The Thailand “Hotel Tax”

The surprising increase of the so called “local tax” for hotels from 1% to 2% in Phang Nga Province created a fear among hotel business operators in other provinces of Thailand that they could also be affected by an increase or the establishment of such “local tax”. In the following we would like to explain briefly the legal basis of such local “tax” and whom it affects.

In 1997 Thailand enacted the Provincial Administrative Organization Act(“Act”). In accordance with such Act, the Provincial Administrative Organization, or the “Orborjor“, was created. The Orborjor is an administrative organization existing in every Thai province. The Orborjor is responsible for certain provincial administrative matters.

Sections 45(1) and 51 of the Act empower the Orborjor of every province in Thailand to issue regulations applicable to that specific province. Section 65 of the Act further empowers the Orborjor to collect a certain fee (“Fee”) from the hotel guests (as defined under the Hotel Act (A.D. 2004)(“Hotel Act”)) at a rate to be defined by a Ministerial Regulation(s) issued under the Act. Article 2 of Ministerial Regulation No. 4, (A.D. 1998) (“M.R.”) issued under the Act introduces a maximum Fee at a capped rate of 3% of the hotel room charge. Therefore, currently no province is entitled to implement a Fee in any amount exceeding 3% of the price the hotel charges a guest for the room. However, every provincial Orborjor in Thailand does have the authority to set the applicable rate, up to 3%, at their sole discretion.

To illustrate how the Fee is implemented under the Act, we will use Phuket Province as our example. The Phuket Provincial Administration Organisation Bye-Law Re: Collection of Contribution Fee of Provincial Administration Organisation from Hotel guests (A.D. 2002) (“Bye-Law”) further regulates the exact amount of Fee (currently 1% of the hotel room charge) payable within Phuket Province. The Fee is payable by the hotel guest. The “Hotel Manager” (defined by the Bye-Law as “the operator of a hotel business under the Hotel Act”) has the duty to collect the Fee from the hotel guest on behalf of the Orborjor. The Hotel Manager must then remit the collected Fee to the Orborjor within the 10th day of the following month.

Note, the hotel guest and the Hotel Manager are both separately liable under the Bye-Law for payment of the Fee to the Orborjor. A hotel guest who refuses to pay the Fee may be punished by imprisonment for a term of one month or a fine not exceeding Thai Baht 2,000 or both. Whereas a Hotel Manager who fails to collect the Fee may be punished by up to three months or a fine not exceeding Thai Baht 5,000 or both. Additionally, a Hotel Manager who fails to remit the collected Fee to the Orborjor as required may be punished by up to three months or a fine not exceeding Thai Baht 5,000 or both. If anyone fraudulently avoids payment, collection or remission of the Fee may be punished by up to six months or a fine not exceeding Thai Baht 10,000 or both.

The Fee is payable by hotels as registered in accordance with the Hotel Act. Section 65 of the Act only entitles the Orborjor to collect the Fee in relation to a “Hotel” as defined by the Hotel Act. Small guest houses and other establishments that are offering temporary stays to guests and travellers that are excluded from the definition “Hotel” under the Hotel Act are apparently outside of the scope of the Act. It should be noted, however, that if such small guest house or establishment is operating without having registered with the local authorities as required, then they are operating not only in violation of the Hotel Act but also quite likely in violation of the Act if no Fee is being collected and remitted.

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Can you name your Thailand company “[your name here] Limited”?

Prior to the legal formation of a company under Thailand Civil and Commercial Code, the company’s name must be approved, then reserved at the Thai authorities. The applicant must be a partner, a promoter or a director of that company. The form for reserving the company’s name is available at the: (i) Office of the Central Company and Partnership Registration, Nonthaburi Province; (ii) Office of Business Registration Service (seven locations in Bangkok); and (iii) the various Provincial Office of the Company Limited and Partnership Registration and can be submitted in person, either by the partner, the promoter or the director or by an individual under a power of attorney in person or post. The company’s name reservation can also be conducted via the Department of Business Development website, www.dbd.go.th[1].

The maximum amount of names for each reservation is three and should be submitted in order of preference. If approval granted, it will be for only one of the names[2], with a thirty-day validity period[3], which means the application to form the company expecting to use such name must be filed at (i) or (ii) if its location is in Bangkok and at (iii) if its location is in other provinces, within thirty days after the approval.

