Learn more about Tax exemption in Thailand

◊ What is a tax exemption in Thailand?

Firstly, Thailand’s taxation system provides certain allowances to exempt individuals, companies, or activities from full tax liabilities. Specifically, this removal can apply to all or part of one’s income, spending, or dealings but also leads to a decrease or removal of their tax obligation for the exempted item or action.

Secondly, laws, regulations, and government plans establish tax exemptions to accomplish diverse economic, societal, or developmental goals.

In the context of Thailand, tax exemptions can assume several forms:

• Personal income may be eligible for exemptions on particular types of income or costs such as dependents’ allowances, education, or medical expenses or exemptions for specific income sources like dividends from some sources.
• Businesses may receive tax exemptions on corporate income relying on their actions, investments, and contributions to targeted industries. The Board of Investment (BOI) provides several incentives and exemptions to encourage economic and investment growth.
• Certain goods and services may be exempted from the value-added tax (VAT) or subject to a lessened VAT rate.
• Imports of particular goods, machines, or equipment may be exempt from or subject to lowered customs duties, notably when intended for specific industries or purposes.
• Organizations working inside designated special economic zones may benefit from tax exemptions, lowered tax rates, and other incentives.
• Thailand has signed double tax treaties with different countries to avoid double taxation of particular income types. These treaties can provide exemptions or lessened rates on specific income types such as dividends, royalties, and interest.
• Various industries, such as those related to research and development, export-oriented businesses, and agricultural enterprises, may receive tax exemptions as part of government efforts to support these sectors.

◊ What is the law for tax exemption in Thailand?

First, the Thai Revenue Code lays out key policies relating to tax exemptions in Thailand. Alongside this, additional legislation affects tax relief, including the Investment Promotion Act. The Thai Revenue Code serves as the primary legal framework, covering exemptions amongst other fiscal matters.

Some notable points: the Thai Revenue Code establishes rules for income tax, VAT, and business levies while also outlining exemption criteria. The Board of Investment provides tax incentives to boost targeted industries and regions through the Investment Promotion Act. Thailand has double taxation agreements with other nations too, dividing tax jurisdictions to spur trade and investment between treaty partners.

Apart from the core Revenue Code and Investment Promotion Act, specific regulations and ministerial announcements guide exemptions in industries or situations. Tax laws regularly see updates, so keeping informed is important. Due to complexity, consulting experts well-versed in Thai fiscal policies is wise for those navigating reliefs.

In summary, the Thai Revenue Code establishes Thailand’s tax exemption framework, supplemented by the Investment Promotion Act, double tax treaties, and related rules. Individuals and companies should check official sources and qualified advisors to ensure understanding and adherence under evolving rules.

◊ What are personal income tax exemption?

To begin, personal income tax exemptions in Thailand serve as a foundation for the nation’s taxation system. Additionally, they offer people opportunities to reduce their taxable earnings by excluding particular categories of gains or costs. These exemptions function as a mechanism to advocate social welfare and incentivize specific behaviors. Furthermore, they mitigate the levy load on citizens.

Next, here are some prevalent personal income tax exemptions that apply in Thailand:

• Earnings Exceptions: Thai inhabitants are awarded a basic personal allocation depending on age. This allocation is then subtracted from their total profits before calculating the taxable sum. Parents can claim a deduction for every child they aid, up to a specified boundary per youngster. Persons with a dependent spouse may be eligible for an extra allowance.
• Healthcare and Medical Expenses: Certain medical costs for the taxpayer, partner, and kids might be eligible for subtraction. Hence, these include medical treatments, medical facility bills, and medicines. Premiums paid for life insurance policies are deductible under certain situations.
• Education Expenses: Costs related to the taxpayer’s, partner’s, and children’s education might be eligible for a deduction, subject to explicit rules.
• Donations and Charitable Contributions: Donations made to approved benevolent organizations or government-approved projects may be deductible.
• Retirement Savings: Contributions to a provident fund registered with the Thai Revenue Department may qualify for a tax deduction.
• Housing Allowance for Expatriates: Specific housing allowances provided to expatriate employees by their employers might be exempt from taxation up to a specified limit.
• Interest and Dividend Income: Interest and dividend income earned from specific financial instruments, such as government bonds, may be exempt from taxation up to a certain threshold.

◊ What are corporate tax exemptions?

To begin, businesses based in Thailand must pay taxes on domestic and foreign earnings. Conversely, foreign companies organized abroad pay taxes on profits from Thailand operations. In fact, the corporate tax rate stands at 20%.

Foreign firms absent from Thailand face a final withholding tax on certain income types, like interest, dividends, royalties, rentals, and service fees originating in Thailand, typically at 15%. However, dividends stand at 10%. Distinct rates may apply under double tax treaties.

Moreover, the Board of Investment designates tax incentives for select sectors:

• agriculture and medicine
• advanced manufacturing
• basic and assisting industries
• digital creation and high-value services
• research and development and core technology progress

Then, tax incentives range from:

• waiving import duties on machinery and essential materials for export manufacturing
• reducing import duties on basic materials up to 90 percent for domestic goods
• exempting imported research items
• granting corporate tax exemptions over or equaling investment costs, excluding land and working capital, up to 13 years depending on laws and location
• halving corporate tax 50 percent up to ten years without a holiday
• excluding dividends during and after tax holidays up to six months
• letting double deductions on transportation, electricity, and water costs ten years from revenue
• deducting 25 percent of infrastructure spending plus standard depreciation within ten years of income
• deducting up to 70 percent of investment over normal deductions ten years
• offering 10 billion baht subsidies meeting standards without prerequisites

◊ What is the VAT exemption in Thailand?

