Paying taxes is a civic duty of all Thais, and entrepreneurs are no exception. However, the tax system, especially its legal aspect, can be daunting and complicated for business owners, and it’s certainly not something that can be thoroughly delineated in the limited space here.
Therefore, this article will focus on the concepts and the differences between basic types of taxes relevant to entrepreneurs, namely the corporate income tax, value added tax, specific business tax, and stamp duty.
Corporate Income Tax
This type of tax is levied on companies or registered ordinary partnerships with income either from or in consequence of their operation in each accounting period spanning 12 months. The amount of tax is calculated from the net profit of the business (currently at a 20% rate). However, in certain cases, the tax may be calculated from the revenue before expenses, income paid from or in Thailand, or profits disposed of from accounts in Thailand, depending on the business type or legal conditions for fairness, in which case different companies may be subject to different rates. For instance, SMEs are granted a special tax rate that is lower than that of larger companies.
Value Added Tax
The value added tax, better known as VAT, is an indirect tax on products and services. Companies with revenue from sale of products and services exceeding 1.8 million per year are required to register for VAT. This tax is calculated from the value added at each stage of manufacturing or sale of products and services. For instance, if the VAT rate is 10% and we purchase our raw material for 100 baht, the input tax will amount to 10 baht. When we sell the product for 150 baht, the output tax will be 15 baht. In this case, the VAT will be calculated from the difference between the input and output taxes, which is five baht (15-10).
The VAT rate in Thailand prescribed in the law is 10%, although it has been reduced to 7% by Royal decrees since 1997.
Specific Business Tax
This tax is imposed on specific businesses operating in Thailand as stipulated by the law, namely banking; business of finance, securities, and credit foncier; life insurance; pawnbroking; business with regular transactions similar to commercial banks; and sale of an immovable property in a commercial or profitable manner. The tax base is calculated from revenue before expenses received or receivable from the business, and the rate varies from business to business.
Stamp duties are different from postage stamps in that they are a type of tax. While they resemble regular stamps in appearance, they are not marked with a postmark, but are rather crossed for cancellation by individuals authorized by the law. Stamp duties are imposed on 28 types of instruments, such as land lease agreements, hire-purchase agreements, loan agreements, and authorization letters, at varying rates.
These are the four basic tax types that entrepreneurs should know. However, for more in-depth information on whether your business is subject to any other particular tax, whether there’s any tax exemption, or what tax rate your is imposed on your business, you can visit the Revenue Department’s website (http://www.rd.go.th/) or contact the RD Call Center at 1161.