2-year tax breaks for SMEs in Thailand: What you need to know
On January 1, Royal Decree No. 595 was launched in order to encourage businesses to prepare their financial statements in good faith. The Decree provides strong incentives for SMEs to file accurate tax reports moving forward, while forgiving past bookkeeping practices which may have understated their companies’ financial performance.
The new initiative was introduced in an effort to create an accurate tax base that reflects the real economic situation of the country. Until now, the widespread practice wherein many companies keep two sets of ledgers (one for ‘official’ purposes, another for their internal bookkeeping) has meant that a true understanding of the Thai business world has been elusive. Apart from the loss of tax revenue that this uncertainty has created until now, the lack of true economic transparency has also led to a virtual haze over the economy, in which real financial performance around the country has been shrouded in a mist and informed investment a nearly impossible goal to attain.
Small and medium-sized enterprises that sign up with the scheme will be exempted from backdating probes, and therefore need not worry about discrepancies between their next tax filing and the previous ones they have submitted.
Adopters of the single-bookkeeping system will additionally enjoy generous tax breaks for two years. SMEs taking advantage of the new scheme will be exempted from all corporate income tax on net profits for the 2016 accounting year. They will also enjoy tax exemptions on the first 300,000 baht of their net profits in the following 2017 accounting year, while the portion of their profits above that amount will be taxed at 10% instead of the normal 20% corporate income tax rate.
This get-out-of-jail-free card doesn’t apply in every situation, however; these exemptions do not apply to companies that are currently under an investigation from a Thai Revenue Department tax audit, or currently involved in tax court proceedings. Furthermore, if a business signs up for the scheme but afterwards does not pay the correct tax, then their exemption from backdating probes can be cancelled.
It’s also important to note that if a refund is requested during the year that it is exempted from the tax audit, the Revenue Department maintains the right to audit the specific period for which the refund is being claimed.
- PKF Thailand can help businesses successfully register for the programme through the Revenue Department, from January 15 to March 15. Please, however, note the following criteria apply when signing up for the scheme: To qualify for exemption from backdating probes, the company must have had revenues of less than THB 500 million in the previous fiscal accounting year ending on or before December 31, 2015.
- To qualify for tax exemption and tax rate reduction, an SME is defined as a company with registered and paid-up share capital not over THB 5 million, and annual income from sales and services of THB 30 million or less.
Please note the above criteria must be met in ALL the previous accounting years.
To further standardize and regulate the internal accounting processes of SMEs, the Finance Ministry and the Bank of Thailand will enact new requirements for banks, beginning on January 1, 2019. From that date forward, when SMEs seek loans from Thai banks, those banks will be compelled to use as primary evidence the books and financial statements that these SMEs have submitted in their official tax filings.
Furthermore, it is possible that the Revenue Department will soon oblige all corporate taxes to be paid via their e-payment system, which will be linked between banks and the tax authorities.
With this clear new focus on the integration of financial record-keeping systems between (and within) companies, banks and the government, it’s clear that the days of loose accounting procedures are coming to an end in Thailand. As the incentives now clearly point to SMEs accurately reporting their financial details as they file their taxes, the timing is ideal for companies around Thailand to review and renew their internal accounting procedures.
Full Credits and written under permission of South African Chamber & PKF C/O K Chanpen