Tax implications of New Year’s gifts and events
It is common at this time of year to give gifts to your employees or customers, to hold a party or to take your employees on a trip. But what are the tax implications? Are you treating the personal income tax, VAT or corporate income tax correctly?
Keywords: Mazars, Thailand, Tax, New Year, Corporate income tax, VAT, Withholding tax, Personal income tax
6 December 2019
Gifts to customers
1. Corporate income tax
Costs for gifts to customers are considered entertainment expenses. Therefore, a company can deduct the value of such gifts as an expense when calculating net profit for corporate income tax purposes, in compliance with the rules set out in Ministerial Regulation No. 143 of the Revenue Code. One of these rules is that the value of gifts to customers must not exceed THB 2,000 per person on each occasion.
2. Value-added tax
Output VAT: Giving gifts to employees in a drawing is considered the sale of goods, which is subject to VAT. Therefore, a company is required to remit VAT of 7% of the value of such gifts (purchase cost) to the Revenue Department. The VAT liability occurs when the gifts are given to the employees. The company is not required to issue tax invoices according to Clause 2(10) of the Departmental Instruction No. Paw. 86/2542, but is still required to report the transaction in its output VAT report under Clause 7(6) of the Notification of the Director-General of the Revenue Department regarding VAT No. 89.
Please note that no VAT needs to be remitted if the company gives its employees cash as a drawing prize.
Input VAT: If a company clearly states in its employee welfare regulations that it will purchase gifts for employees to participate in a drawing at a New Year's party, the VAT arising from the purchase of such gifts is considered directly related to the business of the company. Therefore, the company can claim such VAT as input VAT and offset it against output VAT in the VAT calculation.
3. Withholding tax
Gifts to customers are considered goods sold. Therefore, there is no withholding tax.
New Year’s party for employees
If the company has clearly specified in the employee welfare regulations that it will hold a New Year’s party for employees, the tax implications are shown below.
1. Corporate income tax
Expenses incurred from holding a New Year’s party for all employees will be considered a staff benefit, which can be deducted from the company’s net profit as an expense for corporate income tax purposes, because the expenses were not incurred for any specific person.
2. Value-added tax
Although the VAT arising from expenses paid for the party is not directly related to the company’s business, it is VAT on a benefit provided to all employees. Therefore, the company can claim the VAT as input VAT in the VAT calculation.
3. Withholding tax on personal income
The benefit of a New Year’s party is considered income that employees receive in accordance with established custom. Therefore, this income is exempt from personal income tax. Thus, the company is not required to deduct withholding tax on expenses paid for holding a New Year’s party.
Gifts to employees
At a New Year's party, a company may purchase items, such as refrigerators, televisions, gold, watches, and computers, to give to its employees in a drawing. The tax implications of payments made by the company to purchase such gifts are shown below.
1. Corporate income tax
If the company has clearly specified in the employee welfare regulations that every employee has the right to participate in the drawing, it can claim costs for purchasing drawing gifts as an expense when calculating its net profit for corporate income tax purposes. Such costs will not be considered non-deductible expenses under Section 65 ter(3) and (13) of the Revenue Code.
2. Value-added tax
Output VAT: Giving gifts to employees in a drawing is considered the sale of goods, which is subject to VAT. Therefore, a company is required to remit VAT of 7% of the value of such gifts (purchase cost) to the Revenue Department. The VAT liability occurs when the gifts are given to the employees. The company is not required to issue tax invoices according to Clause 2(10) of the Departmental Instruction No. Paw. 86/2542, but is still required to report the transaction in its output VAT report under Clause 7(6) of the Notification of the Director-General of the Revenue Department regarding VAT No. 89.
Please note that no VAT needs to be remitted if the company gives its employees cash as a drawing prize.
Input VAT: If a company clearly states in its employee welfare regulations that it will purchase gifts for employees to participate in a drawing at a New Year's party, the VAT arising from the purchase of such gifts is considered directly related to the business of the company. Therefore, the company can claim such VAT as input VAT and offset it against output VAT in the VAT calculation.
3. Withholding tax on personal income
When an employee receives a gift from a drawing at a New Year's party, the cost of that gift is considered assessable income from employment under Section 40(1) of the Revenue Code, and the employee is subject to personal income tax. The company giving the gift is required to deduct withholding tax based on the value of the gift.
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