RSM Advisory (Thailand) Limited
Taxation Risk – Permanent Establishment Taxes
Permanent Establishment Tax Risk
Should your company be found to be an undisclosed / unreported agent of a foreign company, you could be exposed to Permanent Establishment taxes, and this article summarizes the Thai law and the practices of the Thailand Revenue Department officers when they find a PE in existence in Thailand.
Description of a Permanent Establishment
In the Thai context, a Permanent Establishment (PE) is created when a foreign company has a fixed place of business in Thailand through which the business of the foreign company is wholly or partly carried out.
The existence of a PE in Thailand therefore requires two essential elements: a fixed place of business in Thailand, and a foreign company’s business being carried out at that fixed place of business.
In many cases, the first element of a fixed place of business in Thailand is the Thai subsidiary or affiliate company and it’s the second element that determines the existence of a PE.
When a Thai subsidiary or affiliate earns income for a foreign company and that income is recorded in the books of the foreign company and not in the books of the Thai company, the Thai company can be deemed a PE of the foreign company.
Believe it or not, this happens quite a lot in Thailand with companies from the two Asian “capitals”, and the vast majority of the PE tax cases involving companies from those countries arise due to the following three actions of the Thai company:
1. The Thai company habitually exercises authority to conclude contracts in the name of the foreign company; or,
2. The Thai company habitually maintains stocks of merchandise belonging to the foreign company from which it regularly delivers on behalf of the foreign company; or,
3. The Thailand company habitually secures orders wholly or almost wholly for the foreign company or for other related foreign companies (which are controlled by the foreign company or have a controlling interest in the foreign company).
The Thai Tax Law