Accounting for Consulting Firms in Thailand

Consulting firms in Thailand have a different accounting profile from retailers, manufacturers and many other service businesses. Clients deduct 3% withholding tax from professional fees before payment, creating corporate tax credits that need to be reconciled throughout the year. If those credits are not recorded properly, the business can end up paying tax it has already paid once.

Introduction

Consulting firms are relatively straightforward businesses, but the accounting is often more complex than business owners expect. Clients deduct withholding tax before paying invoices, projects frequently span more than one accounting period, and revenue does not always match the timing of billing or cash received. Properly preparing these aspects is essential if the accounts are to reflect the true performance of the business.

Unlike businesses that sell products, consulting firms generate most of their value through the services they provide. Payroll is usually the largest expense, while withholding tax, work in progress and deferred revenue all play a much bigger role in the accounts than they would for many other businesses.

This guide explains the accounting issues consulting firms commonly face in Thailand, including withholding tax, cross-border payments, revenue recognition, payroll, VAT and zero-rating for foreign clients, company ownership and offshore tax planning, and the practical steps that help keep the business compliant and avoid unnecessary tax.

Why consulting firm accounting is different

Consulting firms do not have the same accounting priorities as retailers, manufacturers or other inventory-based businesses. Instead of managing stock and cost of sales, most of the focus is on payroll, withholding tax and recognising revenue correctly.

Consulting projects often run over several months, while clients deduct withholding tax before making payment. That means the cash received, the amount invoiced and the revenue recognised are not always the same. If those differences are not recorded correctly, the accounts can become inaccurate.

Payroll is also important. For many consulting firms, salaries represent the largest operating cost, so personal income tax, social security and employee classification all need to be managed correctly throughout the year.

Taken together, these areas directly affect profit, corporate income tax and the year-end financial statements. If they are not handled correctly, the accounts can quickly become misleading.

The 3% withholding tax credit problem

One of the biggest differences between consulting firms and many other businesses is that clients deduct withholding tax before making payment. When a Thai company pays a professional or consulting fee, it generally withholds 3% of the service fee and remits that amount to the Revenue Department using PND53.

For the consulting firm, this is not an extra tax. It just lowers the amount of corporate income tax the company will need to pay later. The main challenge is keeping track of all withholding tax certificates and making sure none are missing.

For example, a consulting firm that bills THB 20 million in professional fees during the year. If every invoice is subject to 3% withholding tax, THB 600,000 will have already been paid towards the company’s corporate income tax liability before the annual tax return is filed.

The ability for a company to claim back these credits depends entirely on the supporting documentation. Without the withholding tax certificates, the company may not be able to claim the full credit, even though the tax has already been deducted by its clients.

*Illustrative example only.

Next, if we assume the withholding tax certificates for THB 150,000 were never obtained. Instead of paying THB 200,000 of corporate income tax, the company would pay THB 350,000 because it cannot support part of the credit. The tax has already been deducted by the client, but without the certificate it may not be recoverable.

For that reason, consulting firms should reconcile withholding tax certificates throughout the year rather than waiting until the annual accounts are prepared. Every invoice should be matched to the corresponding payment and certificate so that any missing documents can be followed up while they are still easy to obtain.

It helps to understand why this happens. Withholding tax on service fees is one of the particularities of doing business in Thailand. When a Thai company, or even a Thai freelancer, contractor or other Thai tax resident, pays for a service that is used in Thailand, it has to hold back 3% of the fee and pay it to the Revenue Department on the supplier’s behalf. The supplier receives 97% and a certificate for the remaining 3%.

This is a frequent source of confusion, because the 3% is often not shown on the invoice. The deduction is still mandatory. If the payer settles the full invoice without holding back the 3%, the tax does not disappear: the accountant still has to account for it, and the payer ends up carrying a cost that should have been deducted from the supplier. The recommended practice is to agree the withholding on every service invoice from the start, so both sides record the same figure.

When a Thai company pays your invoice, it may deduct 3% withholding tax. That amount is not lost. It is a credit against your company’s corporate income tax.

To claim it, you need the withholding tax certificate issued by the client, usually after they receive your tax invoice.

In practice, this means following up to make sure the certificate is issued and that it actually reaches you. It often takes a bit of coordination between your team, your accountant, and the client’s accounting department.

A well-run consulting firm can reach the end of the year with a large part of its corporate income tax already prepaid through these 3% deductions, as long as the certificates have been kept. The mistake is to chase them at the last minute. The good practice is to reconcile them every month, or at the very least every quarter, rather than waiting for the year-end accounts.

