There is an announcement of a Royal Decree (“RD”) giving income tax exemptions in Thailand. This is applicable to all investments in target businesses. Noteworthily, this RD is part of ongoing government efforts to encourage social and scientific growth. The Revenue Decree Governing Exemption of Taxes and Duties (No. 750) B.E. 2565 (2022) went into force on June 15, 2022, and will be effective until June 30, 2032. This decree is applicable for both Personal and Corporate Income Tax in Thailand.
The main purpose of this RD is to exclude gains made by individuals, businesses, and legal partnerships. These exclusions are for investments in the target industries leading to the formation of “Target Companies“. The exemption also applies to investments made in eligible Thai Venture Capital Trusts (“VCT”) and Private Equity (“PE”) companies.
- Which Businesses are Eligible for Income Tax Exemption in Thailand?
- Case-specific Income Tax Exemptions in Thailand
- How can we help with Tax Exemption in Thailand?
Which Businesses are Eligible for Income Tax Exemption in Thailand?
A firm or legal partnership conducting business in one or more of the following “Target Industries” is a Target Company. The Committee on Policy for National Competitiveness Enhancement for Target Industries has chosen the following industries as targets:
- Next generation automotive
- Intelligent electronics
- Advanced agriculture and biotechnology
- Food for the future
- High-value and medical tourism
- Automation robotics
- Aviation and logistics
- Medical and comprehensive healthcare
- Biofuels and biochemicals
- Digital development
- Defense
- Education and human resource development
Case-specific Income Tax Exemptions in Thailand
Direct Investments
Gains from the sale of shares in a Target Company will not be subject to personal or corporate income taxes. Conditions that are crucial include:
- Before the capital gain is realized, the investor must have owned the shares for at least twenty-four (24) months.
- In each of the two (2) consecutive accounting periods prior to realizing gains from the transfer of shares, at least 80% of the operating revenue of the Target Company must have come from business operations in the Target Industries.
Investment through Private Equities (PEs)
Share Transfer Gains
Gains from the transfer (disposal) of PE shares that invest in a target company are free from PIT and CIT if the investor-owned the PE shares for at least twenty-four (24) months prior to the capital gain’s occurrence. Furthermore:
- The capital gain exemption is only proportionate to the PE’s participation in the Target Companies if the PE has no retained earnings. Additionally, in each of the two (2) prior accounting periods to the day gains are generated from the transfer of shares, at least 80% of the Target Company’s operational revenue had to have come from business operations in the Target Industries. The Director General (“DG”) of the Revenue Department shall establish the required percentage of investments by the PE into Target Companies.
- The entire gain earned by the investor in the PE will be exempt from PIT or CIT if the PE has retained earnings and at least 80% of those retained earnings were derived from gains as described above, in each of the two (2) accounting periods prior to the date on which the investor in the PE receives income from the transfer of shares (of the PE).
- Legal reserves cannot be included in the calculations of retained earnings in clauses 1. and 2. above.
Dissolution Gains
According to RC, Section 40(f), a shareholder’s excess return on investment upon dissolution comes under the taxable income slab. However, under RD, the PE investor need not recognize the excess return of capital from the dissolution of a PE. Because it can only be used in proportion to the PE’s interest in the Target Companies, the exemption is restricted. Additionally, for the two consecutive accounting periods prior to the dissolution of the PE, at least 80% of the Target Company’s operating revenue had to come from Target Industries.
Investment through Venture Capital Trusts (VCTs)
Unit Transfer Gains
If the investor held the shares for at least twenty-four (24) months prior to the gain occurring, gains from the transfer (disposal) of VCT units that were invested in a target company will be exempt from PIT and CIT. Furthermore:
- The capital gain exemption only applies in proportion to the VCT’s investment in Target Companies if it had no retained earnings. In addition, in the two (2) consecutive accounting periods prior to the gain from the transfer of units, at least 80% of the operating revenue of the Target Company is in each of the Target Industries. The Director General (“DG”) of the Revenue Department shall establish the required percentage of investment in Target Companies by the VCT.
- The entire gain from the transfer of units will be exempt from PIT or CIT if the VCT has retained earnings, and it did so in each of the two (2) accounting periods prior to the unit transfer, which resulted from investment in a Target Company that derives at least 80% of its total income from operations in target industries.
Dissolution Gains
When a VCT dissolves, a unit holder’s income is free from income recognition. However, it is only to the extent of VCT investment in Target Companies. In addition, during the two (2) consecutive accounting months prior to the VCT’s dissolution, at least 80% of the operating revenue of the Target Company must come from Target Industries.
How can we help with Tax Exemption in Thailand?
Although this article is an attempt to explain to you the new announcement of the Royal Decree for Income Tax exemption, yet, is not enough to cover the entire concept. Therefore, you will need a reliable Accounting and Taxation firm in Thailand by your side to guide you throughout. When that firm is Konrad Legal, we assure you of the following benefits:
- Dedicated Accounting team to track the books and accounts of your business in Thailand
- Planned, Requested, or Statutory, get professional Internal & External Audit Services
- Complete support for Personal and Corporate Income Tax Payment & Return Filing
So, if you want to manage your accounting, audit, and taxation requirements from a single point of contact, then do count on us. Email us your requirements at officer@konradlegal.com
