Tax Newsletter, Issue no.7/2015 I. Revenue Code update

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Tax Newsletter – 5 October 2015
Tax Newsletter,
Issue no.7/2015
I. Revenue Code update
In this issue:
1. Tax incentives for investment in special economic
development zones (SEZ)
I. Revenue Code update
II. Revised double tax
treaty between
Thailand and
Singapore
SEZ are border areas, whether
inside or outside of industrial
estates, to create economic
connectivity with neighbouring
countries and to prepare for entry
into the ASEAN Economic
Community (AEC).
In the first phase, SEZ include
certain areas (sub-districts) in the
provinces of Trat, Tak, Mukdahan,
Songkla, and Sa Kaew.
Tax incentives for investment in
these SEZ have been granted by
both the Revenue Department and
the Board of Investment (BOI).
The Revenue Department
Royal Decree No. 591, which became
effective on 10 September 2015,
granted a reduction of the corporate
tax rate to 10% for 10 years on
income earned from manufacturing
goods or services rendered and used
in the SEZ to juristic entities with a
place of business in the SEZ,
regardless of where their head
offices are situated. The criteria for
the benefit will be issued in further
regulations.
The place of business in SEZ of a
juristic entity newly-incorporated
after the effective date of this Royal
Decree must be in a durable
building, while that of an entity
existing before the effective date
must be in an extension of an
existing durable building.
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Procedures and conditions for the
granting of this tax incentive are:
• The juristic entity must inform
the Revenue Department that it
will use the tax incentive under
this Royal Decree in the SEZ by
2017.
• It must not use the corporate
income tax exemption, either
wholly or partly, according to the
investment promotion law, as
mentioned below.
• It must not use the corporate tax
reduction as an SME juristic
entity.
• Separate accounts must be
maintained for activities subject
to the tax privilege and those not
subject to the tax privilege in the
SEZ.
• Comply with the terms and
conditions under the regulations
to be issued.
If a juristic entity fails to comply
with any of the above conditions in
any accounting period, the right to
the tax privileges will cease as from
that accounting period.
BOI
With effect from 1 January 2015, the
BOI has granted tax incentives for
investment in eligible target and
general activities in an SEZ.
To be eligible for the tax privileges
as a promoted entity in an SEZ,
general and specific conditions are
required to be fulfilled such as
modern production processes and
new machinery, paid-up share
capital at the required amount,
adequate environment protection
systems, debt to equity ratio not
exceeding 3 to 1 for a newly
established project, required area to
operate business, etc.
Tax incentives for eligible target
activities:
• Exemption from corporate
income tax for a period of 8
years, with a corporate income
Tax Newsletter – 5 October 2015
•
•
•
•
•
tax cap not exceeding 100% of
the cost of investment
(excluding cost of land and
working capital).
50% reduction in the corporate
income tax rate for 5 years from
the date on which the tax
holiday expires.
Double deduction of cost of
transportation, electricity and
water supply for a period of 10
years, counting from the date
on which revenue from the BOI
business starts to be generated.
25% deduction of the
investment cost of the
installation or construction of
facilities in addition to normal
depreciation.
Exemption from import duty
on machinery.
Exemption from import duty
on raw materials and essential
goods used in the production of
goods for export for a period of
5 years
Permission will be granted to
employ foreign unskilled workers in
the promoted project according to
the conditions prescribed by the
BOI.
Tax incentives for eligible general
activities:
• Additional corporate income
tax exemptions of 3 years, but
not exceeding 8 years in total.
• 50% reduction in the corporate
income tax rate for 5 years from
the date of expiry of the tax
holiday for the activities under
Groups A1 and A2 which are
entitled to 8 years tax
exemption.
• Other incentives are the same
as those for the eligible target
activities.
The application to obtain
investment promotion must be
submitted by 31 December 2017.
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Tax Newsletter – 5 October 2015
2. Additional reasonable excuse in the case where the
estimated net profit for half-year tax is lower than the
actual net profit by more than 25%
The Instruction of the Revenue
Department No. Paw 152/2558,
dated 10 September 2015, which
repealed the previous Instruction
No. Paw 50/2537, is effective for
juristic companies and partnerships
that have accounting periods
beginning on or after 1 January
2012.
The new instruction contained the
same provision as in the previous
instruction whereby the Revenue
Department considers there is a
reasonable excuse where a company
estimated the net taxable profit for
half-year tax purposes at an amount
lower than the actual net taxable
profit by more than 25% but the
amount of half-year tax paid was not
less than one-half of the tax paid for
the previous accounting period.
