Taxes are an unavoidable yet complicated part of doing business in Thailand. There are over 7 chapters and 143 sections in the Revenue Code of Thailand. Because of this, you may fail to follow some rules without even meaning to do so.
One minor tax mistake could have more impact on your business than you’d imagine. It may lead to problems with the Revenue Department. And this is the last thing you want. Fixing mistakes is a lengthy process costing valuable time and money.
This article will guide you through the common tax mistakes—and the penalties you may suffer from making such mistakes—while running a company in Thailand.
Before you find out the common tax mistakes, let’s first look at tax penalties. This section includes both direct penalties, such as fines and imprisonments, and indirect penalties, such as tax refund issues and work permit cancellations.
In addition to the penalties below, there are issues that are not directly related to the Revenue Department. When mistakes happen, you may need to dig out and prepare a mountain of tax documents, resulting in huge losses of time and money. Think about the money you’d have to spend hiring the right person to deal with Revenue Department officers. Or think about having to approach the Revenue Department yourself.
The penalties for failing to follow tax laws in Thailand normally is a fine ranging from 1,000 baht to 200,000 baht, depending on the seriousness of your case. For example, delaying in filing monthly tax paperwork with the Revenue Department comes with a 1,000 baht fine. Whereas creating a fake invoice may result in a 200,000 baht fine.
In addition to the fixed fines, there is an interest rate of 1.5% per month. The interest is calculated right after the taxation mistake occurs. If you don’t deduct withholding tax, create fake invoices, or don’t issue invoices, you need to pay two times the tax amount that originally needed to be paid.
Imprisonment is another common penalty for failing to follow tax laws in Thailand. Even a small case like forgetting to deduct withholding tax in a single invoice may give you one month in jail.
This is an indirect penalty that’s not mentioned in the Revenue Code of Thailand. A minimal taxation mistake may further slow down your tax refund, which is already a very slow process. Sometimes you might not get a tax refund at all because of it. This means a huge loss of money since the amount of tax refund can be easily over 100,000 a month depending on the income of your corporation.
Revenue Department has the right to seize your assets when you’re unable to pay taxes and fines. Worse yet, they have the power to seize your assets immediately, without having to wait for court judgement.
Work Permit Cancellation
Not paying taxes the right way may result in having your work permit cancelled. At the very least, the latest year of tax certificates and financial statements are required to issue or extend a work permit in Thailand.
In Thailand, tax mistakes happen for many reasons. Some by accident, some on purpose. But as you’ve seen from the above info, it’s best to avoid these common tax mistakes below.
It’s not necessary to do a VAT registration right after setting up a company in Thailand. However, without it, the company is unable to collect withholding tax from buyers or customers and can’t issue a tax invoice. This shouldn’t be a problem unless the revenue grows to over 1.8 million baht a year.
In accordance with Thai Revenue Department regulations, all companies in Thailand have to do a VAT registration within 30 days after annual revenue exceeds 1.8 million baht, unless it is in one of these following exceptions. Failing to do so results in a penalty of two times the tax rate from any revenue over 1.8 million baht, with a 1.5% interest added to that every month.
Creating Fake Invoices
Taxable income in Thailand has a progressive rate and is calculated from the company’s income, deductions, and expenses. This means the more profit the company gets, the more taxes the company has to pay. This leads some people to create more expenses by issuing fake invoices, thinking they’ll pay significantly less tax.
But never issue fake invoices since it’s against Revenue Department Section 65. Doing so is a crime in Thailand and land you in jail for seven years per single fake invoice. In addition, your company will be penalized at 1.5% interest per month.
Withholding Tax Deductions
Withholding tax is quite a headache. The majority of company services are subject to withholding tax, or WHT. The company needs to collect WHT on behalf of the Revenue Department for any service provided. Then the company needs to report and pay the WHT to the Revenue Department every month. Each type of services has a different rate, which can be checked from the Revenue Department’s website. In addition, withholding tax certificates need to be issued for every deduction.
Forgetting to deduct withholding tax, not issuing a tax certificate, or not giving a monthly report to the Revenue Department are subject to both imprisonment and fines. Moreover, the company needs to pay two times the withholding tax that originally needed to be paid.
If the company issues an invoice that is different from the Revenue Department’s standards, there is a 2,000 baht penalty per invoice. An invoice is defined as all documents that are related to finance, including tax invoices, tax certificates, debit notes, credit notes, and more.
In case the company intentionally doesn’t issue an invoice to avoid paying taxes, the penalty includes both a seven year imprisonment and 200,000 baht fine, in addition to the two times tax rate that needs to be paid with 1.5% interest per month.
Delayed Tax Payments
Taxes need to be filed and reported to the Revenue Department at the beginning of every month. There is a 1000 baht to 2000 baht fine with a 1.5% monthly interest rate per case. Remember that there are easily more than three types of taxes the company needs to deal with depending on their provided services. It’s important to carefully check with an accountant on how many tax types your company is subject to.
All e-commerce websites in Thailand need to be registered with the Department of Business Development thirty days after the site is created. The penalty of not registering your e-commerce website is a 2000 baht fee with a daily fee of 100 baht. Although the penalty itself is not high, the company may run the risk of encountering unexpected problems when dealing with any government organizations.
While it’s tempting not to follow all complicated tax matters, a single tax mistake can severely impact your business. Sometimes the error happens simply because you’ve never heard of one of the tax rules. To prevent, it’s better to hire a professional accountant to handle your tax matters.
Hiring an accountant also has other benefits. They provide advice on how to decrease taxable income, how to get more money from tax refunds, and they even assist you with work permit and visa issues. For our company, we have been using an accounting service from this accountant for over 10 years. So far we haven’t encountered any taxation problems and can instead fully focus on doing a business in Thailand.
Disclaimer: We are neither corporate lawyers nor accountants. This article was written based on our experience and research while running a business in Thailand for over 10 years. It should give you ideas on how to avoid tax issues in Thailand. However, mistakes and misunderstandings happen. Always fact check with a professional.