Must A Business Owner Have A Work Permit In Order To Receive A Salary?

[skraach]

I am a foreigner and own a limited company with my Thai wife. I don't work for the company and I extend my visa based on marriage. We are registered for VAT, declare all our income and try to do everything by the book.

Recently my wife mentioned that in our accounts, I am being paid a salary for tax advantages. Is this allowed? I thought a foreign owner without a work permit could only be paid from company profits. I am surprised our accountant has set it up this way without mentioning a work permit. Should I contact the accounting firm and cancel my salary?

How is this situation policed? Does the revenue dept check whether foreigners receiving salaries have work permits? Does the labor office communicate with the revenue dept?

[guavagirl]

Taking a salary would mean that you are working so yes you would need as work permit. Not sure how policed this would be though.

[Mario2008]

Having a salary implies that you are working, if you say you are not working than you are cheeting the tax man as you recieve a salary for tax reasons but are not actually working.

Currently I believe labour and the tax department do not share information, but there are no guarantees for the future.

[davejones]

This could be seen as fraud. i.e. pretending to be working (without a permit) so that you pay less tax. Like companies that hand out money to bogus workers. I'd sort it out now just in case, although I doubt you would get caught. And change accountants.

[Boyce]

Shurely any type of work in thailand ,and receiving a salary. working without a work permit is illegal, company director or not, even voulunteer work you need a work permit.

[Dork]

Not saying whether the op's situation is legal or not because I don't know. But certainly it isn't a necessity to have a WP just because you are drawing a salary from a Thai company. We have employed sales people based outside Thailand but paid them in Thailand (paying income tax & SS) and they don't/can't have work permits.

I think this is more a tax issue than an immi/labour one.

[p_brownstone]

What actually happens to the money shown as an Expense in the Accounts - and I presume removed from the Company Bank Account?

Patrick

[soi41]

As it is a limited company, why not reducing the profit by paying dividends to the shareholders. Fully legal and no WP needed.

[Dork]

As it is a limited company, why not reducing the profit by paying dividends to the shareholders. Fully legal and no WP needed.

Because the company would need to pay corporate tax on the profit before you can declare a dividend and then the shareholder has to pay personal income tax on the dividend received.

[watcharacters]

As it is a limited company, why not reducing the profit by paying dividends to the shareholders. Fully legal and no WP needed.

Brilliant idea. Seems to get around everything.

[Khun Jean]

Dividend is after taxes. So no solution for the op.

You could however incorporated a company in Hong Kong, that company sends bills to the Thai company lowering the profit.

The Hong Kong company does not have to pay taxes as the income is from abroad and Hong Kong also does not have a tax on dividend.

The Hong Kong company then pays dividend and you declare that to the Thai taxman. Tax is 10%, or 0% if dividend is brought into Thailand the next year.

[Dork]

Dividend is after taxes. So no solution for the op.

You could however incorporated a company in Hong Kong, that company sends bills to the Thai company lowering the profit.

The Hong Kong company does not have to pay taxes as the income is from abroad and Hong Kong also does not have a tax on dividend.

The Hong Kong company then pays dividend and you declare that to the Thai taxman. Tax is 10%, or 0% if dividend is brought into Thailand the next year.

For what service would you send the bills? Even if you could dream up a reason, consultancy fees, royalties, etc. paid offshore are subject to a 15% withholding tax deduction.

Unfortunately the Thai Revenue Department aren't as gullible as we might wish them to be.

[thaicbr]

Op.. if you employ 4 or more Thai's on the books.. get a work permit.. if not stop paying yourself a salary...

[Dork]

Without offering any advice to the op (because I'm not qualified to do so), I would comment that paying a nominal salary to spouse, children, cousins and other phantom employees is normal practice for family owned companies in Thailand. For whatever reason, it seems that as long as it is a real person and the deductions are made at the correct rate according to the taxpayers assessable income, the revenue department aren't concerned.

In any case since corporate tax (on net profits over 1m/pa) have dropped from 30% to 23% for 2012-13 and will drop to 20% from 2013 onwards, I think this kind of avoidance will become less popular.

[Satcommlee]

Officially, all foreigners who are directors of Thai companies need work permits, whether salaried or not..

It could cause quite a fuss if they actually enforce it.

[Dork]

Officially, all foreigners who are directors of Thai companies need work permits, whether salaried or not..

It could cause quite a fuss if they actually enforce it.