Our guide to withholding tax certificates in Thailand explains what information should appear on each certificate and how they are used when preparing the company’s annual tax return.

What about the firm’s own withholding obligations?

Consulting firms also have withholding tax obligations when making certain payments.

Professional fees paid to Thai companies are generally subject to 3% withholding tax, while payments to individuals are reported through PND3. Office rent is subject to 5% withholding tax, and certain advertising services attract 2% withholding tax.

The company is responsible for deducting the correct amount, filing the relevant withholding tax return and issuing a withholding tax certificate to the supplier. Failing to do so can lead to penalties, surcharges and additional questions and scrutiny during a tax audit.

For that reason, outbound withholding tax should be considered together with the company’s own withholding tax credits. The first refers to tax that clients have deducted from payments to the business, while the second refers to tax the business must deduct when it makes payments to others.

Cross-border consulting, 15% WHT and permanent establishment

Cross-border consulting brings additional tax issues. Thai companies engaging overseas consultants may have withholding tax obligations, while foreign consulting firms working in Thailand need to consider whether their activities create a taxable presence.

When a Thai company pays a foreign consultant or overseas consulting business that does not have a presence in Thailand, the payment may be subject to 15% withholding tax under Section 70 of the Revenue Code, which is remitted using PND54. However, the applicable rate depends on the relevant double tax agreement. In some cases, the withholding tax may be reduced or eliminated if the treaty conditions are satisfied and the correct documentation is obtained.

Not every payment is treated the same way. Whether the income is classified as business profits, technical service fees or another category will depend on both Thai tax law and the wording of the applicable tax treaty. It is important to review this before making payment rather than trying to resolve it afterwards.

Foreign consulting firms should also consider whether their activities in Thailand create a permanent establishment (PE). A PE can arise where a business has a fixed place of business in Thailand, operates through a dependent agent, or provides services in Thailand for longer than the period permitted under the relevant tax treaty. Many of Thailand’s tax treaties use a 183-day service threshold, although this varies between jurisdictions.

If a permanent establishment is created, part of the profits from the project may become taxable in Thailand. For businesses undertaking cross-border consulting work, it is worth reviewing the tax position before the engagement begins rather than once the work is underway.

A common question that is often asked about cross-border work is, where the consulting company itself should be incorporated. Some groups invoice their non-Thai clients through an offshore company, frequently in Hong Kong, so that fees from clients outside Thailand are billed and taxed in a lower-tax jurisdiction. This can be efficient, but it only works if the offshore company has real substance of its own and the work is genuinely carried outside of Thailand.

The risk here is again permanent establishment. If the Hong Kong company relies on people based in Thailand to deliver the service, or contracts are effectively concluded through someone in Thailand, the Revenue Department can argue that it has a permanent establishment in Thailand and tax the related profit here. Transfer pricing between the offshore and Thai entities then also comes into play. Hong Kong to Thailand flows are common and can be set up correctly, but the substance, the contracts and the intercompany pricing all need to line up. This is an area our accountants and tax advisors work on regularly.

When is VAT zero-rated on consulting services to foreign clients?

Consulting fees are normally subject to 7% VAT. There is an important exception for foreign clients. Under Section 80/1 of the Revenue Code, a service performed in Thailand but used outside Thailand can be zero-rated, meaning VAT is charged at 0% instead of 7%. For a firm advising overseas clients on matters used abroad, this is a real advantage, because the firm still recovers input VAT on its own costs while charging no output VAT on those fees.

The 0% rate is not automatic. The service has to be genuinely used outside Thailand, and the firm has to keep evidence to prove it, such as the service contract, the invoices, proof that the client is overseas, and payment received from abroad. If part of the service is used in Thailand, only the portion used abroad qualifies. The Revenue Department can review a 0% claim years later, and if the supporting documents are weak it can reassess the fees at 7% with penalties and surcharge. Keeping a clean file for each zero-rated engagement is what protects the position.

Revenue recognition across engagement types

Revenue recognition is another area where consulting firms are different from other businesses. The invoice date and the payment date do not necessarily determine when revenue should be recognised.

The correct accounting approach depends on the type of work undertaken.

For time-and-materials projects, revenue is recognised as the work is completed. Hours that have been worked but not yet invoiced are recorded as unbilled work in progress.

For fixed-fee engagements, revenue is recognised as the firm satisfies its obligations under the contract. This often means recognising revenue over the life of the project rather than when invoices are issued.

