Thailand Excess Withholding Tax Audits
Tax Insight | March 2014
At the Government's Cabinet Meeting on 8 Jan 2013, held for the purposes of considering tax compensation help for companies to cope with the Bt 300 minimum daily wage law, one of the proposed measures was to reduce the rate of withholding tax for services companies from 3% to 2%.
When the 3% withholding tax rate for services income was introduced, the rationale behind it was that, on the basis of a services company’s net profit being 10% of it’s gross income, the corporate tax payable (at the rate of 30% as it was then) would be 3, or in other words, 3% of gross income, and thus the withholding tax rate was set at 3%.
Following the same rationale, the reduction in the corporate tax payable by companies from 30% to 20% should mean that the rate of withholding tax on the gross income for a services company should be reduced from 3% to 2%.
But the 3% withholding tax rate hasn't been reduced, and here below are the results of three of Sherrings' services company customers for the 2012 financial year:
The 2012 year excess withholding tax paid (tax refund position) of the three companies will be even higher for the 2013 year, and all three of these services companies know that filing a tax refund claim for the excess withholding tax from the Thailand Revenue Department will cause them to be investigated by the Thailand Revenue Department's tax auditors.
Sherrings believes it not right and proper for a Government's tax policy to cause companies to incur excess withholding tax, and then penalize them with a tax investigation when they ask for their excess withholding tax to be refunded, and on behalf of all services companies in Thailand, Sherrings asks the Government to reconsider its policy for this matter.
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.