The Revenue Department (RD) has issued a number of notifications over the first half of 2011 covering (i) the application of VAT in the context of exported services and for the partial transfer of business, (ii) the treatment of certain donations in support of education, and (iii) new tax benefits for operators of international procurement businesses.
VAT on exported services and the partial transfer of a business
Services have historically been zero-rated for VAT purposes as long as such services were utilized exclusively in a foreign country. In other words, if any portion of the services was utilized in Thailand, then all of the services, including those utilized outside of Thailand, would be subject to 7% VAT. Under new rules from the Director General of the Revenue Department, services are no longer required to be utilized exclusively in a foreign country in order to qualify as zero-rated. Instead, the portion of any services utilized in a foreign country will be zero-rated for VAT purposes, while the other portion of services utilized in Thailand will be subject to 7% VAT. At this point, it is not clear what methodology the Revenue Department will employ in order to apportion the utilization of services between Thailand and other countries.
As of 1 January 2011, a partial transfer of business between affiliated companies and juristic partnerships is entitled to exemption from VAT, Specific Business Tax, and Stamp Duty.
Double deductions available for donations to educational institutes, corporate libraries and child development centers
New regulations from the Revenue Department encourage donations for the purchase of books and certain electronic media by educational institutes, corporate libraries and child development centers. Individuals making such donations are allowed to deduct from their assessable income twice the amount of any cash donation used to purchase books or electronic media for purposes of encouraging reading at an educational institute. This double deduction is also available with respect to donations of cash for the operation or establishment of certain child development centers. Corporations are entitled to a similar deduction against their net profits and are allowed to deduct twice the value of any assets (as well as cash) donated for such purposes. Corporations may also deduct twice the expense of any purchase of books or electronic media used to encourage reading in the corporate library as well as twice the value of any cash donation for the operation or establishment of qualifying child development centers or in-company nurseries. These deductions are subject to limits based on a percentage of assessable income or net profits and as otherwise specified in the relevant notifications and Royal Decrees.
Tax treatment of International Procurement Centers
Operators of International Procurement Center (IPC) businesses are the beneficiaries of new regulations from the Revenue Department. An IPC is a company incorporated under Thai law for the purpose of procuring goods, raw materials and spare parts for sale to its affiliates and must register for IPC status with the Revenue Department by 9 May 2013. An IPC must meet other requirements concerning capitalization, operating expenses and capital expenditures in order to retain its IPC status.
The tax benefits for an IPC include a reduction or exemption from personal income tax for qualifying experts or members of senior management and a reduction in the corporate income tax rate to 15% with respect to certain revenues.