Thailand Branch Office Subsidy Income VAT
Tax Insight | October 2013
Thailand branch offices receiving subsidy funds from their foreign head offices do not have to accept the VAT income deeming in Thailand and if you are battling with an accountant or a Revenue Department tax audit officer in Thailand over this issue, you can refer your case to the Revenue Department's tax lawyers.
For a Thailand branch office carrying on only non-income-generating activities, the branch office does not sell any goods or provide any services, and no commercial income at all is earned by the branch office.
And as the Thailand branch office doesn't earn any commercial income, the foreign head office company pays the costs of the Thailand branch office by providing subsidies to the Thailand branch office.
Both Thailand's local corporate tax law and double tax treaties prescribe quite explicitly that whilst a Thailand branch office is the same legal entity as its foreign corporation, it shall be treated as if it were a separate legal entity, and therefore, the subsidies it receives from its foreign corporation head office is income for corporate tax purposes in Thailand.
But both accountants and Revenue Department tax auditors in Thailand are keen to apply this corporate tax prescription to the VAT laws as well and deem the subsidy funds that a Thailand branch office receives from its foreign head office company as services income subject to VAT in Thailand also.
But it's impossible under commercial business laws for one to provide services to oneself, and it's simply not correct at all for one to merely “deem” subsidy funds that a branch office receives from its head office to be services income that is subject to VAT in Thailand.
There are no less than nine Tax Rulings issued by the Revenue Department's tax lawyers, each of them saying the same thing - that because a foreign head office and its Thailand branch office are the one and same legal entity, and no one legal entity is able to provide services to itself, then the subsidy funds a Thailand branch office receives from its foreign head office does not constitute income that is subject to VAT in Thailand.
This is a general information Tax Insight Article only. It should not be used to determine any matter without consulting with an experienced Thailand tax advisor.