (Cont d) Activities of IHQ compared with ROH Treasury centre International trading centre Procurement of raw materials and parts Technical assistance Research and development Marketing and sales promotion Financial advisory services Human resource management and training General administration, business planning and co-ordination Credit management and control Analysing and researching economy and investment Other services as prescribed by the DG of the RD IHQ ROH 1 & 2 x x Same Same Same Same Same Same Same Same Same Same 8

2. Tax incentives 2.1. International Headquarters (IHQ) (Royal Decree No. 586, Notification of the DG dated 29 May 2015) (Cont d) Criteria of IHQ compared with ROH IHQ ROH 1 ROH 2 > THB 10M paid-up capital Same Same > THB 15M business spending per year x > THB 15M business spending per year or > THB 30M investment spending per year Qualified services provided to foreign qualified affiliates (number not specified) Qualified services provided to qualified affiliates in > 3 countries other than Thailand in the first year Income from services provided to, or royalties received from, overseas affiliates - at least 50% of total income of ROH Co (reduced to 1/3 of the first three years) Qualified services provided to qualified affiliates in > 1 country in 1 st and 2 nd accounting period, > 2 countries in 3 rd and 4 th accounting period, > 3 countries from the 5 th accounting period onwards 10

2. Tax incentives 2.1. International Headquarters (IHQ) (Royal Decree No. 586, Notification of the DG dated 29 May 2015) (Cont d) Criteria of IHQ compared with ROH IHQ ROH 1 ROH 2 x X Maintain skilled staff of at least 75% of total employees by end of the 3 rd accounting period x X Average compensation of THB 2.5M per person per annum for at least 5 employees by the end of the 3 rd accounting period x x Foreign affiliate must have actual business operation 11

2. Tax incentives 2.1. International Headquarters (IHQ) (Royal Decree No. 586, Notification of the DG dated 29 May 2015) (Cont d) Tax privileges of IHQ compared with ROH IHQ* ROH 1 ROH 2 Tax rate Income from foreign sources 0% 10% (no limit) 0% (10 or 15 yrs) Income from domestic sources 10%** 10% (no limit) 10% (10 or 15 yrs) PIT on salary of foreign employees *Qualified IHQ will be granted tax privileges for 15 accounting periods. *Revocation of benefits - year to year 15%*** 15% (4 yrs) 15% (8 yrs) **Total income subject to 10% must not exceed the amount of total income from qualified services and royalties which are both exempt from tax. ***From the date IHQ becomes qualified until the date it is no longer qualified or the employment is terminated. 12

2. Tax incentives 2.2. International Trading Centre (ITC) (Royal Decree No. 587, Notification of the DG No. 253) Purpose: To grant tax incentives to attract foreign firms to establish ITC in Thailand ITC: A company incorporated under the law of Thailand engaged in the business of buying and selling goods, raw materials and parts as well as providing services relating to international trade to foreign juristic entities Effective: 2 May 2015 13

2. Tax incentives 2.2. International Trading Centre (ITC) (Royal Decree No. 587, Notification of the DG No. 253) (Cont d) Activities - ITC Out out transaction for buying and selling goods Activities of ITC Services re international trade Foreign juristic entities ITC Finished goods, raw materials, parts Deliver Thailan d Overseas Suppliers Procuring and sale of finished goods, raw materials and parts to foreign juristic entities (out-out transaction) Providing services relating to international trade: Procuring, maintaining, packaging, transporting, providing insurance, advice and training relating to goods 14

2. Tax incentives 2.2. International Trading Centre (ITC) (Royal Decree No. 587, Notification of the DG No. 253) (Cont d) Tax incentives and conditions - ITC Out out transaction for buying and selling goods Services re international trade Foreign juristic entities ITC Finished goods, raw materials, parts Deliver Thailand Overseas Suppliers Tax incentives Corporate tax exemption for 15 accounting periods Personal income tax rate of 15% for expatriate employees WHT exemption on dividends paid from qualified income to foreign corporate shareholders Conditions Paid-up capital of at least THB 10 million Operating expense of at least THB 15 million per accounting period 15

