Deductible Expenses for Thai Companies – Ultimate Guide

Introduction

Running a business in Thailand involves various expenses, some of which can be deducted to reduce corporate income tax liability, as outlined by the Revenue Code. Companies may also be eligible for tax exemptions on dividends paid between qualifying Thai firms, under double tax treaties, or through Board of Investment promotions.

Understanding available deductions and exemptions is a key point for minimising a company’s tax burden. This article examines what qualifies as deductible expenses for businesses in Thailand.

What are Deductible Expenses for businesses in Thailand?

In Thailand, deductible expenses are costs that a company can subtract from its total taxable income, thereby reducing the amount of corporate income tax it owes. 

The Revenue Code of Thailand outlines specific rules and limitations on what qualifies as a deductible expense. Companies should maintain proper documentation and adhere to accounting standards when claiming deductions on their annual corporate income tax returns.

What Can be Claimed as a Deductible Expense?

In practice, any expenses incurred by a business that was exclusively for the purpose of generating income or business, can be deducted from their tax calculations. However, section 65 of the Revenue Code does exempt certain expenses from being deducted.

The following are examples of deductions which can be claimed by Thai companies:

Petty Cash

Petty cash expenditure (less than 1,000 THB) per transaction may be claimed as a deductible expense. However, if the company tries to submit too many expense claims as petty cash expenses, they may not be accepted and cannot be deducted from the accounts. 

Entertainment Expenses

Entertainment (including food and drink) expenses incurred by a company may be deducted from its gross income. However, the total deduction of entertainment expenses shall not exceed 0.3 % of total gross revenue or gross sales, or of the paid-up capital, whichever is greater in an accounting period. Also, the total entertainment expenses allowed for deduction must not exceed 10 million THB.

For example, if your company has a registered capital of 2,000,000 THB and annual revenue of 6,000,000, the maximum entertainment expenses your company can deduct is as follows:

In this case, since the annual revenue is 6,000,000 THB and is greater than the registered capital, the company will be able to claim up to 0.3% of 6,000,000 THB. 

0.3% x 6,000,000 = 18,000 THB.

Therefore, the company will be able to deduct 18,000 THB from their CIT returns as entertainment expenses. 

Losses Carried Forward

A company may carry its operating losses forward for five accounting periods to offset against future profits. Please note, there is no provision for the carry back of losses to previous accounting periods.

Depreciation Allowance

Thailand’s tax regulations allow the use of any generally accepted accounting method for calculating depreciation. However, the depreciation rates cannot surpass the limits outlined in the Royal Decree issued under the Revenue Code (No. 145). 

Accelerated depreciation may be permitted for cash registers and machinery or accessories employed in research and technological development projects. 

Buses with a seating capacity not exceeding 10 passengers, or passenger cars, are eligible for depreciation, but only for the portion of the cost value that does not exceed 1,000,000 Thai Baht.

Interest Expenses

If a business has any loans or credit card debt, they can deduct the interest payments on these payments. Any interest accrued on loans used to purchase equipment or other assets, as well as interest on credit card balances used for company reasons, might also be included.

Rent 

If a business rents any property, the rent can be deducted from their expenditures. Eligible property includes office space, warehouses, and other commercial properties.

Business Expenses

All business expenses, such as the purchase of office supplies, travel expenses, and advertising charges, can be deducted from your taxable income.

Reserves

Deductions are permitted for reserves set aside from insurance premiums, as well as reserves established as provisions for bad or doubtful debts arising from credit extension by banks, finance and securities companies, or credit foncier institutions. However, other types of reserves are not eligible for deductions.

Contribution to Funds

Any contributions made by the company to a provident fund (in accordance with applicable Ministerial Regulations) for employees can be claimed as a deductible expense.

Bad Debts

Bad debts can be a deductible expense, however the company must follow the required legal provisions to do so. Please see this article for more information about how to write off bad debts. 

Donations

Donations to public charities valued up to 2% of net profits of the companies can be deducted. Furthermore, donations for education or sports valued up to 2% of net profits may also be deducted.

Travel Expenses

In relation to any expenses claimed for travelling, the auditor who undertakes the company’s annual audit and/or the Revenue Department will typically assume that the trip was for pleasure rather than for business. Therefore, the company will have to prove that: 

• the trip was for company business and 
• that all the expenses paid on the trip were reasonable for the trip and reimbursed at cost. 

If the company cannot prove these 2 key points, the travelling expenses claimed could be added back to your bottom line profit and therefore, the company will have to recalculate the corporate income tax and possibly have to pay more tax.

Please see this article for more information about what travel expenses can be deducted and how to make such deductions.

How Can a Company Claim Expenses?

In Thailand, there are several supporting documents required for claiming deducted expenses for tax purposes. Here are some of the common documents needed:

Tax Invoices

This is the primary supporting document required for deducting expenses. Invoices or receipts should clearly state the date, details of the goods or services purchased, the name and tax identification number and address of both the buyer and seller, and the amount paid.

Withholding Tax Certificates

If you have paid withholding tax on certain expenses, such as professional fees or rental payments, you will need to obtain withholding tax certificates from the payees to claim deductions.

Payroll records

For deducting employee salaries and benefits, you will need to maintain payroll records, including salary slips, social security contribution records, and provident fund contribution records.

Contracts or Agreements

In the case of deducting expenses related to contracts or agreements, such as rental agreements or service agreements, you may need to provide copies of these documents as supporting evidence.

It’s important to note that the specific supporting documents required may vary depending on the type of expense and the tax regulations in effect at the time. 

