Repeal of Tax Exemption

According to Section 42 (14) of the Thai Revenue Code, the share of profits obtained from an ordinary partnership or a non-juristic body of persons, but not including shares of profits received from a mutual fund, will be exempt from Thai personal income tax.

Keywords: Mazars, Thailand, Tax, Revenue Code, Personal Income Tax

24 March 2015

However, this section of the Thai Revenue Code has been repealed by the Act for Amending the Thai Revenue Code No. 39 B.E. 2557, effective fiscal year 2015. Therefore, the share of profits obtained from an ordinary partnership or a non-juristic body of persons from 1 January 2015 will be subject to Thai personal income tax, as normal taxable income. Note that a “non-juristic body of persons” means two or more persons jointly conducting business, but not in the form of an ordinary partnership.

The real intention of the repeal is for anti tax evasion from the abuse of the body of persons. The main tax benefit of the body of persons is to spread out the tax base so that the lower personal income tax rate can apply. For example, the Thai personal income tax rates are progressive, so if one individual earns more than Baht 4m, e.g. Baht 5m, the maximum tax rate that would apply will be 35%. If he sets up a body of persons to spread out his income, he would declare say only Baht 2.5m as his income and another Baht 2.5m would be the income of the body of persons. The lower tax rates will apply both for the individual and for the body of persons, leading to a lower tax charge.

Some people may abusively set up the body of persons for tax purposes, i.e. using the names of other persons as partners to set up the body of persons whereby such persons are not actually involved in the business. For example, a doctor may want to open a clinic and has an intention to reduce his tax burden. He may use the name of his driver or gardener to set up a body of persons for his clinic business.

Consequently, the repeal of Section 42 (14) will affect the tax benefits of persons who legitimately set up a body of persons.

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