Double tax deductions for capital expenditure

The Thai government has recently issued Royal Decree Number 604, which allows 200% deduction of capital expenditure and costs incurred for the addition, alteration, extension, or improvement of an asset for corporate income tax purposes.

Keywords: Mazars, Thailand, Tax, Royal Decree, Corporate Income Tax, Double Deduction, Capital Expenditure, CIT, Revenue Code

1 June 2016

Previously, capital expenditure, and costs incurred for the addition, alteration, extension, or improvement of an asset can only be capitalized as part of the value of the asset, and deducted as depreciation.

We set below the rules for taking such a deduction.

1. A taxpayer can additionally deduct the capital expenditure, and costs incurred for the addition, alteration, extension, or improvement of an asset, which costs are not incurred for the repair or maintenance of the asset, in addition to the depreciation.

2. Only the costs incurred for the following assets can be deducted:

(1)  machinery, components, equipment, tools, and furniture;

(2)  computer software;

(3)  vehicles registered in Thailand under the applicable law, not including cars with less than 10 seats not for lease under excise tax law; and

(4) fixed structures, but not including land and fixed structures for residential purposes.

3. The amount deductible is equivalent to the amount actually paid, and payment must have been made during the period from 3 November 2015 to the end of 2016. In addition, the following rules apply:

(1)   For an asset under 2 (1) and 2 (3) above, a taxpayer must deduct the costs over 5 consecutive accounting periods, and the amount deductible for each accounting period must equal 20% of the total amount that is deductible.

(2)   For an asset under 2 (2) above, a taxpayer must deduct the costs over 3 consecutive accounting periods, and the amount deductible for each accounting period must equal 33.33% of the total amount that is deductible.

(3)   For an asset under 2 (4), above a taxpayer must deduct the costs over 20 consecutive accounting periods, and the amount deductible for each accounting period must equal 5% of the total amount that is deductible.

4. The first accounting period for deducting such costs is that in which the asset begins to be depreciated under Section 65 bis (2) of the Thai Revenue Code.

5. The costs incurred for the addition, alteration, extension, or improvement of an asset under 2 (1) to 2 (3) above must be from a contract, purchase order, hire-of-work order, or an agreement similar in nature, which was made during the period from 3 November 2015 to the end of 2016.

6. For the costs incurred for the addition, alteration, extension, or improvement of an asset under 2 (4) above, the taxpayer must apply for permission to construct or alter the building under applicable law during the period from 3 November 2015 to the end of 2016, and permission must have been granted.

7. The asset must also meet the following conditions:

(1)   It has never been used.

(2)   It is depreciable under Section 65 bis (2) of the Thai Revenue Code, and is ready for use on or before 31 December 2016.

(3)   It is in Thailand, except for assets under 2 (3) above.

(4)   It is not an asset subject to tax benefits under other Royal Decrees, either in whole or in part.

8. A taxpayer who takes this deduction must prepare a report providing details of the asset, along with other information required by law.

9. If the taxpayer fails to meet the conditions above in an accounting period, this deduction will be disallowed in that accounting period, and the costs that have been deducted must be adjusted to a non-taxable expense for that accounting period.

10. In the event that the asset is sold, destroyed, lost, or becomes unusable, this deduction will be disallowed in the accounting period in which such an event occurred. However, a taxpayer does not have to adjust the costs that have been deducted.

11. This deduction does not preclude the normal depreciation of costs incurred for the addition, alteration, extension, or improvement of an asset. This means a 100% deduction is allowed for normal depreciation over a period of time, and another 100% deduction is additionally allowed under the rules and conditions set forth under the above-mentioned Royal Decree.

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