Retainer agreements are different again. Where a client pays in advance, the payment is initially recorded as deferred revenue and recognised progressively as the services are delivered.

For example, a consulting firm agrees to a fixed-fee project worth THB 1.2 million over six months and invoices THB 600,000 upfront. The initial payment is recorded as deferred revenue rather than immediate income. After three months, assuming half the work has been completed, THB 600,000 is recognised as revenue. The accounting follows the progress of the engagement, not the timing of the invoice.

Reimbursable expenses also require careful treatment. Costs such as travel or accommodation that are recharged to a client at cost are not necessarily revenue. Recording them as revenue can overstate turnover, VAT and taxable profit. Whether they form part of the firm’s taxable revenue depends on how the expenses are incurred and recharged.

Building a chart of accounts that shows margin by service line

A consulting firm gets far more out of its accounts when the chart of accounts is built around how the business actually earns. Rather than a single revenue line, we usually set up several revenue categories that follow the firm’s service lines, for example advisory, implementation, training or retained support. The same is done on the cost side, so that staff time and direct costs can be matched to the service that generated them.

This is where a good accountant adds value beyond compliance. With revenue and costs split by service line, the firm can see the margin of each activity, not just the overall result, and decide which services to grow and which to reprice. It costs almost nothing to set up at the start and is far harder to rebuild later, so it is worth getting the structure right early.

Payroll is the business: PIT, social security and classification

For most consulting firms, payroll is the largest operating expense. That makes salary processing, personal income tax and social security some of the most important parts of the monthly accounting process.

Each month, employers must withhold personal income tax from employees’ salaries through PND1 and remit it to the Revenue Department. They must also calculate and remit social security contributions for both the employer and employee, subject to the applicable contribution ceiling.

For foreign employees working in Thailand under a valid work permit, Thai-sourced employment income is taxed in the same way as Thai employees. Payroll records should therefore be kept up to date, with salaries, benefits and statutory deductions recorded accurately each month.

Pay in a consulting firm is rarely a flat monthly salary. Bonuses are common, often tied to projects or to the month’s results, and they are employment income subject to personal income tax in Thailand. We run the monthly payroll, build in these variable amounts, and make sure the personal income tax withheld through PND1 reflects the bonus in the month it is paid, so there is no shortfall at year-end.

For consultants in genuinely international roles who travel regularly, part of the remuneration can sometimes be linked to work performed outside Thailand and paid outside Thailand. Handled correctly, and supported by the facts, this can reduce the Thai tax base. It has to match where the work is actually done, so it should be set up with advice rather than improvised.

Another area that deserves attention is worker classification. Consulting firms often engage associate consultants or freelancers, but the contractual arrangement should reflect the reality of the working relationship. Someone who works exclusively for one firm, follows its working hours and operates under its direction may be regarded as an employee rather than an independent contractor.

If the classification is incorrect, the company may become liable for unpaid withholding tax, social security contributions, penalties and surcharges. Reviewing these arrangements periodically can help avoid problems later.

Can a consulting firm be foreign-owned in Thailand?

Consulting sits in a regulated part of the Foreign Business Act. Most advisory work falls under List 3, item 21, the broad category of “other service businesses.” A Thai company that is 50% or more foreign-owned is treated as foreign under the Act, so in principle it needs a Foreign Business License before it can provide consulting services. For that reason, the majority of consulting firms in Thailand operate with a Thai majority shareholder, which keeps the company Thai for the purposes of the Act.

A Foreign Business License is still possible, and for genuinely high-value services it can be the right route. The Ministry of Commerce looks at what the business brings to Thailand, such as specialist expertise, technology transfer and skilled employment. Approval is discretionary and the process is demanding, so it tends to suit firms with a real unique selling point or service rather than general advisory work.

There is also a faster route for the right profile. The Board of Investment promotes a Trade and Investment Support Office (TISO), which allows 100% foreign ownership without a Foreign Business License and covers a wide range of advisory and support services. Certain digital activities can be promoted by the BOI as well. The condition is scale: a TISO requires annual operating and administrative expenses of at least THB 10 million, which in practice only makes sense once the company carries a real team, often including several foreign employees. 

BOI work is one of our main practices, so we can tell you quickly whether your business fits TISO or another category, or whether a Thai majority structure is the better answer.

Tax planning for consulting firms: offshore structures, LTR and DTV visas

Because consulting is delivered through people and knowledge rather than physical goods, owners often look at where the profit should be taxed. Two places come up constantly alongside Thailand: Hong Kong and Singapore. Both tax corporate profits at lower effective rates than Thailand for many firms, and, importantly, neither taxes dividends in the shareholder’s hands. Thailand, by contrast, applies a 10% withholding tax when a Thai company distributes a dividend to an individual.

