Enforcing The Law Against Foreigners

[churchill]

Businesses thought to be controlled by foreigners in Phuket are currently under review

The Phuket Governor has been reported as saying that foreign business operators in Phuket will be reviewed to establish if their businesses are abiding by the law and paying tax.

Real estate firms were specifically mentioned as coming under scrutiny. The prices quoted for apartments for sale on the Internet would be used as a basis for reviewing taxes paid by sellers.

The Revenue Department would also look into the real estate sector’s earnings from the leasing of apartments to foreigners to see if they were avoiding tax, the Governor was reported as saying.

A lot of foreign money has been invested in Phuket in recent years and I have written before that it would only be a matter of time before we saw the Revenue Department stepping up their tax audit activity in Phuket.

I believe that there is scope for increasing tax collections if the authorities make a concerted effort to enforce the tax laws. The timing of the announcement however, coincides with a severe downturn in tourism and real estate activity on the island, when businesses are probably less likely to be under declaring income due to evasive tax practices.

Tax clearance certificates

One facet not to be discounted in all this is that foreigners may be considered more vulnerable to pressure to pay taxes than local investors. The Revenue Code contains a number of provisions to assist the Revenue Department to enforce the collection of taxes from foreigners.

Because foreigners can be considered a flight risk when it comes to paying taxes, foreigners wishing to depart Thailand are supposed to pay any tax liabilities before they depart or otherwise furnish a guarantee for the taxes before their departure.

In this regard, the law provides that foreigners departing Thailand must make an application for a tax clearance certificate within 15 days before their departure. A foreigner that departs or attempts to depart from Thailand without one shall, besides being guilty of an offence, be liable to pay a surcharge amounting to 20 percent of the total taxes and duties payable.

Thankfully, most foreigners are exempted from the tax clearance certificate provisions when departing from Thailand. Two exceptions are:

•A foreigner who is liable to pay or remit taxes which are due or which are payable in accordance with a tax assessment made by an assessment officer before or at the time of departure from Thailand.

•Foreigners who have the duty and responsibility to file a return and pay tax on behalf of a company or juristic partnership organised under a foreign law and carrying on business

in Thailand.

Taxing rentals received by foreigners

In order to collect taxes from offshore landlords, the law contains provisions to deem persons in Thailand as their agents for paying tax.

In the case of foreign individuals residing abroad and deriving assessable income subject to Thai personal income tax, it shall be the obligation of the manager of the business which produced his assessable income to file tax returns on his behalf and to be his agent for payment of tax.

In the case of a foreign company that has carried on business in Thailand through an employee, a representative or a go-between and thereby derived taxable income or gains in Thailand, the employee, representative or go-between, whether a natural or juristic person, shall, in so far as the said income or gains are concerned be deemed to be the agent of the said company and shall have the duty and liability to file a return and pay tax.

On shore property agents or managers can therefore be deemed the agent of an offshore landlord for tax filings and payment of tax. Where such agencies are deemed to arise under the law, the Revenue cans simply go after the agent for unpaid taxes and does not need to try and collect taxes due from the landlord.

Income payments to foreigners residing abroad for property rentals, services etc., are often subject to withholding tax. If the person making the payment fails to withhold tax and remit it to the Revenue Department, he shall be liable jointly with the taxpayer to settle the tax not paid. Therefore where tax is not withheld from rents paid by a tenant to an offshore landlord, the landlord still has joint liability for the withholding tax. Property agents acting for foreign landlords could in turn be liable for the withholding tax not deducted.

For the purpose of collecting value added tax, where a person residing outside Thailand sells goods or provides services in the ordinary course of their business through an agent in Thailand, the agent shall also be liable to the tax. The term “agent” is defined very widely and means a person who concludes contracts or has the responsibility for maintaining a stock of goods, securing customers, or doing any act in connection with the carrying on of the business in Thailand for or on behalf of a person residing outside Thailand.

Aggressive tax planning

One of the bases for tax planning is that everyone has the right to arrange their affairs so they do not pay more tax than what the law requires. Aggressive tax planning tends to test the boundaries of the legal framework and is more likely to be challenged by the Revenue Department in a tax audit. Arrangements found to be ineffective may be faced with paying tax plus interest and very substantial penalties.

I get the impression that the real estate industry in Phuket has its fair share of players that push the limits of tax planning. It is not uncommon to see offshore companies incorporated in tax havens being used by developers when transacting business on the island.

The fact that the majority of the clientele is foreign would appear to be one factor driving this approach. Dealing with foreign clients may be perceived by some as an opportunity to receive money offshore with a view to avoiding Thai tax.

Often there can be a number of contracts involved in a property deal and so the prices put in the contracts may be influenced by what is received offshore (read not taxed) and what is onshore (read taxed). The Revenue Department may be able to detect such activity by reviewing the websites of developers to compare the sales prices advertised to the prices reported for tax purposes.

I believe we can expect the Revenue Department to continue mounting challenges to the taxes paid in some of the property structures used on the island. What will be interesting to see is whether the property developers are willing to take on the Revenue Department and defend their tax planning, and ultimately be prepared to take the matter to court.

http://www.property-report.com/property-ne...ysis.php?id=223

[RubbaJohnny]

A lot of foreign money has been invested in Phuket in recent years and I have written before that it would only be a matter of time before we saw the Revenue Department stepping up their tax audit activity in Phuket.

Thanks Churchill interest read

No doubt

"They wiill fight them on the beaches"

I foresee some thick envelopes circulating

[FarangRed]

That must include all the Farang who rent out property? was always a grey area regarding taxes

[Tywais]

Tax clearance certificates

A foreigner that departs or attempts to depart from Thailand without one shall, besides being guilty of an offence, be liable to pay a surcharge amounting to 20 percent of the total taxes and duties payable.

This (tax clearance) is an old requirement that is just popping its head up again after being discarded some years ago.