On 20 January 2020, Royal Decree (No. 690) B.E. 2563 (2020) was announced to provide corporate income tax exemption privileges on certain types of machinery. According to said Royal Decree, a 50% deduction on the amount actually paid for investment in machinery will be allowed as additional deduction, but not for reparation to maintain its original condition under Section 65 ter (5) of the Thai Revenue Code. Furthermore, on 13 February 2020, the Revenue Department issued a Notification of the Director-General regarding income tax (No. 366) in order to specify the details, rules, procedures and conditions for corporate income tax exemption. In such regard, the particular expense must arise from a contract, purchase order, employment order or similar agreement from 1 Sep 2019 to 31 May 2020.

To be eligible, the machinery shall meet the following conditions:

  1. The beneficiary must not be a leasing business operator that invests in machinery, and will let out such machinery for its business;
  2. Must be new machinery located in Thailand, which is ready to be used by 31 December 2020 and must not be machinery in any business that receives other tax benefits, such as from the BOI or EEC, whether in whole or in part;
  3. Must average an income which is exempted for five consecutive accounting periods, commencing from the accounting period in which the deduction of wear and tear and depreciation was made;
  4. Details of machinery to be used in investment projects and investment plans must be submitted via the Revenue Department’s website by 31 May 2020; and
  5. A report, as attached to this Notification, and the registration of assets must be prepared and kept at the place of business, and be ready for inspection by an assessment officer.

If, subsequently, the tax exempted person does not comply with the above criteria in any accounting period, it would be considered that the rights have been terminated and an additional tax return must be filed retroactively according to the accounting period in which such rights are exercised; unless the machinery is sold, destroyed, lost or expired; whereupon the beneficiary shall be granted the right to be exempted during the accounting period in which said event occurs, and shall not have a duty to file additional back taxes.

To give a clearer picture in the calculation of benefits under this Royal Decree, we therefore would like to give the following example.

Example

Fact: Company A, who has an accounting period according to the calendar year, bought machinery at the price of Baht 1,000,000 according to the purchase order dated 25 December 2019, and payment was made on 10 January 2020. Furthermore, the machinery will be ready to be used on 4 July 2020 (the company uses the depreciation calculation method in a straight line).

 

Tax Benefit: Company A will begin depreciation in 2020 as follows:

Expenses arising from machinery purchase: Baht 1,000,000

Multiplied by the corporate income tax rate: 20%

Multiplied by the number of days until the machinery is ready for use: 181 days

Divided by the number of days in the year 2020: 366 days

In addition, Company A is entitled to reap the benefits by additionally deducting expenses in each year for accounting periods as follows:

Expenses arising from machinery purchase: Baht 1,000,000

Multiplied by the rights of exemption under the Royal Decree No. 690: 50%

Divided by the accounting periods that are exempted: 5

In summary, Company A must bring the purchased machinery to record depreciation and exercise the right, except under the Royal Decree, to calculate the corporate income tax as follows:

Expense Deduction202020212022202320242025
Depreciation98,907.10200,000.00200,000.00200,000.00200,000.00101,091.90
Exemption under Royal Decree (No.690) 100,000.00100,000.00100,000.00100,000.00100,000.00
Total

(Thai Baht)

198,907.10300,000.00300,000.00300,000.00300,000.00101,091.90

If you have any inquiries, please do not hesitate to contact us as follows:

  • Mr. Theeradaje Tansuwanrat: theeradaje.t@siamcitylaw.com
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