2. Tax incentives 2.3. Special Economic Development Zones (SEZ) (Royal Decree No. 591) Purpose: To grant tax incentives to investors in SEZ (Tak, Mukdahan, Sa Kaeo, Trat, Songkhla, Kanchanaburi, Chiang Rai, Nong Khai, Nakhon Phanom, Narathiwat) so as attract foreign direct investment, generate employment in local communities, improve living conditions through income distribution, improve border area security and enhance Thailand's competitiveness Effective: 10 September 2015 Entitlement: 10% reduced CIT rate granted to juristic entities for 10 years on income earned from manufacturing goods or services rendered and used in the SEZ, regardless of where their head office is situated If a juristic entity fails to comply with any conditions in any accounting period, the right to tax privileges will cease as from that accounting period. 16

2. Tax incentives 2.3. Special Economic Development Zones (SEZ) (Royal Decree No. 591) (Cont d) Procedures and conditions: Inform the RD for using this tax incentive by 2017 No use of CIT exemption, either wholly or partly, under the investment promotion law No use of CIT reduction as an SME juristic entity Separate accounts for activities in the SEZ subject to the tax privilege and not subject to the tax privilege Compliance with the terms and conditions under regulations to be issued 17

3. Deduction for domestic travel and accommodation (Royal Decree No. 580 and Notification of DG No. 251, Ministerial Regulation No. 305 and Notification of DG No. 250) Purpose: To promote domestic tourism and enhance the economy of the country Benefits Eligible period Corporate Double deduction for expenses paid for seminar rooms, accommodation, transportation and other expenses relating to domestic seminars/training or expenses paid to tour operators for seminars/training From 31 Dec 2014 to 31 Dec 2015 Individuals Deduction for domestic travel and hotel expenses actually paid up to a maximum of THB 15,000 From 16 Dec 2014 to 31 Dec 2015 18

4. Additional reasonable excuse for underestimation of half year tax (Instruction of the RD No. Paw 152/2558) Purpose: To repeal the previous Instruction (No. Paw 50/2537) and include its provision in the new instruction To include an additional reasonable excuse in the new instruction Effective: For juristic companies and partnerships that have accounting periods beginning on or after 1 January 2012 19

4. Additional reasonable excuse for underestimation of half year tax (Instruction of the RD No. Paw 152/2558) (Cont d) Reasonable excuse in the case where the estimated net profit for half year tax is lower than the actual net profit by more than 25% Existing reasonable excuse The amount of half-year tax paid was not less than one-half of the tax paid for the previous accounting period. Additional reasonable excuse The estimated net taxable profit for halfyear tax purposes is not less than the actual net taxable profit of the previous accounting period even though the amount of the half-year tax paid is less than one-half of the tax paid in the previous accounting period. The half-year tax paid that is lower than one-half of the tax paid for the previous accounting period must result from tax exemption or a reduction in the tax rate. 20

5. VAT 5.1. E-Book - Exempt from VAT (Royal Decree No. 585) With effect from 2 May 2015, electronic newspapers, magazines and textbook services delivered via the internet are exempt from VAT. 5.2. The position of director - Not treated as a provision of service (Notification of the DG No. 205) With effect from 5 February 2015, the position of director of a company is not considered to be a provision of service subject to VAT. 21

5. VAT 5.3. Discount for re-insurance premiums Not to be included in the VAT base (VAT Notification No. 207) Effective: 30 April 2015 Amendment: Reinsurance premium 100.00 Discount 10.00 Net amount 90.00 VAT 7% 6.30 Total 96.30 22

6. Stamp duty (SD) (Notification on Stamp Duty No. 54) Effective: 5 April 2015 SD Amendment: Type of Instrument Lease of land, buildings, other construction or floating rafts Hire of work agreement Value SD Amendment SD - Previous treatment > THB 1 million SD paid by cash SD affixed > THB 1 million SD paid by cash SD affixed 23

