Thailand Debt Offset & Haircut Corporate Tax Planning
Tax Insight | January 2009
Before you implement a business recession strategy of offsetting debts or providing a Thai company with a debt haircut, you should consider possible hidden Thailand tax costs.
The Thailand tax law imposes withholding tax on services payments to foreign companies, and it also imposes VAT on the services payments, for which the Thailand company payer is liable (according to the reverse-charge rule)
The tax point (i.e. the point in time when the tax liability is triggered) for such withholding tax and VAT is the date of payment to the foreign company.
If a Thailand company implements a business strategy of offsetting accounts payable owing to a foreign company against accounts receivable from the foreign company, the Thailand company should be aware that the offsetting of the accounts is considered to be the same as physically making a payment and physically receiving a payment.
This means that on the date of the offset, the tax point is triggered, and the Thai company is still obliged to the Revenue Department for any withholding taxes and VAT liabilities, which would have been payable if the accounts payable were physically paid, and if the accounts receivable were physically received.
A business recession strategy of granting a Thailand company a haircut on debts owed to a foreign company can also result in a (surprising) tax liability for a Thai company.
If a foreign company grants a haircut on a debt for a service rendered or some other similar kind of debt (such as a royalty) in order to ease a Thailand company's financial burden, then because the haircut reduces the payment or cancels the payment altogether, you may think that both the withholding tax and the VAT obligations are relieved.
But this is not so for VAT. As the Thailand tax law imposes VAT on the value of the services that are rendered by a foreign company, even though the payment is reduced or there is no payment at all, a VAT liability could still exist for the services that have been rendered.
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.