Thailand Body of Persons Personal Tax Planning Scheme
Update | December 2015
On 21 Dec 2015, Ministerial Regulation No 309 was gazetted, which relaxes Thailand tax on shares of incomes from bodies of persons, but only for two specific types of incomes.
The relaxations from tax under Ministerial Regulation No 39 apply from 1 January 2015 (the same date of application as the Revenue Code Amendment Act (No 39)) and apply only for the following two specific types of incomes derived from bodies of persons:
Update | January 2015
From 1 January 2015, Thailand's Revenue Code Amendment Act (No 39) arrests the body of persons tax planning scheme in Thailand.
It does this by repealing Section 42 (14) of the Revenue Code that provided an exemption from income tax for shares of income from non-juristic bodies of persons. Section 42 (14) was inserted into the Revenue Code back in 1986, primarily for the purpose of supporting the poorer individuals in Thai society to make a living from the carrying on of an easy-to-establish body of persons business operation. But it was picked up by wealthy individuals for the purpose of carrying on an easy-to-establish body of persons tax planning scheme.
From and including 1 January 2015, individuals in bodies of persons are no longer exempt from income tax on their shares of bodies of persons income. Instead, individuals in bodies of persons shall now include their shares of the income in their personal income tax returns and shall now pay personal income tax on their shares of income by adding such income to their other personal incomes.
Revenue Code Amendment Act (No 39) puts the Government's resolution for arresting the body of persons tax planning scheme into effect. But the Government's additional resolution of repealing of the laws that permit bodies of persons to claim expenses and allowances is not included in the Amendment Act, and accordingly, bodies of persons continue to be able to claim expenses and allowances.
Update | October 2014
In our below April 2012 Tax Advantage Article, we alerted foreigners to the Revenue Dept's announcement that the Thailand tax laws were in the process of being amended to arrest the Body of Persons tax planning scheme.
Due to the political problems in Thailand, the new laws could not get to Parliament. But at the Cabinet Meeting on 21 October 2014, the new Military Government approved the new laws for arresting the Body of Persons tax planning scheme.
The drafted new laws for arresting the Body of Persons tax planning scheme are part of the new Military Government's tax reform measures to get the wealthier to pay a bit more tax in Thailand. A summary of the Government's resolutions for the new laws is as follows:
Tax Insight | April 2012
Foreigners please be aware that 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 (not 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 Thai society to make a living by simply entering into an agreement between themselves for the purposes of carrying on a business operation, without the need for a Ministry of Commerce registration, without the need to prepare financial statements, and without the need for 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 picked up by wealthy 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 the tax savings 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 the 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).
Back in April 2009, the Revenue Department announced that it had noticed a sharp rise in the number of Body of Persons tax returns being filed and it would be investigating such returns. And now, in April 2012, the Revenue Department has announced that the Thailand tax laws are in the process of being amended to arrest the Body of Persons tax scheme.
Foreigners should also be aware that entering into a Body of Persons tax scheme could be a violation of the Immigration and Work Permit laws, and if a Foreign Business License is not obtained from the Dept of Business Development, a violation of the Foreign Business Act as well.
This Tax Insight Article is general information only. It should not be used to determine any matter without consulting with an experienced Thailand tax advisor.