Written by: Natasha Stewart
MSN & Associates Ltd.
Revenue Department Will Visit and
May Want More Tax!
D
oing business in Thailand Westerners, especially
Americans, have a reputation for being good business
people because of their willingness to pay tax. This
willingness could be due, in part, to the fact that the Internal
Revenue Service back home is very aggressive about punishing those who do not pay their taxes properly. However, some
businesses in Thailand do not share the same reputation. They
are known by the Thai Revenue Department (RD) to be very
stingy in paying taxes.
Here I will not write about how to minimize your tax
burden; rather I will attempt to give you some idea of why the
RD visits business premises more often today than in the past
and suggest how to best deal with such visits.
In our company, we are asked to meet with the RD often.
Based on our experience with many officials from the RD, we
now know that it is their policy to check every company every year. If your company is not checked every year, it is most
likely due to RD understaffing. The RD is aware that hiring
more staff will allow them to collect more taxes.
Officials are grouped into various teams, each of which
specializes in one or two specific business types. For example,
the team which has visited our company for the past two years
checks only accounting and law firms. RD uses their database
of VAT and Tax ID applications to determine your type of
business and then assigns the appropriate team to “look after”
(that is the term they use) you accordingly.
When RD officials visit, don’t panic
– offer them coffee or tea
SOME REASONS FOR RD VISITS TO COMPANIES
If your company has just been set up, RD may visit in order to
help educate you on tax compliance.
Most likely, RD wants to determine if your company is legitimate by looking at your office. In the days when VAT was first
introduced in Thailand, the RD was new to the concept and
could not keep up with those who faked tax invoices to claim
VAT refund money from the RD. When the RD checked their
addresses, they found bogus offices with no signs of any living creatures. They also want to check your company’s tax
compliance and if you have done something wrong, they can
fine you.
When a company asks for a corporate income tax refund.
This happens mostly when you are in a service business where
your corporate customers are required by law to withhold
some tax from your service fee. The tax withheld becomes
your prepaid income tax which, in principle, you can get back
if at year-end the corporate income tax owed is less than the
amount of tax withheld by your customers throughout the
year. Our experience suggests that whenever a company dares
to ask for a tax refund, the RD must (yes – must) perform
a 100% audit on the company’s books of the same year. The
audit usually discovers that the company owes more tax than
the amount of the refund it hoped to get.
When a company does not ask for the refund...
No, you did not misread. The RD visits because the corporate
income tax return of a particular year indicates prepaid tax
in excess of the tax owed and no claim was made on the tax
return for refund for the overpaid tax. Some of you may be
now thinking: “you gotta be kidding!”.
When a company has not paid sales (output) VAT for a few
months in a row or when it asks for a VAT refund.
The RD will want an explanation of why you have no VAT
payment to submit and why you are claiming a VAT refund.
VAT in theory normally works that you collect more VAT from
your customers (output VAT) than pay VAT to your suppliers (input VAT). We business people understand that in some
months a company may not have many invoices to customers,
and may buy a lot of fixed assets like computers, machinery,
etc. It makes perfect sense that sometimes a company will have
more input VAT than output VAT and, so, claim a refund. Well,
the RD wants an explanation for that; plus they may take the
opportunity to check other numbers on a company’s financial
statements as well.
The RD team that is looking after you wants to verify that
your company is paying taxes correctly.
Sometimes RD looks at the history of tax payments for a few
years and determines that a company paid lower tax in comparison to the previous years or with other firms in the same
industry.
The American Chamber Of Commerce In Thailand F 21
investing
What does RD look at and what are they
looking for?
financial statements is not equal to the total revenue
from the VAT returns the company filed throughout the
year. You need to be able to reconcile the difference for
them. If you cannot, they may assume that the company
did not file and submit output VAT correctly.
Expenses – RD looks at each expense account and see if
there should be withholding taxes involved and if correct withholding was made; for example, on payment
or reimbursement of an employee’s rent, telephone,
professional fees, insurance premiums, couriers and
The RD usually mails the company a letter informing of
the reason and the day they are paying you a visit. However,
sometimes they go to the company’s registered address un
announced and ask you to provide the needed documents or
leave you a list of the documents, which you are required to
bring to their office on a specified appointment date. Sometimes they just call your office and fax the list to you. The list,
apart from the company’s official papers
like certificate of company registration
and VAT registration, usually includes
... whenever a company dares to ask for a tax refund,
office lease agreement, audited financial
the RD must (yes – must) perform a 100% audit on the
statements, input and output tax invoiccompany’s books of the same year.
es, input and output tax records, VAT returns and withholding tax returns of the
year they are checking. RD may also ask
for fixed asset register, sales or service agreements with cuscommissions. RD may also say that some of the extomers, general ledgers of that same year and whatever else
penses are too high and, therefore, you should provide
they will tell you to bring later.
the proof that they are really the expenses necessary
The RD looks at company documents for some expected
for business operation. One good example is traveling
results:
expense. You should back up each trip with the correspondence between you and the company’s custom Company’s registered address. If the address in the VAT
ers/suppliers, invitation letters, brochures of the trade
certificate is different from the physical address at which
fairs, etc.
the company’s located, RD will tell you to change the registration accordingly and pay some fines (Baht 2,000 to
SUGGESTIONS ON HOW TO DEAL WITH RD VISITS
Baht 4,000).
Lease agreement. They want to see if you withhold and
Receive the RD officials with grace and do not panic; ofsubmit tax on the rent you pay to the company’s landfer them some coffee or tea. Ideally, you should take some
lord.
time to gather the documents that they need rather than
Number of employees and their salaries. RD expects to see
producing them during their visit. You may want to tell
that you withhold and pay your employees’ withheld perthem that it would be a disruption to you and your staff
sonal income tax every month.
to answer their questions that day; ask them to leave the
Input and output tax invoices and records. RD can fine
list of documents they need and ask if they will come
the company in case it has done something wrong in issuback another day or want the company’s representative
ing tax invoices to customers or claimed back VAT that is
to meet with them at their office. They always like the
nonrefundable by law.
idea of having the company bring the documents to meet
Fixed asset register. Many times, the fixed asset regiswith them later. You can even call them to postpone the
ter shows more items than what the officials saw in the
meeting afterwards if you (or your representative) are
company’s office. They will want to adjust the deprecianot ready on the appointment date.
tion claimed in the corporate income tax return. They also
Prepare the documents requested in an indexed file in the
want to see if the company claimed depreciation expense
same order as in the list received from the officials. If they
more than is allowed by law; for example, the depreciation
ask you to submit the originals of any documents, make
of a car worth more than Baht one million is tax deducta list of delivered originals and have the officials sign and
ible only on the amount based on the value of one Baht
print their name on it when receiving.
million.
If you or your representative is not sure how to answer
Audited financial statements for the points that are listed
some RD questions, tell them you will find out the answer
briefly below:
and call them later. Be careful; the company is bound by
Loans to directors/related companies – to see if the
answers given to RD officials.
company charged interest at the market rate when lending money to its directors or related companies.
Natasha Stewart is a Thai CPA and the founder of MSN &
Revenue – in most cases the total revenue in the audited
Associates Ltd. She may be reached at: [email protected]
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22 F Thai-American Business / July-August 2006