Thailand Capital Reduction Payments Withholding Tax
Thailand's Supreme Court has issued a decision about liability to Thailand withholding tax under the Revenue Code for capital reduction payments.
Supreme Court Case No 6900/2559
A Thailand company with paid up share capital of 200,000,000 Baht and retained earnings of 336,435,737 Baht, had a shareholder holding 1,720,000 shares in the company. In 2006, the Thailand company reduced its capital by the 1,720,000 shares held by that shareholder. The capital reduction payment that the company made to the shareholder was 387,670,800 Baht made up of 172,000,000 Baht for the shareholder's shares and 215,670,800 Baht for the shareholder's portion of retained earnings. No withholding tax was deducted.
The Revenue Department issued an assessment of tax to the company for withholding tax on the amount of 215,670,800 Baht on the basis of that amount being a dividend payment under Section 40(4)(b) of the Revenue Code that is subject to 10% withholding tax.
The company disagreed claiming the amount of 215,670,800 Baht was part of the capital reduction payment under Section 40(4)(d) that is not subject to withholding tax, and that it could not be a dividend because there was never any resolution of the company to pay a dividend and additionally it was paid to one shareholder only and not to all shareholders.
The Supreme Court reasoned:
Note for Foreign Company Shareholders
Whilst this Supreme Court Case determined the 10% withholding tax liability for retained earnings portions of capital reduction payments under the domestic payment withholding tax laws, foreign company shareholders should note that the same rate of 10% would also apply for retained earnings portions of capital reduction payments under the international payment withholding tax laws.
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.