7. Personal income tax (PIT) 7.1. Amendment of conditions for contributions to LTF/RMF (Notification of the DG No. 257-259) Effective: 1 January 2015 Amendment for LTF: Type Old New Contribution to LTF qualifying for deduction in PIT computation 15% of assessable income received 15% of assessable income received which is subject to income tax 24

7. Personal income tax (PIT) 7.1. Amendment of conditions for contributions to LTF/RMF (Notification of the DG No. 257-259) (Cont d) Amendments for RMF: Type Old New Contribution to RMF qualifying for deduction in PIT computation Gain on sale of RMF which will be exempt from PIT 3% - 15% of assessable income received From portion not exceeding 15% of assessable income received with a maximum of THB 500,000 in each tax year 3% - 15% of assessable income received which is subject to income tax From portion not exceeding 15% of assessable income received which is subject to income tax with a maximum of THB 500,000 in each tax year 25

7. Personal income tax (PIT) 7.2. Amendment of conditions for qualified pension life insurance premiums (Notification of the DG No. 261) Effective: 1 January 2015 onwards Qualified pension life insurance premiums are allowed as a deduction in the PIT computation according to the following new conditions: Old Not exceeding 15% of total assessable income with a maximum of THB 200,000 New Not exceeding 15% of assessable income received which is subject to income tax in each tax year with a maximum of THB 200,000 26

7. Personal income tax (PIT) 7.3. Measuring duration of employment so as to qualify for the special tax calculation under Section 48(5) (Notification of the DG No. 252) Purpose: Law allows employees to plan for measuring the duration of their employment (5 years) so as to qualify for the special tax calculation under Section 48(5) for a provident fund when employees move to a new company. Effective: Assessable income received from 1 January 2015 onwards 27

7. Personal income tax (PIT) 7.4. Ordinary partnerships and non-juristic bodies of persons (Revenue Code Amendment Act No.39, Notification of DG No. 249, Instruction No. Paw 149/2558) Purpose: To reduce or eliminate the tax loopholes that existed in these kinds of tax entities Effective: 1 January 2015 Amendments: Natural persons who are partners of an ordinary partnership or members of a nonjuristic body of persons are no longer exempt from tax on the share of profit they receive from those entities An ordinary partnership or a non-juristic body of persons has to prepare a summary of its income and expenses to be filed together with the annual personal income tax returns The definition of non-juristic body of persons has also been added Exception granted for share of certain profits, i.e. deposit interest from joint bank account, rental from co-owned immovable property (according to the Cabinet resolution dated 6 October 2015) 28

8. Inheritance tax/ Gift tax 8.1. Inheritance tax (ITT) (Inheritance Tax Act B.E. 2558) Purpose: To make fairness to the country and to use the inheritance tax for the country s development and make the poor have better life Effective: 1 February 2016 Nature: The ITT will be levied when obtaining a legacy from a testator who has died and will be exempt from PIT under Section 42(10) of the Revenue Code. ITT does not apply to: 1. A legacy received from a testator who dies before the Act comes into force; and 2. A legacy received by the spouse of a testator. 29

8. Inheritance tax/ Gift tax 8.1. Inheritance tax (ITT) (Inheritance Tax Act B.E. 2558) (Cont d) Persons subject to ITT Individuals or juristic persons with Thai nationality and individuals without Thai nationality, but resident of Thailand according to the immigration law, will be taxed on a legacy situated either in or outside Thailand Other non-thai individuals and juristic persons will be taxed on a legacy situated in Thailand at the time of the death of the testator Property subject to ITT 1. Immovable propertye 2. Securities according to the Securities and Exchange law 3. Bank deposit accounts or other money which the testators have the right to call back or claim 4. Registered vehicles 5. Financial assets to be prescribed in Royal Decrees (not yet announced)2prescribed 30