It should be noted that a company’s name must not contain certain words or phrases, for example, names that are the same or similar to those of other registered companies or entities or those that have already been formally reserved for other purposes. Of course names of the royal family, ministries, bureaus, departments, government offices or organizations are also prohibited, unless special prior permission has been granted. Also names of countries, unless in brackets will not be approved. Finally, names which are contrary to morality, public policy or public order[4] may not be registered.

The company’s name must also include wording that indicates that it is: (i) a company; and (ii) its liability is limited. But also, the company’s foreign language name, if any, must have the same pronunciation or meaning as its Thai language name.It is the Registrar’s discretion as to whether or not the foreign language name has the same pronunciation or meaning as in the Thai language. Thus, it may be that the spelling submitted, even if correct in the submitted language, and even if it is a personal name, may be rejected, at least initially. For example, in one case from our own experience, a company name reservation was rejected because part of the company’s name was one of the German promoter’s name as that promoter spelled it in English. However, according to the Registrar, it was spelled “incorrectly” in English.

What happened then? Did said German promoter have to give up how he actually spells his last name and use whatever spelling that the Registrar deemed appropriate? Fortunately, the answer was “no”. In that and any such case, the following documents were and can be submitted to the Registrar at the head Company’s Name Reservation Division, Office of the Central Company and Partnership Registration, Nonthaburi Province:

1) A letter from one of the promoters explaining why that specific word in the company’s foreign language name should be spelt that way and disavowing any claim against the Registrar by the applicant for registering the name with a spelling that the Registrar does not think is correct;

2) A copy of the German promoter’s passport, to show the Registrar how his last name is spelt;

3) Two original copies of the completed application form for reserving company’s name signed by the same promoter who signs the letter mentioned in (1) together with a signed copy of his passport; and

4)  A signed copy of an attorney-in-fact’s identification card and house registration (if the promoter does not submit the documents by himself).

After reviewing the documents in the example case, the Registrar allowed the promoters to use the company’s name with the applicant’s previously disputed spelling.

[1] See: The Office of the Central Company and Partnership Registration’s Regulations Regarding Company and Partnership Registration (B.E. 2549) Clause 23.

[2] See: Ibid., Clause 24.

[3] See: Ibid., Clause 25.

[4] See: Ibid., Clause 37.

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LABOR LAW IN THAILAND: PART 1 – The Labor Protection Act: introduction

The major legislation governing labor protection law in Thailand is the Labor Protection Act (the “LPA”). The LPA prescribes labor protection standards applicable to both employers and employees working in Thailand. However, the LPA does not apply to Government and State Enterprise employees.

The LPA prescribes the minimum rights to which employees’ working in Thailand are entitled in such areas as:

(a)       Working hours, overtime hours, working days, leave;

(b)       Wage, overtime pay, holiday pay;

(d)       Sick leave;

(e)       Employee welfare; and

(f)        Termination of employment.

Additionally, provisions relating to protection of female and children are also contained in the LPA — for example, employers are required to treat male and female employees equally; employers and their agents must not commit sexual harassment against employees who are female or children; and pregnant female employees are entitled to maternity leave for a period of time with salary payment.

Note: any employer who violates or fails to comply with the LPA may be punished according to the level of his or her offence with a fine of Thai Baht 5,000 to Thai Baht 200,000, or imprisonment of up to one year, or both.

In our following series of articles we will highlight sections of the LPA and of which every employer in Thailand should be aware and then survey additional provisions of the law relevant to both employers and employees in Thailand.

_______________________________________________________________________________________________

DUENSING KIPPEN is a multi-service law firm specializing in all Thailand inbound investment transactional matters, as well as, dispute resolution by litigation proceedings and international arbitration. DUENISING KIPPEN is the only firm in Thailand whose attorneys include three MCIArb internationally certified arbitrators. And, as a member of the International Alliance of Law Firms, with 63 member firms and 100 offices in 45 countries, DUENSING KIPPEN is able to provide its clients with high quality cost effective legal services worldwide. DUENSING KIPPEN can be reached at: contact@duensingkippen.com or for more information visit them at: duensingkippen.com

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Employee Termination in Thailand — caution, not as simple as you might assume

Occasionally an employer-employee relationship does not work out. In fact, sometimes the relationship degrades to such a degree, that one or both of the parties wishes to terminate it immediately. In general, for the employee this is simple. Unless the employee’s contract contains a provision which otherwise regulates the employee’s self-termination, he or she may simply quit by giving notice of termination of the employment at least one full wage payment cycle before such termination is to take effect. However, for the employer who wishes to terminate an employee the situation is not so simple.

