Thailand Body of Persons Personal Tax Planning
On 26 Dec 2014, the Revenue Code Amendment Act (No 39) was gazetted, arresting the Body of Persons personal tax planning scheme.
From and including 1 January 2015 (the date the RCAA (No 39) is effective) individuals in bodies of persons are no longer exempt from personal tax on their shares of incomes from bodies of persons. Instead, individuals in bodies of persons shall now include their shares of incomes from bodies of persons in their personal tax returns and shall pay personal tax on their shares of incomes by adding such income to their other incomes.
The Tax Planning Scheme
A Body of Persons is a tax entity under the Revenue Code (rather than a legal entity under the Civil and Commercial Code) that is easy to establish, the purpose of it being to provide an easy non-complicated form of business structure for the poorer individuals in society to make a living by entering into a simple partnership agreement between themselves for the carrying on of a business operation without the need for any Govt registration, without the need to prepare financial statements, and without the need for an auditor, etc. Just about the only requirement for a Body of Persons is to file a tax return for it.
But the Body of Persons tax laws were used by the wealthier individuals in Thai society, not for the purpose of carrying on any business operation, but for the purpose of carrying on a tax planning scheme. To illustrate how the scheme works, we'll describe it for a person who establishes a Body of Persons with any other person, and diverts 1 million Baht of his salary income to the Body of Persons.
When the 1 million Baht of salary income is diverted to the Body of Persons, this reduces the person's income tax liability by 370,000 Baht. And when the Body of Persons tax return is filed, against its income of 1 million Baht, the Body of Persons makes a claim of 30% for expenses (as allowed under Section 44 of the Revenue Code) and a claim of 60,000 Baht for two partners (as allowed under Section 47 of the Revenue Code) reducing the taxable income of the Body of Persons to 640,000 Baht, on which sum, the Body of Persons pays only 63,000 Baht of income tax.
Thus by diverting 1 million Baht of salary income to the Body of Persons, the person saves tax of 307,000 Baht (370,000 Baht - 63,000 Baht).
This Tax Insight is general information only. It should not be used to determine any particular matter without consulting with an experienced Thailand tax advisor.