Can you refer to any specific rule or law that says that? I'm not trying to be argumentative for the sake of it and I accept that what you say is conventional wisdom but I would really like to know if there is any legal basis to this or whether it just comes from the Labour Department's catchall of exerting effort etc.

In the past I have taken legal advice on behalf of a fellow (non-resident) foreign director of a Thai company regarding exactly this point. That particular lawyers opinion was that unless you were to sign a document, cheque or whatever on a date that you were physically in Thailand, you haven't broken the labour law.

It is relevant because one could be a director of a company and have renewal of a work permit denied. What then? For sure, your obligations as a director will still stand.

[Mario2008]

A managing direcor needs a work permit, you don't need a work permit if you don't have an active rol in the business and don't do things like signing contracts etc but are just an invester leaving the company dealings to others.

[Satcommlee]

Hi Dork,

There was not much online, which got me thinking too, so I asked my Lawyer today to re-iterate the position, if you sign company documents or are signatory to the bank account etc. you need a work permit.

As yourself and Mario point out, a non-executive role should be OK.

Pratum Thani labour office made us take on more staff due to one of the foreign directors being a director of a second companies registered at the same address and he needed work permit for both companies - although the second company was set-up merely for convenience and does not draw a salary.

[skraach]

Some additional information. Our accounting company has said that my wife's salary is already at the maximum allowed by the revenue dept and therefore should not be increase this year. I think that is why they added a salary for me. Has anyone ever heard of the revenue dept putting ceilings on owner salaries? Does it depend on company sales levels?

[Zolt]

That would probably be the maximum salary allowed before her tax rate goes up.

[KBAA]

I had seen cases where bar owners had been prosecuted for just taking profit without a work permit !
If you ask labor department, you will see that they say, that a business owner who get profit is considered as a worker, and therefore need a workpermit, so that you have shares and get profit there need a workpermit.

You can search on Phuket Gazette in their old issue and answers, there you will find answer from labor department !'

[Dork]

Hi Dork,

There was not much online, which got me thinking too, so I asked my Lawyer today to re-iterate the position, if you sign company documents or are signatory to the bank account etc. you need a work permit.

As yourself and Mario point out, a non-executive role should be OK.

Pratum Thani labour office made us take on more staff due to one of the foreign directors being a director of a second companies registered at the same address and he needed work permit for both companies - although the second company was set-up merely for convenience and does not draw a salary.

Yes maybe I just need to accept that this is the position taken by the labour department.

The situation that I referred to earlier was one where the non-resident director was based in HK. Documents could be couriered there for his signature and be back within 3 days and he could operate the company bank account via internet banking. I wonder how the labour law could be applied to someone that isn't in the country.

[Dork]

Some additional information. Our accounting company has said that my wife's salary is already at the maximum allowed by the revenue dept and therefore should not be increase this year. I think that is why they added a salary for me. Has anyone ever heard of the revenue dept putting ceilings on owner salaries? Does it depend on company sales levels?

Sorry about taking your thread off on a tangent about offshore directors etc.

I wonder whether what your accountant really means is that they don't dare to make your wife's salary higher than it currently is because that would raise a red flag to the Revenue Department which may cause them to investigate further. They may for example force you to prove that the money was actually transferred from the company to the correct account on the correct date. Often with owner operators this isn't the case.

[ikbenhet]

Having a salary implies that you are working, if you say you are not working than you are cheeting the tax man as you recieve a salary for tax reasons but are not actually working.

Currently I believe labour and the tax department do not share information, but there are no guarantees for the future.

Why do you think it's cheating the taxman? He pays tax.

[harrry]

Of course he will have to declare that income as overseas income in his home country and pay tax on it. He may get a rebate on the tax paid here in his home country's return.

[Mario2008]

Having a salary implies that you are working, if you say you are not working than you are cheeting the tax man as you recieve a salary for tax reasons but are not actually working.

Currently I believe labour and the tax department do not share information, but there are no guarantees for the future.

Why do you think it's cheating the taxman? He pays tax.

Read the first post.

He receives a salary for tax advantages. The company makes less profit as they have to pay him a salary.

[pdebuck456]

Having a salary implies that you are working, if you say you are not working than you are cheeting the tax man as you recieve a salary for tax reasons but are not actually working.

Currently I believe labour and the tax department do not share information, but there are no guarantees for the future.

Why do you think it's cheating the taxman? He pays tax.

Because the personal income tax will be far lower then the corporate tax.

Basically they generate a fake position for not actually provided work, which ends in less tax revenue for the tax department.

[skraach]

In the end I decided to get a work permit.