Tax amnesty and tax holidays in Thailand

August 2016: The tax amnesty will most likely be revoked for companies which fail to file the tax statements for the financial year 2015 until August 31, 2016.

April 2016: Did your accountant and auditor provide you already with specific recommendations how to make efficiently use of the tax amnesty 2015 by cleaning up the balance sheet? If you don’t have an action list ready how to adjust the financial statements for 2015, you risk losing all the benefits from the SME tax amnesty.
March 16, 2016: THE DAY AFTER. The deadline for tax amnesty and tax holidays elapsed. The registration website of the Revenue Department is now offline. What to do next?
Until March 15, 2016, 40,000 SME’s opted for the very attractive opportunity to register under Royal Decree 595 for tax amnesty and tax holidays. Meanwhile, the Thai Revenue Department announced that tax detectives would be dispatched to investigate SME operators who have refused to enter the tax system. The RD warned that those who stay out of the tax system will lose several incentives offered soon by the department.

The bare hard facts of the new regulation can be found at the websites of the big four audit firms. This post goes some steps further and analyses the feasibility of the new SME tax environment, the weak points, and the practical implementation. A comprehensive German-language overview can be found at the end of this tax analysis.

Are the days of loose accounting procedures coming to an end in Thailand? No.

Thailand’s tax ethic is traditionally undermined. Therefore, it is a good idea to encourage businesses to prepare their financial statements in good faith and to file accurate tax reports. Such game-changing rules could be introduced by an announcement, that tax audits will be tougher and stricter commencing in the financial year 2016. This could be combined with a temporary opportunity for a voluntary self-disclosure to the Thai Revenue Department, eliminating any penal sanctions. By such a regulation Thailand would follow the lead given by several other tax jurisdictions.

However, in Thailand things are different. Commencing January 1, 2016, Thailand introduced Royal Decree No. 595 (together with a Royal Ordinance and a RD statement) which offers incredible opportunities to obtain a blanket tax and criminal amnesty for the past and generous tax holidays for now and future years. Thailand, the tax jurisdiction of milk and honey? No one in their right mind would believe such assertion if the big accounting firms would not confirm this in their newsletters and on their websites.

Royal Decree 595 – a free lunch buffet for small and medium sized companies? Yes.

The tax amnesty and tax holidays depend on a successful application with surprisingly low requirements and hurdles. The gate is open for foreign and domestic companies which do not exceed generous threshold amounts. It is widely published that these companies have to be established before January 1, 2016. This would mean, that even a company formation at the end of 2015 qualifies for tax holidays – although it had not been possible to register any company on the governmental form with a formation date of 2015 (2558 B.E.).

Is this the grand opening of the Pandora’s box of tax planning? Yes.

A company which is ennobled with the benefits under Royal Decree No. 595 might gain unlimited profits in 2016 tax-free. This is not only the once in a lifetime opportunity to clean up the whole accounting system and to get rid of all the old corpse in the cellar. In additions, it opens opportunities for tax-free restructuring and cross-border tax planning – if such exceptional tax handling is really continued during the next years against all common sense.

Is there a catch 22 in the new Thai SME tax regime? Maybe.

The application for all these sweet benefits is linked with the obligation to follow accounting rules and tax laws in the future. The SME must “operate its proper accounting (one set of accounts) as from 1 January 2016 onward and will not do any wrongdoing acts in order to avoid paying taxes and shall file proper tax
returns and pay proper taxes”. However, such legal and tax framework has been already in effect for decades and might be neglected in 2016 same same as before. As the result, the government will definitely earn substantially less tax revenue now and might not substantially strengthen and empower tax ethics and tax revenue in the future. This sounds like a predictable lose-lose situation for the brave Thai tax authorities.

What is the downside if the application had been accomplished on or before March 15, 2016? Since nearly each and any company will intend to register, it is not a serious concern that companies who register might get especially into the focus of the authorities for future tax audits. Just the opposite, qualifying companies which do not apply might find themselves rather soon in an aggressive tax audit.

A more valid point of discussion is whether non-material noncompliances with accounting standards and tax regulations might result in a retroactive revocation of all granted benefits. Will this just be a haircut of the previous benefits or could even a situation occur under which the participation in the SME tax regime results in a “disimprovement” of the overall tax situation of the SME? And in which cases is non-compliance during the zero-tax-year harmful? Is it deemed to be non-super-compliance if the declared (tax-free) profit in 2016 is too high?

The latest developments regarding Royal Decree 595 will be described and evaluated in future updates of this post.


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