A common pattern is to bill non-Thai clients through a Hong Kong or Singapore company and keep the Thai company for the work and clients that are genuinely in Thailand. The dividend from the offshore company can then be received by the owner outside Thailand. This only works with real substance offshore and a clear split of where the work is actually done, and it carries the permanent establishment and transfer pricing risks covered above.

There is a powerful Thai piece to this. An individual who holds a Long-Term Resident (LTR) visa in one of the qualifying categories, such as Wealthy Global Citizen, Wealthy Pensioner or Work-from-Thailand Professional, is exempt from Thai personal income tax on foreign-sourced income, even when that income is brought into Thailand. For a consultant who can genuinely show activity carried out abroad for clients abroad, receiving offshore dividends under an LTR visa can be very efficient.

At a smaller scale, a consultant based in Thailand whose clients are all outside Thailand may be able to use the Destination Thailand Visa (DTV), the remote-worker visa, often paired with an offshore company such as a Hong Kong entity, on the condition that there are no clients and no business activity inside Thailand. Anyone spending more than 180 days a year in Thailand is a Thai tax resident, so the DTV is not a tax exemption in itself, and the position needs to be mapped carefully.

These structures are legitimate, but they live or die on substance and documentation, and the Revenue Department can challenge them. Our teams handle both the accounting and the LTR visa applications, so the company structure, the tax position and the visa are put together rather than in isolation.

How much tax does a consulting company pay: Thailand, Hong Kong and Singapore

The headline rates show why structuring matters. The table below compares the corporate income tax and dividend treatment for a consulting company in each location. The figures are indicative, and the right answer always depends on substance and the applicable tax treaties.

Thailand also has a reduced regime for smaller companies. A company with paid-up capital of no more than THB 5 million and annual revenue of no more than THB 30 million pays 0% on the first THB 300,000 of net profit, 15% from THB 300,001 to THB 3 million, and 20% above that. Many consulting firms qualify in their early years, which softens the comparison with Hong Kong and Singapore. If either threshold is exceeded, the flat 20% rate applies to the whole profit.

How VB & Partners supports consulting firms in Thailand

Accounting for a consulting firm is about more than preparing monthly accounts and filing tax returns. It also involves ensuring withholding tax credits are recovered, revenue is recognised correctly and payroll obligations are met throughout the year.

When we take over a consulting firm’s bookkeeping, we often find that one or more of these areas needs attention. Withholding tax certificates may be incomplete, revenue may have been recognised too early, or cross-border payments may not have been reviewed from a Thai tax perspective. These issues are usually straightforward to correct once they have been identified.

We can help in two ways. We can act as your external auditor, reviewing and signing off the annual financial statements filed with the Department of Business Development while you continue working with your existing bookkeeper. Alternatively, we can take over the bookkeeping during the year and manage the transition from your current accounting provider.

An in-year change of accountant is entirely possible in Thailand. We reconcile the year-to-date records, review previous filings where necessary and ensure the handover is completed with as little disruption as possible.

The recommended time to change accountants is the start of a new financial year. In a clean handover, the outgoing accountant completes the closing of the previous year and provides the current balances, and we take over from the first day of the new year with a clear opening position.

When things are not working, or you simply need more advice, there is no need to wait. A mid-year move usually runs over a single transition month: the previous accountant finishes that month’s closing and we take the months that follow. We contact the outgoing accountant directly to gather the ledgers, filings and supporting records, so the onboarding is smooth and nothing is dropped.

If you are unsure whether your accounting records accurately reflect the business, a short review can usually identify any issues and help determine whether changes are needed.

Talk to us before your next filing

If you are unsure whether your withholding tax, revenue recognition or payroll processes are working as they should, we are happy to review them. A short assessment is often enough to identify any gaps and confirm whether your current accounting processes are giving you an accurate picture of the business. Arrange a confidential consultation with VB & Partners.

Frequently Asked Questions

What withholding tax do clients deduct from consulting fees in Thailand?

Clients deduct 3% withholding tax from professional and consulting fees in Thailand, remitting it on PND53 for corporate firms or PND3 for individuals. For the consulting firm this is a prepayment of its own corporate income tax, recoverable only if the firm collects and keeps the withholding tax certificate from each client.

Why do consulting firms lose money on withholding tax?

