Income tax exemption for gains from disposal of shares in companies in targeted industries

In an effort to promote investments in Thai start-up companies which operate in certain targeted industries, such as technology, science, robotics, social development, etc., the Thai government has provided an exemption from income tax for capital gains made on the disposal of direct and indirect investments in such companies. The tax exemption is provided to both Thai and foreign investors.

Keywords: Mazars, Thailand, Tax, Corporate income tax, Personal income tax, Venture capital company, Revenue department, Government Gazette

05 October 2022

Royal Decree 750, which came into effect on 15 June 2022, was issued to provide an exemption from corporate income tax (“CIT”), and personal income tax (“PIT”) for capital gains made in the following cases:

The disposal of shares in companies engaged in business in the targeted industries (“the Companies”).
The disposal of shares in a venture capital company (VCC) or of units in a trust that has invested in the Companies.
The dissolution of a VCC or trust that invests in the Companies.

Details of the tax exemptions and the key conditions to be met for them are summarized below:

Action from which a gain is made	Key conditions
1. Disposal of shares in the Companies	Investors must hold shares in the Companies for at least twenty-four (24) months prior to the date of disposal. The Companies must derive at least 80% of their income from qualified activities in each of two (2) consecutive accounting periods prior to the date of disposal.
2. Disposal of shares in a VCC or of units in a trust	Investors must hold shares in a VCC or units in a trust for at least twenty-four (24) months prior to the date of disposal. If a VCC or trust has no accumulated profits, investment in Companies that derive at least 80% of their income from qualified activities in each of two (2) consecutive accounting periods prior to the date of disposal will be exempt from tax. If a VCC or trust has accumulated profits from an investment in the Companies that derive at least 80% of their income from qualified activities in each of two (2) consecutive accounting periods prior to the date of disposal, the entire capital gain will be exempt from income tax. Note: When calculating profits, legal reserves are not included.
3. Dissolution of a VCC or trust	Investors must hold shares in a VCC or units in a trust for at least twenty-four (24) months prior to the date of dissolution. Any gain made from the dissolution will be exempt from income tax in proportion to that amount of the accumulated profits which can be attributed to the investment in the Companies that derive at least 80% of their income from qualified activities in each of two (2) consecutive accounting periods prior to the date of dissolution.

To be eligible for the income tax exemption, the VCC or trust must meet the following conditions:

VCC

Must be a Thai registered company
Must have paid-up capital of at least THB 20 million
Must be registered as a VCC with the Office of the Securities and Exchange Commission
Has not claimed a tax exemption under Royal Decree 10, Royal Decree 597, or Royal Decree 636 yet.

Trust

Must have paid-up capital of at least THB 20 million
Must be registered as a trust with the Office of the Securities and Exchange Commission
Has not claimed a tax exemption under Royal Decrees. 597 or 636 yet.

On 6 September 2022, Notification of the Director-General of the Revenue Department on Income Tax No. 428 was issued to further provide clarification on the rules, procedures, and conditions to be followed in order to qualify for the tax exemption under Royal Decree 750.

1. Duty to file a form:

The Companies are required to file an income proportion report form containing information on shareholders and the proportion of income derived from their business in each accounting period.
VCCs and trusts are required to file an investment report form containing details of investments in the Companies and the proportion of the investment in each accounting period.

These forms must be filed through the Revenue Department’s website within 150 days of the last day of the accounting period. If the deadline is on or before 31 December 2022, the deadline is extended to 30 June 2023.

2. Investors are required to keep an investment report form available for inspection by the Revenue Department.

3. Where investors derive income from the sale of shares in a VCC or of units in a trust which has no retained earnings, the investors are required to prepare evidence to show the proportion of the investment in the Companies compared to all the investments of the VCC or trust in an accounting period prior to the transferred.

The tax exemption under Royal Decree 750 shall be effective up to 30 June 2032.

References: Government Gazette (in Thai) dated 14 June 2022

The Revenue Department (in Thai) dated 6 September 2022