8. Inheritance tax / Gift tax 8.1. Inheritance tax (ITT) (Inheritance Tax Act B.E. 2558) (Cont d) Threshold of legacy value subject to ITT Legacy exceeding THB 100 million Obtained from each testator together either once or on several occasions 31

8. Inheritance tax/ Gift tax 8.1. Inheritance tax (ITT) (Inheritance Tax Act B.E. 2558) (Cont d) Rate of ITT 5% Heirs who are ascendants or descendants 10% Other heirs 32

8. Inheritance tax / Gift tax 8.2. Gift tax (Revenue Code amendment Act (No. 40)) Purpose: Gifts exempt from PIT according to the Revenue Code are required to be amended so as to be in accordance with the inheritance tax law. Effective: 1 February 2016 Gifts subject to PIT: Assets or amounts given to ascendants, descendants, spouse or others will be subject to PIT if the value of the gifts exceeds the prescribed threshold, which will depend on the type of gift and donor. PIT rate is 5% 33

8. Inheritance tax / Gift tax 8.2. Gift tax (Revenue Code amendment Act (No. 40)) (Cont d) Gifts exempt from PIT Type of gift Threshold/ throughou t tax year Donor Recipient Old - Sec.42 (10) Income from transfer of immovable property without consideration Maintenance income or gifts Maintenance income derived under a moral obligation or gifts made in a ceremony or on occasions in accordance with established custom Income from gifts THB 20 million THB 20 million THB 10 million Parent Legitimate child, excluding an adopted child Maintenance income derived under moral Ascendants, descendants or spouse Persons that are not ascendants, descendants or spouse Ascendants, descendants or spouse Persons that are not ascendants, descendants or spouse Persons who receive the gifts will use them for religious, educational or public benefit purposes according to the intention of the donors obligation, corpus of a legacy or inheritance or gifts made in a ceremony or on occasions in accordance with established custom 34

9. Other matters 9.1. Amendment of due date for filing advance PIT returns (Notification of the Ministry of Finance dated 8 July 2015) Compensation obtained in exchange for a long-term lease of immovable property which is apportioned as taxable income over the lease periods Due date for advance filing* Old By 31 Dec of the year in which the compensation was obtained New By 31 Mar of the year following that in which the compensation was obtained *The advance filing required to be included in annual PIT return filed each year Advance PIT returns allowed if filed late, but 1.5% monthly surcharge will be imposed 35

9. Other matters 9.2. Tutorial type of school (Royal Decree Nos. 588 590, Ministerial Regulation No. 307) Effective: 11 July 2015 Income or net profit/ dividend or share of profit of business of tutorial type of school No longer exempt from PIT, CIT 9.3. Specific Development Zone (Royal Decree No. 584) Extension of the reduction of various tax rates (0.1% - 3%) for individuals and companies located in specific development zones (Narathiwat, Pattani, Yala and part of Songkha) from 1 January 2015 to 31 December 2017. 36

PART II 37

Draft Act to amend the Revenue Code/ Draft regulations Cabinet resolution 7 May 2015 Draft of transfer pricing law Subject 8 Sep 2015 Tax measure to support SME corporates: - Net profit from THB 300,001 up - CIT rate reduced from 15% and 20% to 10% for 2 accounting periods beginning on or after 1 January 2015 until 31 December 2016 - CIT exemption for 5 accounting periods for new start up SMEs incorporated between 1 October 2015 to 31 December 2016 13 Oct 2015 - Draft Act to amend the Revenue Code - 20% CIT rate will be permanent - Tax measure to support venture capital - Reduction of CIT rate for SME (same as those on 8 Sep 2015) - Tax measure to encourage real estate business reduction of transfer fee and mortgage fee to 0.01%, payment for purchase of immovable property granted as an allowance in PIT computation 38

Contact Somsak Anakkasela Partner Tel: +66 (0) 2344 1253 somsak.anakkasela@th.pwc.com 39

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