Newsletter No. 70
“Carrying on Business”
“Having a (taxable) Permanent Establishment”
The terms “carrying on business in Thai- land” and “having a permanent establishment in Thailand” are important to foreign companies with regard to taxation. It might depend on these two terms whether or not income or profit tax has to be paid in Thai- land.
In general, a foreign company is responsible to pay corporate income tax if it carries on business in Thailand.
In case the foreign company has its head- quarters registered in a country that has entered into a Double Tax Agreement (“DTA”) with Thailand, such company is liable to pay corporate income tax only if it has a permanent establishment in Thailand (“PE”).
II. “Carrying on Business in Thailand”
1. In General
A foreign company will be treated as carry- ing on business if it has a registered branch or its agent or employees conduct business in the Kingdom of Thailand.
a) Registered Branch
Whenever a foreign company has a branch in Thailand, the Revenue Department of Thailand usually states that the foreign company has to pay corporate income tax.1
1 Exception: Representative Office and Regional Office. Please refer to our Newsletter No. 43 as well as and in particular our Brochure No. 1 for further details in regards to setting up a company in Thailand and its advantages for corporate in- come tax.
b) Agents or Employees
The foreign company is treated as carrying on business if
i. It has agents and employees in Thailand
ii. the actions of the agents or employees are an important factor to the foreign company in deriving income in Thailand. An important factor is usually given if:
The agent or employee comes to sign a sales contract (even if just one time) on behalf of the foreign company with a Thai company in Thailand, or
The agent or employee just helps securing orders on behalf of a foreign company with a Thai company in Thailand.
The legal practice of the Supreme Court is to view technical assistance or consultancy services just as assistance and therefore not as an important factor.
On the other hand, an important factor can be assumed if employees or representatives come to provide services on behalf of a foreign company in Thailand and the nature of the services provided is related to the installation of machines or the construction of buildings for the benefit of customers in Thailand.
III. “Having a Permanent Establishment (PE) in Thailand”
In general, “PE” is understood as a fixed place where the business of the enterprise is done. However, the term “PE” can be di- vided into three categories:
1. “Asset PE”
According to the DTA, an “Asset PE” is given if it matches the following specifications:
- a place of management
- a branch
- an office
- a factory
- a workshop
- a mine, an oil or gas well, a quarry or any other place of extraction of natural resources
- a farm or plantation
- a warehouse in relation to a person providing storage facilities for
The Revenue Department of Thailand furthermore treats the following as “PE”:
- rented offices
- space provided free of charge for at least 6 months
However, the term “PE” shall be deemed
not to include:
- the use of facilities solely as storage or display of goods or merchandise be- longing to the enterprise
- the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or dis- play
- the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise
- the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or collecting information, for the enterprise
- the maintenance of a fixed place of business solely for the purpose of advertisement, providing information, science researching, carrying on, for the enterprise, any other activity of a preparatory or auxiliary character
2. “Activity PE”
In general, DTAs state that a foreign company is treated as having an “Activity PE” in Thailand if it supports a building site, construction, installation or an assembly project and such specific activities exist for more than 6 months in Thailand.
Especially for German companies, it should be mentioned that under the DTA between Thailand and Germany, supervisory activi- ties are not part of an “Activity PE”. Consequently, German companies can send employees to Thailand to perform advisory services for more than six months without being treated as having an “Activity PE”.
3. “Agent PE”
An Agent PE is:
- a person that habitually has theauthorty to negotiate and conclude sales con- tracts on behalf of the foreign company in Thailand;
- a person that does not have such authority, but habitually maintains a stock of goods or merchandise from which he regularly fills orders or makes deliveries on behalf of the foreign company;
- a person habitually securing orders in Thailand wholly or almost wholly for the foreign company or other enterprises which are controlled by it or have a controlling interest in
However, a foreign company is not deemed to have an “Agent PE” in Thailand if business is done through a broker, general commission agent or any other agent of an independent status.
Whenever a definition of independent agent is given by the DTA, it is also used by the Revenue Department. However, if the definition of independent agent is not given by the DTA, the independent agent status is determined by looking if such agent is con- trolled by a foreign company. The dependence of the agent can usually be assumed if the commission fee that the agent receives from the foreign company exceeds 75 per- cent of all commission fees.
a) 1% if paid by the Thai government, governmental organization 2
b) 3% if paid to foreign juristic company or partnership carrying on business in Thailand with a per manent office3
A “permanent office” (not to be confused with “permanent establishment”) exists if the foreign juristic company or partnership:
Is the owner of an office in Thailand; or
- Is carrying on other business in Thailand besides engaging in contractual works4, i.e. legally performing business on a permanent basis, e.g. trading business; or
- Has a provident fund set up for its employees in Thailand in accordance with Sec. 65 ter Revenue
5% if paid to foreign juristic company or partnership carrying on business in Thailand without a permanent office5