Tax On Foreign Income For A Thai Limited Company

[Humble Pie]

Hi,

I have a question about foreign income received by a Thai limited company. My accountant tells me that a Thai limited company invoicing an overseas company cannot offset the income from these invoices. It would appear that foreign income is taxable and the company expenses are ignored.

The Thai company currently doesn't make any profit. It's main source of income is from an overseas company, but the income received is all consumed by the running costs of the Thai company. However there is a 15% tax on invoices from overseas which I'm told is unavoidable, even though the Thai company is not profitable. So over the year the Thai company would end-up paying a lot of tax on non-existing profits. Is this right?

I've asked people about this, but I can't find a definitive answer, so any insight would be greatly appreciated.

Thanks in advance,

HP

[Indo-Siam]

Foreign-derived income earned by a Thai company is taxed the same as any other income. But - overseas sources of payments do not withhold Thai corporate tax - so you will have to pay tax on any profits that you realize (if any) - two times per year.

You are seriously mixed up about the 15% withholding tax you mention - this tax is on PAYMENTS (outbound remittances) that you make to overseas recipients (other than dividends paid overseas, which are taxed at only 10% withholding).

Cheers!

Indo-Siam

[Irene]

Humble Pie,

My replies are in bold type:

I have a question about foreign income received by a Thai limited company. My accountant tells me that a Thai limited company invoicing an overseas company cannot offset the income from these invoices. It would appear that foreign income is taxable and the company expenses are ignored. Income of a Thai limited company is based on world income. If earned from an overseas source under that company's name, that income is viewed as income of the company and can be deducted against any bona fide expenses of that company. The company has the duty to file returns twice a year and corporate tax at 30% on net profit. If there is loss, no tax is payable and the loss can be carried forward to offset against the profits for the next five years.

The Thai company currently doesn't make any profit. It's main source of income is from an overseas company, but the income received is all consumed by the running costs of the Thai company. However there is a 15% tax on invoices from overseas which I'm told is unavoidable, even though the Thai company is not profitable. So over the year the Thai company would end-up paying a lot of tax on non-existing profits. Is this right? Wrong, the overseas income has to form part of the tax computation in ascertaining taxable profits or tax losses. There is no withholding tax on income received or receivable from overseas.

I've asked people about this, but I can't find a definitive answer, so any insight would be greatly appreciated.

Thanks in advance,

HP

[autonomous_unit]

Is it possible that the accountant is talking about VAT on service fees?

It is true that VAT is collected on the gross receipts and not net profits, and if your receipts were subject to VAT and the foreign payer is not participating in (and splitting) the VAT collection as for a normal Thai-Thai exchange of service, then you would have to withhold all of it.

But, foreign sourced service fees are not subject to VAT unless the work product will be connected to Thailand. Examples I've heard include "design work" that is sent back overseas for consumption (design service not subject to VAT) and "design work" sent overseas for manufacturing and then the products imported for sale in Thailand (design service subject to VAT).

[cclub75]

I have a question about foreign income received by a Thai limited company. My accountant tells me that a Thai limited company invoicing an overseas company cannot offset the income from these invoices. It would appear that foreign income is taxable and the company expenses are ignored.

Do you realize the enormity of what your "accountant" is telling you ???? !!!!

-a thai company invoices a company abroad (export)

-this income would be "different", and therefore couldn't be offseted by the thai company's expenses ?

And whatch out, you are talking here about sales (invoices)... not special type of incomes (like for instance, a thai company earning interests or cashing dividends abroad), it's clear, no room for misunderstanding.

So again, how your "accountant" can say such a monstrosity ? Even by thai standards, it remains a mystery.

[autonomous_unit]

I just wanted to add: if it were VAT they were talking about, it is true that it is a percentage of the invoiced amount and not related to expenses or profit. But, the Thai VAT rate as far as I know is 7% and nothing would make it reach 15%, and as I mentioned in my previous post there are situations where no VAT is due.

No matter what, something seems confused in what your accountant is communicating.

[Humble Pie]

Many thanks for all your replies. I'm meeting with my accountant today and will discuss what has been said here. I will update this thread as soon as I know more. Again, thanks all!

[Humble Pie]

Having just spoken with my accountant I'm a little clearer on what's going on. It would appear that when we set-up the Thai company there was some confusion as to who, and how much, salary was getting paid and the office rent/bills etc. We thought that we were clear on all of these, but obviously not.

Although the Thai company actually consumed all the income (and had no profit) the accounts showed differently. For accounting purposes we were showing a projected profit of over 1 million baht for the year which, I'm told, there is a 16% tax on (the Thai company has only been running for part of the year). There is also the 7% VAT; which I'm still unsure if that's included in the quoted 16% tax or not.

A royal mess if ever I saw one. We'll endeavor to get this sorted-out... many thanks for all the feedback.

- HP

[Irene]

Having just spoken with my accountant I'm a little clearer on what's going on. It would appear that when we set-up the Thai company there was some confusion as to who, and how much, salary was getting paid and the office rent/bills etc. We thought that we were clear on all of these, but obviously not.

Although the Thai company actually consumed all the income (and had no profit) the accounts showed differently. For accounting purposes we were showing a projected profit of over 1 million baht for the year which, I'm told, there is a 16% tax on (the Thai company has only been running for part of the year). There is also the 7% VAT; which I'm still unsure if that's included in the quoted 16% tax or not.

A royal mess if ever I saw one. We'll endeavor to get this sorted-out... many thanks for all the feedback.

Humble Pie,

One does not pay tax on a projected profit except for a mid-year tax return when a projected result has to be made, half of which shall be subject to interim tax at 30%. That interim tax can be used to offset against tax on the actual profit at the end of the year. But if you think there is no projected profit at the end of the year, then your interim tax could be overpaid. VAT is a tax that is paid on revenue and accountable to the authority monthly. In general, it has no bearing on you.

I think you are still in a royal mess!

[cclub75]

Revenue Department

Corporate Taxes

Tax rates, tax calculation, deductible expenses, depreciations... lot of datas :

http://www.rd.go.th/publish/6044.0.html