What Expenses Cannot Be Deducted?

The following items have been classified as non-deductible expenses under Section 65 ter of the Revenue Code. 

• Personal expenses and gifts.
• Tax penalties, surcharges and criminal fines under the Revenue Code.
• Any artificial or fictitious expenses.
• Consideration for properties owned and used by the juristic entity.
• Interest on capital, reserves, or funds of the juristic entity.
• Any damage recoverable under an insurance or contract of indemnity.
• Any disbursement if the identity of its recipient cannot be proved by the payer.
• The portion of the purchase price of properties and the expenses in connection with the purchase or sale of properties which exceeds a reasonable amount.

What are Add Back Expenses?

Add-back expenses refer to the expenses that are included in a company’s accounting records but are not allowed as deductions in the calculation of net profits for tax purposes. The Thai Revenue Code, specifically Section 65 Ter, outlines the expenses that cannot be claimed as deductions. These expenses need to be added back to the profits in the tax return.

Failing to add back these expenses in the tax return can lead to inaccuracies and potential penalties from the Revenue Department.

Expenses Not Allowed for Deduction

According to the Thai Revenue Code, there are several expenses that are not allowed for deduction in the calculation of net profits. These expenses include:

Reserves

Reserves, except for specific types such as insurance premium reserves for life insurance and other insurance, and reserves for bad debts or suspected bad debts.

Funds

Expenses related to funds, except for provident funds under the rules and regulations prescribed by the Ministerial regulations.

Personal, Gifts, or Charitable Expenses

Expenses for personal, gift, or charitable purposes, except for public charity or public benefit expenses, shall be deductible in an amount not exceeding 2% of net profit. Expenses for education or sports as the Director-General prescribes with the approval of the Minister shall also be deductible in an amount not exceeding 2% of net profit.

Entertainment or Service Fees

Entertainment or service fees that do not comply with the following rules, the total deduction of entertainment expenses shall not exceed 0.3 % of total gross revenue or gross sales, or of the paid-up capital, whichever is greater in an accounting period. Also, the total entertainment expenses allowed for deduction must not exceed 10 million THB.

Capital Expenses

Expenses for the addition, change, expansion, or improvement of an asset, excluding expenses for repairs to maintain its present condition.

Fines and Surcharges

Fines, surcharges, criminal fines, and income tax of a company or juristic partnership.

Excessive Shareholder or Partner Salary

Should one of the shareholders or partners receive an excessively large salary then this may be challenged by the Revenue Department and any excess salary (i.e. the difference that would be considered excessive) will be added back to the accounts as non-deductible. In such a case, a salary may be considered as excessive when the amount awarded to the shareholder or partner is disproportionate to the revenue earned by the company.

Unrealized or Deferred Expenses

Expenses that are not actually incurred or should have been paid in another accounting period, except in certain cases where it cannot be entered in any accounting period.

Remuneration for Company-Owned Assets

Remuneration for assets owned and used by a company. For example, any items bought for personal use and not for undertaking business activities by the company directors or shareholders.

Interest Paid to Equity, Reserves, or Funds

Interest paid to equity, reserves, or funds of the company.

Damages Claimable from Insurance

Damages claimable from insurance or other protection contracts, or losses from previous accounting periods, except for net loss carried forward for a specific period.

Non-Business Expenses

Expenses that are not for the purpose of making profits or for the business.

Non-Business Expenses in Thailand

Expenses that are not for the purpose of business in Thailand.

Excessive Asset Purchase Costs

Costs related to the purchase or sale of assets that exceed the normal cost and expense without reasonable cause.

Lost or Depleted Natural Resources

Value of lost or depleted natural resources due to the carrying on of business.

Non-Devalued Assets

Value of assets apart from devalued assets subject to specific provisions.The value of assets shall be assessed using the normal purchase price of such assets. Should the asset receive appreciation in the value of the asset, this appreciation shall not be included in the calculation of net profit or net loss. 

Unidentified Expense Recipients

Expense for which the payer cannot identify the recipient. For example, if a company uses a third party to help with the process in an unofficial way or without a proper contract or agreement.  Please note, in such a case, precedent from Thai case law highlights that for this kind of situation, the courts will allow such a payment to be deducted if the following can be provided:

• Evidence of the payment 
• Witnesses that can prove that the expense was received by a real person and is not a false claim.

Post-Accounting Period Expenses

Any expense payable from profits received after the end of an accounting period. Please note that in Thailand, most companies opt to have their financial year end on the 31st of December.

An example of an expense payable from profits received after the end of an accounting period include:

• Bonuses payable to employees
• Dividends payable to shareholders

Other Prescribed Expenses

Expenses similar to those specified above, as prescribed by a Royal Decree.

Nos réflexions

Understanding the requirements for deductible expenses and what can be claimed for companies in Thailand is essential for businesses operating in the country. Companies must comply with tax regulations and ensure all deductions are eligible for claiming. 

It’s really important for companies to understand that Thailand, unlike other countries, has a lot of limitations regarding the ability for companies to deduct expenses. In order to be able to make these deductions, a lot of supporting documents are required and have to be correctly filled out. Should the documents be incorrectly issued, it will be rejected and that expense will not be eligible for deduction. The reason for this being that the accountant may refuse to accept it and/or the auditor will flag them in their annual audit. Also, should the Revenue Department become aware of such claims in an investigation, they will add it back as taxable income.

Therefore, it is very important for companies in Thailand to be aware of this and properly maintain all proper supporting documents.