As a business owner you only owe taxes on net profits - that is, after making expense deductions from all revenues. As a result, knowing how to take full advantage of your deductible business expenses and avoid non-deductible expenses can dramatically lower your taxable profits.
The only problem is how to avoid non-deductible expenses? You may already be aware that under Thai laws all revenues are assessable but expenses are not treated in the same manner. To plan for maximum tax effectiveness, there are some items that are always found by the Revenue officer to be non-deductible expenses.
These you need to know and try to avoid:
1) Any private expense, gift or donation, except a sum donated for public charity/Education/ Athletics, deduction may be made not exceeding 2% of net profit.
Note: Private expenses such as buying a washing machine to use at home are not allowed to be deducted as corporate expenditure. Donations can be accepted only if donated to an organization that has approval from the Revenue Department, but it cannot be more than 2% of net profit. This means if your business is making a loss then all of your donation expenses are non-deductible. If you donate a T-shirt to a foundation but you put your company logo on it, rather than BOOKING it as a donation, why don't you BOOK it as a marketing expense which will not be limited by the law?
2) Entertainment expenses up to 0.3% of gross receipt but not exceeding 10 million Baht are deductable.
Note: Entertainment expenses that are more than 0.3% of gross revenue are non-deductible but remember sometimes you go to a restaurant to have an internal meeting with your staff, this kind of expense can be BOOKED as a conference expense rather than entertainment and there are no limits for conference expenses.
3) Any artificial expenses of another accounting period.
Note: Expenses that you put into your book but have never been paid are also non-deductible as well as the expenses for activities that occurred in a separate accounting period.
4) Any disbursement if the identity of recipient can not be proved.
Note: You may have had the experience of having evidence of business expenses rejected by your accountant due to them being "incomplete". This results in your recordable tax expenses being lower than your actual expenses. This means you have to pay more.
The reason why "incomplete receipt" is normally due to the fact that you cannot prove the recipient of the expenditure. In order to get around this problem you need to keep detailed records of your expenses and must be able to trace them back to the recipient.
To do this you need the following information:
a) Completed receipt consisting of name & address of supplier, Tax I.D.#, description of goods, and signature of receiver
b) Your own payment voucher that consists of the same items as a)
c) A copy of the I.D. card that is signed by your supplier as the receiver
d) A copy of A/C payee only cheque that you've paid to your supplier
e) A copy of pay-in slip if you have made wire transfer to your supplier.
Finally, please keep in mind that you must always maintain complete and accurate business records to document your income, expenses and deductions. If the Revenue Department Officer audits your business, it may require you to demonstrate that each entry on your tax return is correct.
Tax laws change annually, and they can be very complex. Always consult your accountant for assistance, strategies and recommendations for your individual situation.