Thailand Debt Offset & Haircut Corporate Tax Planning
Before you implement a business recession strategy of offsetting debts or providing a Thai company with a debt haircut, you should consider the possible hidden Thailand tax costs.
The Thailand tax law subjects payments to foreign companies to withholding tax, as well as VAT (according to the reverse-charge rule) for which a Thailand company payer is liable.
The tax point when the withholding tax and the VAT liabilities arise 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 owing from the foreign company, such an offsetting is treated by the tax audit officers in Thailand to be the same as physically making payment and physically receiving payment.
This means that on the date of the offset, the tax points are triggered, and the Thai company could be liable to the Revenue Department for any withholding tax and VAT that would have otherwise been payable if the accounts payables and receivables were physically paid and 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 the 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 maybe even cancels the payment altogether) you may think that both the withholding tax and the VAT liabilities are relieved.
But this is not so for VAT. As the Thailand tax law imposes VAT on the value of the services rendered, even though a payment is reduced or there is no payment to make at all, a VAT liability could still possibly exist for the value of the services that have been rendered.
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.