Finalize your investments before December 2016 to gain additional tax deductions
If you have been contemplating increasing your business’s capital asset investments in Thailand, you should consider structuring the acquisition (and the payment) to take place before 31 December 2016 in order to take advantage of the additional tax deduction provided under the recent new tax law, Royal Decree No. 604.
In April and May 2016, the Thai government issued a Royal Decree and a Director-General Notification to promote and incentivize capital spending on certain eligible assets, provided the expenditures for such assets are incurred during the period between 3 November 2015 and 31 December 2016. The new law provides that, in addition to the normal tax depreciation that can be claimed on assets, a tax deduction for the costs incurred by a juristic taxpayer to acquire, expand, change or improve an eligible asset (but not repair it) can be claimed as a tax deduction, apportioned over a set number of years.
Generally, the additional deduction will be spread over a certain number of years, depending on the nature of the asset, starting from the first year in which the asset is ready for use. Eligible assets include permanent buildings, machinery, parts, equipment, tools, appliances, furniture, computer programs, and vehicles (excluding passenger cars, except where passenger cars are leased out as a normal part of the taxpayer’s business). The criteria include that the asset must be new and acquired and ready for use by 31 December 2016. The asset must be physically located in Thailand, except in the case of vehicles.
In addition, the asset must not, wholly or partly, fall under any other tax privilege provided by any Royal Decree issued under the Revenue Code or the Board of Investment (BOI), except where the promoted project is under an investment acceleration for which the investment has not yet started and the promoted company opts not to claim the benefits under such investment acceleration. In the case of permanent buildings, the construction license must be approved by the relevant authority during the same period above. Based on the Revenue Department (“RD”)‘s clarification, the costs of such eligible assets must actually be paid by 31 December 2016 in order to be able to enjoy the additional tax deduction under this new law. This means that the RD will not accept deductions on an accrual basis and a business is required to maintain a record of any assets acquired and proof of when they were paid for.
Many people have voiced concerns about the practicability of this incentive. It may be obvious, but the assembly of large machinery and the construction permanent buildings requires more time than the period above allows for their proper and safe completion. Therefore, even if started in anticipation of using this tax incentive, such construction will most likely not be completed by Dec. 31, 2016. With this in mind, on 31 May 2016, the Cabinet approved the changes proposed by the Ministry of Finance regarding an additional tax deduction for machinery and permanent buildings.
Under the new Royal Decree to be issued soon, machinery and buildings are not required to be ready for use by 31 Dec 2016. However, officials have been silent about whether payments for machinery and buildings must be paid in full by 31 Dec. 2016 or whether portion of the payment may be after that date.
© 2018 KPMG Phoomchai Tax Ltd., a Thailand limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.