Consulting firms lose money on withholding tax when they fail to collect the certificate that evidences the 3% deducted by clients. Without the certificate the credit cannot be claimed against corporate income tax, so the income is effectively taxed twice. A monthly reconciliation of invoices to certificates prevents this.

Do I withhold tax when paying a foreign consultant?

Paying a foreign consultant without a Thai presence can require 15% withholding tax on PND54. That rate is reducible, sometimes to zero, under the applicable double tax agreement, but only if the treaty is applied correctly and supported by documentation. The analysis depends on whether the fee is business profits or a technical service.

When does cross-border consulting create a permanent establishment in Thailand?

Cross-border consulting can create a permanent establishment when a foreign firm operates through a fixed place of business in Thailand or a dependent agent, or sends staff to deliver projects beyond a treaty threshold. A permanent establishment makes the firm taxable in Thailand on the attributable profit, so the structure should be mapped before the work begins.

How is consulting revenue recognised across different engagement types?

Consulting revenue is recognised by engagement type: time-and-materials as hours are delivered, fixed-fee by stage or percentage of completion, and retainers as deferred revenue released over the service period. Recognition follows the work performed, not the invoice date, which keeps profit and corporate income tax instalments accurate.

Are reimbursable expenses counted as consulting revenue?

Reimbursable expenses recharged to a client at cost are not consulting revenue. Booking them as revenue inflates turnover, the VAT base and the corporate income tax base. They should be recorded as recharges against the original cost, keeping the firm’s reported revenue limited to its actual fees.

What payroll taxes apply to a consulting firm in Thailand?

A consulting firm withholds personal income tax from staff salaries monthly through PND1, on a progressive scale from 0% to 35%, and remits social security at 5% from the employer and 5% from the employee up to the monthly ceiling. Foreign staff on work permits are taxed on Thai-sourced employment income through the same PND1 mechanism.

Can I change my consulting firm’s accountant mid-year?

You can change a consulting firm’s accountant mid-year in Thailand. An in-year handover of bookkeeping is possible and routine, not limited to year-end. The incoming firm reconciles the year-to-date ledger, withholding register, VAT and payroll, and continues without a break in filings.

How much corporate income tax does a consulting company pay in Thailand?

A Thai company pays corporate income tax at 20% on net profit. Smaller firms can pay less: with paid-up capital of no more than THB 5 million and revenue of no more than THB 30 million, the SME rates apply, 0% on the first THB 300,000 of profit, 15% up to THB 3 million, and 20% above. Dividends paid to an individual shareholder carry a further 10% withholding tax.

Is it better to run a consulting firm through a Hong Kong or Singapore company?

It can be, for the part of the business that genuinely serves clients outside Thailand. Hong Kong and Singapore tax corporate profits at lower effective rates and do not tax dividends in the shareholder’s hands, and a Thai LTR visa can exempt the owner’s foreign-sourced income. The structure only holds up with real substance offshore and a clear split of where the work is done, otherwise it creates permanent establishment and transfer pricing exposure in Thailand.

Do consulting firms charge VAT to overseas clients in Thailand?

Consulting fees are usually subject to 7% VAT, but services performed in Thailand and used outside Thailand can be zero-rated at 0% under Section 80/1 of the Revenue Code. The firm must keep evidence that the service was used abroad, such as the contract, invoices and proof of payment from overseas, because the Revenue Department can reassess a 0% claim at 7% with penalties if the documents do not support it.

Can a foreign consulting firm be 100% foreign-owned in Thailand?

Consulting is a List 3 activity under the Foreign Business Act, so a company that is 50% or more foreign-owned normally needs a Foreign Business License, and most firms instead use a Thai majority shareholder. Full foreign ownership is possible through a BOI Trade and Investment Support Office (TISO), which covers many advisory services but requires annual operating and administrative expenses of at least THB 10 million.

What is the best accounting software for a consulting firm in Thailand?

There is no single answer, but the priorities for a consulting firm are tracking withholding tax credits, recognising revenue by project, and producing Thai filings such as PND53 and the PP30 VAT return. Xero is a strong fit for established firms, with project and time tracking and the ThaiTax add-on for withholding tax certificates and VAT. FlowAccount and SMEMove are practical Thai options for smaller firms, with local compliance built in, while larger groups that need projects, billing and accounts in one place sometimes use an ERP such as Odoo. The more important point is that you keep ownership of the software and your data, so that changing accountant later does not mean losing your records. Our accountants can advise on the right platform and then run your bookkeeping inside it.

Disclaimer

This information is provided for general informational purposes only and is not legal, tax, or financial advice.