Thailand Body of Persons Tax Planning Scheme
Update | December 2015
On 21 Dec 2015, Ministerial Regulation No 309 was gazetted, relaxing tax on shares of incomes from bodies of persons.
The relaxations from tax under Ministerial Regulation No 309 apply from 1 January 2015 (the same date that the Revenue Code Amendment Act (No 39) became effective) but only for the following two specific income types that are derived from bodies of persons:
Update | December 2014
On 26 Dec 2014, the Revenue Code Amendment Act (No 39) was gazetted, and arrests the Body of Persons tax planning scheme in Thailand.
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 income 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 income tax on their shares of incomes by adding such income to their other incomes.
Tax Insight | April 2012
The Director-General of Revenue announced this month that the Thai tax laws are in the process of being amended to arrest the Body of Persons 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). It is easy to establish, because the purpose of it was 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 purpose of carrying on 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 tax planning scheme works, we'll describe it for a person who establishes a Body of Persons with his driver or his maid, and then diverts Bt 1 million of his salary income to the Body of Persons.
When the Bt 1 million of salary income is diverted to the Body of Persons, this reduces the person's income tax liability by Bt 370,000. And when the Body of Persons tax return is filed, against its income of Bt 1 million, the Body of Persons makes a claim of 30% for expenses (on the unsubstantiated expenses basis as allowed under Section 44 of the Revenue Code) and a claim of Bt 60,000 for two partners (as allowed under Section 47 of the Revenue Code) reducing the taxable income of the Body of Persons to Bt 640,000, on which sum, the Body of Persons pays only Bt 63,000 of income tax.
Thus by diverting Bt 1 million of salary income to the Body of Persons, the person saves tax of Bt 307,000 (Bt 370,000 - Bt 63,000).
In addition to the announcement that the tax laws are being amended to arrest the Body of Persons tax planning scheme, the Revenue Department also announced that since it has noticed a sharp rise in the number of Body of Persons tax returns being filed, it would be investigating such returns.
Sherrings would also like foreigners to be aware that entering into a Body of Persons tax planning scheme could be a violation of the Immigration and Work Permit laws, and if a Foreign Business License is not obtained from the Ministry of Commerce, a violation of the Foreign Business Act as well.
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.