The new instruction includes an
additional reasonable excuse which
is in the case where the estimated
net taxable profit for half-year tax
purposes is not less than the actual
net taxable profit of the previous
accounting period, although the
amount of half-year tax paid is less
than one-half of the tax paid in the
previous accounting period.
However, the half-year tax paid that
is lower than one-half of the tax paid
for the previous accounting period
must be as a result of tax exemption
or a reduction in the tax rate.
3. Extension of 7% VAT rate for one more year
Royal Decree No. 592, which was published in the Royal Gazette on 26 September
2015, provides for an extension of the 7% VAT rate for one more year from 1
October 2015 to 30 September 2016
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Tax Newsletter – 5 October 2015
II. Revised double tax treaty between
Thailand and Singapore
The current Double Tax Treaty
between Thailand and Singapore
(“current DTA”) has been in force
since 1975. However, on 11 June
2015, a new version of the agreement
(“revised DTA”) was signed but has
not yet been ratified by either
country. Therefore, it is currently not
yet in force. We will keep you posted
once there are any developments on
this matter.
Below is a summary of the main
features of the revised DTA which are
different from the current DTA.
Permanent establishment (PE)
There will be amendments and
additions to the PE article according
to the revised DTA, as follows:
• The threshold period for a
building site, a construction,
installation or assembly project
or supervisory activities in
connection therewith, which
constitutes a PE, will be
extended from being more than
six months in the current DTA
to be more than 12 months.
• The current DTA does not
contain any provision
concerning the threshold period
for the constitution of a PE in
the case of furnishing of
services. The revised DTA will
include within the definition of a
PE the activities of furnishing of
services, including consultancy
services, by an enterprise
through employees or other
personnel, but only where such
activities continue for the same
or a connected project for a
period or periods aggregating
more than 183 days within any
twelve-month period.
• Under the status of dependant
agent, certain activities to be
performed by an agent which
would constitute a PE under the
current DTA will be changed,
whereby the authority to
negotiate and conclude
contracts will be amended to be
only the authority to conclude
contracts and the activity of
securing orders will be removed.
Hence, only the activities to
habitually conclude contracts
and maintain stock will continue
to exist in the revised DTA.
Shipping and air transport
The revised DTA will clarify the
income or profits from international
traffic to include the following
incidental income to the operation of
ships or aircraft in international
traffic:
• Income or profits from the
rental on a bareboat basis of
ships or aircraft;
• Income or profits from the use,
maintenance or rental of
containers (including trailers
and related equipment for the
transport of containers), used
for the transport of goods or
merchandise.
In addition, income or profits from
international traffic by air will be
taxable in the country of residence
of the company, while those from
the operation by ships may be taxed
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in the source country at 50 percent
of the normal rate. This will also
apply to the income or profits from
the participation in a pool, a joint
business or an international
operating agency.
Interest
The reduced rate of 10% for interest
according to the current DTA
applies only to a financial
institution including an insurance
company. However, the revised
DTA will extend the application of
this reduced rate to the interest
paid with respect to indebtedness
arising as a consequence of a sale
on credit of any equipment,
merchandise or services, except
where the sale was between persons
not dealing with each other at arm's
length.
Royalties
The current DTA does not provide
any tax relief on payments of
royalties to a Singapore tax resident
so they continue to be subject to
15% withholding tax, the same rate
that applies under the Revenue
Code. The revised DTA will provide
for reduced tax rates. More
importantly, it will also include the
consideration for the use of or the
right to use industrial, commercial,
or scientific equipment in the
definition of royalty, instead of
business profit as under the current
DTA.
Below are the tax rates to be
applied according to the revised
DTA:
• 5 % for the use of or the right
to use any copyright of literary,
artistic or scientific work,
Tax Newsletter – 5 October 2015
including cinematograph
films, or films or tapes used for
radio or television
broadcasting.
• 8 % for the use of or the right
to use any patent, trade mark,
design or model, plan, secret
formula or process, or for the
use of or the right to use
industrial, commercial, or
scientific equipment.
• 10 % for all other cases.
Payments for the use of, or the right
to use information concerning
industrial, commercial or scientific
experience (i.e. know-how) are also
classified as royalties under the
revised DTA and will be subject to
the 10% withholding tax.
Capital gains
According to the current DTA, a
capital gain from the transfer or
sale of shares would be taxable only
in the country of residence of the
transferor or seller.
However, the revised DTA will
allow the capital gain obtained by a
resident of a contracting state from
transfer or sale of non-listed shares
deriving at least 75% of their value
directly or indirectly from
immovable property situated in the
other contracting state to be taxed
in the other state (i.e. the state in
which the immovable property is
located). This will be in line with
the situation in which the resident
of a contracting state disposes of
immovable property located in the
other contracting state whereby the
gain will be taxed in the other
contracting state.
