Holding back 3% tax when paying to contractors....the law?

[cheeryble]

Hi there

I have learned that when payin a contractor one has to withhold 3% of the price.....presumably on behalf of the government.

Could anyone tell me any detail, ie

1. Only for work over certain amount?

2. If I order say 12 items of furniture and pay a deposit, is it considered that the shop is working as a contractor and liable for withholding, or simply selling me the items (albeit with a lead time) so no withholding?

Anything else I should know?

Thanks!

[monkeycountry]

Yes, you have to deduct withholding tax, usually 3%, but the percentage varies depending on what you are buying.

Contracting someone to build you a house or furniture would be 3%. If you buy advertising it is 2%, transport of items is 1% and so on.

If you buy something, it depends on what is written on the bill. If the bill says 1 piece of furniture and nothing else, then you do not have to deduct anything as you are buying an item, not paying for contracted work. If the bill is split into labour and materials, then you deduct 3% for the labour part, but not for the material part.

Example of invoice:

Labour 5000 baht

Materials 5000 baht

VAT 700 baht

Total 10700 baht

Of this bill you have to deduct 3% for the labour part, so 150 baht and pay a total of 10,700 - 150 = 10,550 baht.

When deducting, you need to provide the contractor with a thai "receipt" for the deducted amount, so you probably need an accountant to handle it.

If the amount is less than I believe 1,000 baht, then you do not have to deduct anything.

You have to ad together and pay all the deducted amounts from any given month to the revenue department before or on the 7th of the following month.

As I said, much of the required paperwork is in Thai, so you should have an accountant do this for you.

Remark: please keep in mind that most small time contractors do not pay any taxes at all and have no clue how the tax system works, so you might want to discuss this matter with them prior to buying anything.

Edited October 16, 2013 by monkeycountry

[brit1984]

yes its true - 3% for most services and 2% for marketing

WHT isn't just for contractors - also 5% for rent and x% for staff (% varies as function of salary), etc

unless you are fluent in Thai AND accounting, this is a task that should be outsourced

[brit1984]

and dividends too!

Edited October 16, 2013 by brit1984

[fletchsmile]

Some good info above.

What is also worth noting is that the amount you have collected in WHT can be credited against your corporate tax calculation for the year. So if your corporate tax bill works out at say THB 1mio and you have handed over WHT of 400k in your monthly payments of 3% etc deducted from suppliers, the balance owed is THB 600k.

As pointed out above many people flout the tax rules. This method of collecting a sort of advanced payment ensures the government at least gets something. Put another way, while the real tax bill might have been THB 1mio for the year, many people here fudge it so it works out next to nothing. At least the government then has the 400k, and gets something - as you can imagine it's not easy to get back the 400k as you risk triggering tax audits. You might say that a factor in all this is because people can't be trusted to play honestly and be taxed at net profit level, the government taxes it at a gross revenue level - even then they don't trust the income earner to pay/declare it, so they put the burden on person who buys the goods/ services.

As mentioned above to do this day in day out you need someone who understands Thai and accounting. The numbers of foreigners you can get to do this for you is also even fewer because of rules around work permits and protected industries + any foreigner with these skill sets generally doesn't want to do it for what Thai accountants charge = a few thousand baht a month. Whenever a foreigner is involved or understands this process, they are usually either senior managers supervising Thais to do it, or working at a large company level again heading a department or providing advice.

Fletch

[cheeryble]

Thankyou both for that information!

Ps thanks also Fletch you just posted as I was writing....it's actually not a business it's a condo building where the committee are "recommending" a lot of renovations.

Questions:

1. What is this withholding's name?

2. Last month we ordered many pieces of puktopchawah furniture........What decides if this comes under

a. The same as ordering items from any store where you may pay a deposit (possibly) on ordering, then pay in full on delivery, and that's it.

Or

b. the supplier is suddenly deemed a contractor to have money withheld.

We are ordering things regularly and I think there's a fine line......i was told by our Management we had to withhold the 3% for the furniture quotation for example. But easy to see that withholding tax that's not due loses friends fast and what's more may be actually illegal, so I have insisted we ensure the detail is correct.

Thanks!

Edited October 16, 2013 by cheeryble

[rayongchelsea]

Thankyou both for that information!Ps thanks also Fletch you just posted as I was writing....it's actually not a business it's a condo building where the committee are "recommending" a lot of renovations.Questions:1. What is this withholding's name?2. Last month we ordered many pieces of puktopchawah furniture........What decides if this comes under a. The same as ordering items from any store where you may pay a deposit (possibly) on ordering, then pay in full on delivery, and that's it.Orb. the supplier is suddenly deemed a contractor to have money withheld.We are ordering things regularly and I think there's a fine line......i was told by our Management we had to withhold the 3% for the furniture quotation for example. But easy to see that withholding tax that's not due loses friends fast and what's more may be actually illegal, so I have insisted we ensure the detail is correct.Thanks!

1. The name of the contractor/ company providing the service.

2. You are buying furniture not a service. No withholding.

3. If it is a registered company/ contractor , they will offset the wht against their tax for the year.by law you must deduct this, if it a cash deal non invoiced then you would not. You will pay the tax over to the tax dept.

[fletchsmile]

If it's a condo building and it's the condo committee, then it's treated similar to a company in many ways and referred to as a "juristic person". The juristic person will also file accounts like a company. The income it gets is usually your maintenance fees and bank interest.

The tax is called withholding tax (WHT) in English. The forms that the accountants fill in for this are por nor dor (PND) forms. There are different numbers according to the purpose, eg PND 1 is for tax deducted from employees, PND 3 and PND 53 are the most usual for this WHT on services and rents.

The rates are set according to the tax laws. The big accounting guides show the rates. eg see the uploaded attached from PWC pages 22-24. Attached also is a summary of some of the different forms completed.

A key points is that if you don't hold back the 3% WHT and you should have done you (your juristic person) becomes liable for it.

Ensuring everything is legit really entails learning all the tax rules in and out. Even then you can guarantee in Thailand there are more ways of bypassing and cheating tax laws than there are tax laws. So even if you learn the tax rules you then need to be aware of how people cheat them (and you). Best you can do based on what you say is reasonableness checks if you're inclined, and just make them aware you're looking in to it. It's also not uncommon for suppliers and purchases within firms (and condos) to collude to their own benefit, including reclassifying things.

Cheers

Fletch

[malcolminthemiddle]

In my situation, I will contract as a private individual with a number of companies (subcontractors) to build a house.

Do I still need to deduct WHT and if so how as a private individal do I pass this WHT onto the authorities?

[cheeryble]

Thanks for that PWC guide Fletch.....most useful

Cheeryble

[cheeryble]

In my situation, I will contract as a private individual with a number of companies (subcontractors) to build a house.

Do I still need to deduct WHT and if so how as a private individal do I pass this WHT onto the authorities?

Malcolminthemiddle

I'm not an accountant but I'd put money on that you can forget about this as you're not a registered business.