Franchise Tax in Tahiland (2)
Pursuant to the provisions of Section 70 of Thailand’s tax code and Article 12 of Thailand’s tax treaties, just about all amounts paid (other than payments for the purchase of physical goods) by a Thailand franchisee to a foreign franchisor are subject to withholding tax at source at the rate of 15%. A Thailand franchisee is also required to make a 7% VAT remittance to the Thailand Revenue Department on behalf of the foreign franchisor according to the reverse-charge rule prescribed in Section 83/6 of the Thailand tax code.
For both the withholding tax and the VAT liabilities, the tax code clearly prescribes that the liabilities arise when the Thailand payer “pays” the foreign company, and most Thailand franchisees would be remitting the required 15% WHT and the 7% VAT on payment of their franchise royalty fees to the foreign franchisor. But they would not generally be doing so for the local advertising and sales promotion spending paid to a Thailand-based advertising agency/service provider, because for such payments the tax code prescribes the payer having the duty to remit 2% or 3% WHT (as the case may be) and the advertising agency/service provider having the duty to remit the 7% VAT. Surprisingly, the Thailand Revenue officers claimed, for one particular Thailand franchisee, that because the local advertising and sale promotion spending is a condition under the franchise agreement, the sums spent on local advertising and sales promotion were part of the consideration for the right to operate the business, and therefore, the local advertising and sales promotion spending was subject to 15% WHT under the royalty rule and 7% VAT under the reversecharge rule, the same as for the franchise royalty fee.