Capital gains derived from other
cases will remain taxable in the
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country of residence of the
transferor or seller.
Elimination of double
taxation
The method of elimination of
double taxation and criteria in the
case of Thailand will remain
unchanged. However, Singapore
will reduce the participation rate
for entitlement to the underlying
tax credit. According to the revised
DTA, an underlying credit will be
granted where a company resident
in Singapore owns directly or
indirectly not less than 10%
(reduced from 25% under the
current DTA) of the share capital of
the Thai company paying the
dividend.
Tax Newsletter – 5 October 2015
It should be noted further that the
revised DTA uses the term
“beneficial owner” in several
articles, such as interest, dividend,
royalties, instead of “recipient” as
stipulated in the current DTA. Most
DTAs which Thailand has entered
into with other countries adopt this
term of beneficial owner.
It is recommended that companies
review their transactions with
Singapore and consider whether
the revised DTA will have any
adverse impact thereon
(particularly in the case of leasing
industrial, commercial or scientific
equipment) and prepare for the
change in the near future.
Nevertheless, the tax sparing
concept will not be included in the
revised DTA. Singapore tax
residents will no longer be allowed
to obtain a foreign tax credit in
Singapore for the income tax that
has been exempted or reduced
under the investment promotion
laws in Thailand.
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Tax Newsletter – 5 October 2015
Contact us

Tax Mergers and Acquisitions/ Tax
Structuring
 Paul Stitt, Partner ext. 1119
 Prema Rao, Associate Partner ext. 1156
 Vanida Vasuwanichchanchai, Associate Partner ext. 1303
 Tax Reporting & Strategy/ Indirect
Tax Services
 Somboon Weerawutiwong, Lead Partner ext. 1247
 Somsak Anakkasela, Partner ext. 1253
 Prapasiri Kositthanakorn, Partner ext. 1228

 Somsak Anakkasela, Partner ext. 1253
 Prapasiri Kositthanakorn, Partner ext. 1228
Outsourcing Services
 Transfer Pricing
 Peerapat Poshyanonda, Partner ext. 1220
 Janaiporn Khantasomboon, Partner ext. 1437
 Tax Dispute Resolution
 Ornjira Tangwongyodying, Partner ext. 1118
 Niphan Srisukhumbowornchai, Partner ext. 1435
 Financial Services
 Prapasiri Kositthanakorn, Partner ext. 1228
 Ornjira Tangwongyodying, Partner ext. 1118
 Orawan Fongasira, Partner ext. 1302
 Legal Services/ BOI Services
 Somboon Weerawutiwong, Lead Partner ext. 1247
 Vunnipa ruamrangsri, Partner ext. 1284
 Japanese Business Desk (JBD)
 Atsushi Uozumi, Partner ext. 1157
 U.S. Tax Desk
 Greg Lamont, Partner ext. 1280
 International Assignment Services
 Jiraporn Chongkamanont, Director – Practice Leader ext. 1189
 World Trade Management Services
 Paul Sumner, Partner ext. 1305
15th Floor Bangkok City Tower, 179/74-80 South Sathorn Road, Bangkok 10120
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This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
© 2015 PricewaterhouseCoopers Legal & Tax Consultants Ltd. All rights reserved. ‘PricewaterhouseCoopers’ and/or
‘PwC’ refers to the individual members of the PricewaterhouseCoopers organisation in Thailand, each of which is a
separate and independent legal entity. Please see www.pwc.com/structure for further details.
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Tax Newsletter – 5 October 2015
Editors:
Ornjira Tangwongyodying, Partner ext. 1118
E-mail: [email protected]
Seetha Gopalakrishnan, Associate Partner ext. 1011
E-mail: [email protected]
1. The transfer must be between affiliates (as defined) which are public or limited companies, organised under
Thai law.
The affiliated company status must be maintained for not less than 6 months from 31 December 2009.
The registered paid-up capital of the transferee company must not be less than net asset value transferred.
2. The transfer must be completed within 31 December 2009.
3. The assets transferred must be related to the transferor’s type of business and not be a normal sale. The
transferee must use such assets in the same manner or for a related business and the transfer must be made
at market value as at the transfer date.
© 2015 PricewaterhouseCoopers Legal & Tax Consultants Ltd. All rights reserved. ‘PricewaterhouseCoopers’ and/or
‘PwC’ refers to the individual members of the PricewaterhouseCoopers organisation in Thailand, each of which is a
separate and independent legal entity. Please see www.pwc.com/structure for further details.