Taxes For Consultants

[sumantkumar]

I am the HR officer for an intl organisation in Bangkok. We happen to hire a lot of short term expat consultants. There is a clause in the contract that states that they are independent contractors, and are responsible for paying their own taxes.

However, are we as an organisation responsible if they do not pay tax? Secondly, do we have to report to the government the amount of income that we are giving them. (this is the case in India)

Any advice would be much appreciated. Also, if anyone can provide me with a good tax consultant, it would be much appreciated, as I will probably have to get something official on this.

thanks

[kudroz]

I highly recommend Sriwan Puapondh of Tilleke & Gibbins International

It is my understanding that they will in-fact consider an independant contractor only if your company does not provide a place of work, impose a schedule on them or provide the independant contractor with "tools of trade or business". It doesn't matter how you define them in your contract, it's how the tax authorities and labour office will see them as.

Good luck!

[gottliebs-expat]

If your consultant are earning high salaries a good opttion would be to setup a company in a jurisdiction which has a good tax treaty with thailand. Consultants would then invoice for work done out of that company in the jurisdiciton. This jurisdiction should have a low tax rate.

Thereby minimising tax for the consultants to pay.

This way you would not have to worry about your tax obligations, and you could afford to pay the consultants less as they will have much higher after tax earnings.

An option here could be for you to just open a company in the appropriate jurisdiction, and whenever you need consultant hire them at that company, and invoice through there.

Gary

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[kudroz]

If your consultant are earning high salaries a good opttion would be to setup a company in a jurisdiction which has a good tax treaty with thailand. Consultants would then invoice for work done out of that company in the jurisdiciton. This jurisdiction should have a low tax rate.

Thereby minimising tax for the consultants to pay.

This way you would not have to worry about your tax obligations, and you could afford to pay the consultants less as they will have much higher after tax earnings.

An option here could be for you to just open a company in the appropriate jurisdiction, and whenever you need consultant hire them at that company, and invoice through there.

Gary

This is not exact.

If the work is performed in Thailand or if the contractor's newly incorporated offshore entity has a place of management in Thailand (where the "mind and management" of the company reside or generally speaking where the director abode) - his offshore company will be liable for taxes in Thailand.

Everyone seems to think that incorporating in another jurisdiction makes the taxes go away. It doesn't matter in which jurisdiction the company is incorporated - generally speaking - the entity will be liable for taxes where it is controlled from and/or where the work is performed regardless of its place of incorporation.

Edited October 5, 2006 by samran

[earlofwindermere]

Our organization is in the same situation. We have met with a lawyer several weeks ago about this issue and we were told basically the same as what kudroz has said. However; we were not told about not providing a place of work but we were told that we could not impose a schedule.

As far as place of work goes, I think that this can be debatable. For example, if I hire a plumber for the day, I would be providing a place of work for them even though they are an independent contractor. So if I have more white-collar type contractors, I'm sure that I could argue the same thing.

[kudroz]

Our organization is in the same situation. We have met with a lawyer several weeks ago about this issue and we were told basically the same as what kudroz has said. However; we were not told about not providing a place of work but we were told that we could not impose a schedule.

As far as place of work goes, I think that this can be debatable. For example, if I hire a plumber for the day, I would be providing a place of work for them even though they are an independent contractor. So if I have more white-collar type contractors, I'm sure that I could argue the same thing.

Often, the place of work will be seen as being an essential "tools of trade" - that's where the problem is. I.e. contractor uses your office's board room to meet with 3rd parties (not people from your organization), it will be a problem.

Each case is diffirent, but you probably get the drift.

[gottliebs-expat]

If your consultant are earning high salaries a good opttion would be to setup a company in a jurisdiction which has a good tax treaty with thailand. Consultants would then invoice for work done out of that company in the jurisdiciton. This jurisdiction should have a low tax rate.

Thereby minimising tax for the consultants to pay.

This way you would not have to worry about your tax obligations, and you could afford to pay the consultants less as they will have much higher after tax earnings.

An option here could be for you to just open a company in the appropriate jurisdiction, and whenever you need consultant hire them at that company, and invoice through there.

Gary

This is not exact.

If the work is performed in Thailand or if the contractor's newly incorporated offshore entity has a place of management in Thailand (where the "mind and management" of the company reside or generally speaking where the director abode) - his offshore company will be liable for taxes in Thailand.

Everyone seems to think that incorporating in another jurisdiction makes the taxes go away. It doesn't matter in which jurisdiction the company is incorporated - generally speaking - the entity will be liable for taxes where it is controlled from and/or where the work is performed regardless of its place of incorporation.

As long as a service company is set up in a jurisdiction that has a good tax treaty with Thailand and with some proper structuring, it is acceptable. I have done this on many occasions for contractors for example working on a contract consulting basis for italian companies and setting up a service company in Malta.

This effectively reduces the tax rate for them down to 11.67%

[kudroz]

As long as a service company is set up in a jurisdiction that has a good tax treaty with Thailand and with some proper structuring, it is acceptable.

This is very bad advise.

What you're saying in true only in the case where the work is not performed in Thailand. And if the management of the "service company" is in Thailand, the whole entity is subject to taxes in Thailand as well.

Now, don't go and tell me that by using nominees for director and/or shareholders it is "proper structuring" like you said above. This is called tax evasion and will not hold up in courts unless the real "spirit and mind and management" of the company is provided by your nominees. If you or your clients believe that you are fooling yourself.

[gottliebs-expat]

As long as a service company is set up in a jurisdiction that has a good tax treaty with Thailand and with some proper structuring, it is acceptable.

This is very bad advise.

What you're saying in true only in the case where the work is not performed in Thailand. And if the management of the "service company" is in Thailand, the whole entity is subject to taxes in Thailand as well.

Now, don't go and tell me that by using nominees for director and/or shareholders it is "proper structuring" like you said above. This is called tax evasion and will not hold up in courts unless the real "spirit and mind and management" of the company is provided by your nominees. If you or your clients believe that you are fooling yourself.

Quite correct Kudroz. Perhaps I shouldve gone into more detail and explained further, that the work would have to not be performed in Thailand, which is quite possible depending on the nature of the work.

In addition, with regard to the 'heart and mind' of the company, as it was described as a large multi national, it is very easy to have the management located in another jurisdiction.

Anyway apologies if I did not make this clear, I was just trying to quickly give an exmaple on one way of structuring things.