The value added tax system is a consumption tax applied at every phase of production or distribution. While most goods and services face VAT in Thailand, specific groups are exempted from VAT. Here is a general overview of VAT exemptions in Thailand :

• Goods and Services VAT Exempt: In Thailand, some goods and services avoid VAT. This means no VAT is added to their price, and companies providing these exempt goods and services are not obliged to charge VAT to customers. Common examples include:

1. Financial Operations: Interest, loans, and certain financial services regularly dodge VAT.
2. Healthcare: Medical services, products, and prescription drugs usually escape VAT.
3. Education: Educational services from schools, universities, and other educational institutions tend to be VAT-exempt.
4. Home Rentals: Rental income from residential properties typically avoids VAT.
5. Farm Products: Some unprocessed crops may slip VAT.
6. Local Transport: Public transport like buses and trains sometimes get VAT exemption.
7. Certain Non-Profits: Activities of charitable and non-profit groups could be VAT-exempt.

Therefore, note that even if an item is VAT-exempt, companies providing exempt goods and services may not qualify to claim an input tax credit on purchases, unlike companies dealing with goods and services subject to VAT.

• Zero-Rated versus Exempt:

It’s also worth mentioning the difference between zero-rated and exempt supplies. Zero-rated supplies face VAT at 0%, letting businesses still claim input tax credits on related purchases. Exempt supplies don’t involve charging VAT, but companies may lose input tax credit claims on associated purchases.

◊ What are the BOI benefits in Thailand?

First, Thailand’s Board of Investment (BOI) provides a variety of tax incentives designed to promote investment and stimulate economic growth by attracting both domestic and international businesses to establish operations within the country.

Some key BOI tax incentives available in Thailand include corporate income tax exemptions or reductions, import duty exemptions or reductions, and a double deduction for infrastructure installation : 

Corporate income tax exemptions or reductions allow eligible businesses to enjoy a significant reduction or complete exemption from corporate income tax for a specified period depending on industry and location with longer tax holidays possible for certain activities like research and development or investing in specific regions. Import duty exemptions or reductions exempt or reduce import duties for machinery, raw materials, and essential components required for manufacturing or production processes to help lower costs. Meanwhile, companies investing in infrastructure projects such as transportation, electricity, and water supply systems may qualify for a double deduction on installation or improvement costs as an incentive to contribute to developing essential infrastructure.

In addition to tax benefits, the BOI also offers various non-tax incentives to support businesses through measures like permission for foreign nationals to own land, permission to bring in skilled foreign workers, streamlined work permit and visa processes, and assistance obtaining necessary permits and licenses all aiming to facilitate an easier operating environment. Moreover, additional incentives target specific industries deemed crucial to Thailand’s economic development, such as advanced technology, high-value manufacturing, software development, digital services, biotechnology, medical services, renewable energy, and more with the specific incentives depending on the industry.

Lastly, the Thailand Board of Investment benefits are categorized into activity-based and merit-based incentives applicable to BOI applications submitted from January 1, 2015. In particular, the new activity-based Thailand BOI incentives are grouped according to significance, with Group A activities qualifying for corporate income tax incentives, machinery and raw material import duty exemptions, and other non-tax benefits.

◊ What are taxes deductions limitations in Thailand ?

In the context of Thailand’s tax regulations, boundaries and parameters established by Thai tax laws regarding specific allowable expenses during the computation of taxable income refer to tax deduction limitations.

These limitations can vary based on the particular deduction category and are defined to ensure proper compliance. Notable instances of tax deduction limitations in Thailand include:

• For personal income taxes, the highest deductible contribution is 15% of assessable income, not exceeding 500,000 Thai Baht annually. Contributions made by employees to recognized provident funds are capped at 500,000 Thai Baht or 15% of assessable income, whichever amount is lower. Moreover, the annual threshold for deductible life insurance premiums is 100,000 Thai baht. Expenses related to personal education or education of dependent children can be deducted up to a maximum of 30,000 Thai Baht per individual per year, contingent upon specific qualifying conditions. Deductible home loan interest is restricted to 100,000 Thai Baht per annum for the initial five years of the loan.

• For corporate income taxes, deductions for contributions to eligible charitable organizations are limited to 2% of net profit before deduction, with a maximum cap of 10 million Thai Baht annually. Businesses are eligible to deduct up to 200% of actual research and development costs, subject to specific conditions and limits based on the nature of the R&D activities. Deductions for asset depreciation may be subject to limits defined by asset type and useful life, as the Revenue Department prescribes.

• The law authorizes businesses to deduct input value-added tax (VAT) on goods and services used for taxable purposes. However, specific constraints may apply to certain items such as entertainment expenses or particular capital assets. In addition, these stipulations ensure transparent and equitable practices while allowing for legitimate deductions.

Finally, to ensure accurate compliance with Thailand’s existing tax deduction limitations, individuals and entities are advised to consult reputable tax professionals or refer to official guidelines provided by the authorities.