The Labor Protection Act (1998)(the “LPA“) was largely enacted to protect employees whom it assumes are generally in a less powerful position than their employer and, therefore, in need of such protection. However, the LPA does allow an employer to terminate an employee for “cause” as the LPA defines such — in other words, any one of the following limited reasons:

  1. the employee has worked dishonestly or intentionally committed a criminal offence against the employer;
  2. the employee intentionally caused damage to the employer;
  3. the employee committed a negligent act that caused serious damage to the employer;
  4. the employee violated the employer’s work rules, regulations or any lawful and fair order of the employer, and the employer given the employee a written warning of such violation within the previous twelve months. (Note however, where the violation is particularly egregious, the employer is not required to give such a warning);
  5. the employee was absent from work, without justifiable cause, for at least three consecutive working days; or
  6. the employee was sentenced to imprisonment by a final court judgment. However, if the imprisonment is for an offense of mere negligence or a petty offense, that offense must have caused damage to the employer for this reason to qualify.

It is very important to note that if employer does terminate an employee for such “cause” the employer must also notify the employee of the reason the termination at that time — if not, the employer will not be permitted to claim that the termination was for “cause” and the termination will be treated the same as if it were without cause.

However, if an employer terminates an employee for any other reason than “cause” as defined above by the LPA, the employer may be held liable for any one or more of the following:

  1.         “Payment in lieu of notice”

Section 582 of the Civil and Commercial Code of Thailand, requires an a party to an employment agreement to give the other party notice of termination of the employment at least one full wage payment cycle before such termination is to take effect. However, notice need not be given more than three months prior to the termination being effective (where, for example, a wage cycle was longer than three months).

In other words, if for example, an employee is paid at the end of every month, it is 12 March, and the employer wishes to terminate the employee as soon as possible without such liability — then, the employer cannot terminate the employee at the end of March because that would not be one full wage cycle. Thus, the earliest the employer could properly terminate the employment without this liability would be 30 April — even if the employer gave the employee notice on 12 March. Note however, the employer could wait until 31 March, to give notice of termination effective 30 April, without being liable. If however, in our example, the employer did give notice on 12 March of termination on 31 March, the employer would then be liable for a full month of pay because the employee should have been allowed to work until the end April.

  1. “Severance Pay”

Pursuant to Section 118 of the LPA if an employer terminates an employee without “cause” as defined by the LPA, the employer may be held liable to the pay “severance” pay to employee in the following amounts depending on the duration of employment.

Employment Term Severance Payable =

Amount Equal to these Days at the Employee’s Most Recent Wage

120 days ≤ 1 Years 30
1 ≤ 3 Years 90
3 ≤ 6 Years 180
6 ≤ 10 Years 240
10 Years or more 300

 

  1. “Unfair Dismissal Compensation”

Apart from the above-mentioned employer liabilities, if the termination of employment is found to be “unfair”, under Section 49 of the Establishment of and Labor Court Procedure Act (1979) (“Act”) the court may also require the employer to pay any amount of additional compensation to the employee for such unfairness that the court deems appropriate.

The Act does not explicitly define what the term “unfair” means. That said, the following summaries of actual labor court rulings provide some guidance as to when such unfair is and is not likely to be found:

A.  an employer’s termination of an employee was found to be unfair;

1.  an employee’s husband was working for other competitive company;

2.  an employee worked as a technician in a field which required a legal license but employer discovered that employee’s license was expired and terminated the employee. Many of the employee’s co-worker technician’s licenses were also expired too, but they were not terminated because of that;

3.  an employer’s business’s annual profit decreased compared to previous years and yet remained profitable but in response, the employer terminated an employee; and

4.  an employee was gambling outside of working hours, and the applicable employer work regulations stated that the punishment for such conduct would be a financial penalty, but instead the employer terminated the employee.

However,

B. an employer’s termination of an employee was found not to be unfair, where:

1.  an employee’s performance was not sufficient during the employer’s “probation period”

2.  an employee was terminated in line with the employer’s work regulations retirement conditions; and

3.  an employer’s business was unprofitable for successive years and the employer had taken several steps to alleviate the costs of employing the employee (e.g. proffering a volunteer resignation option) but the employer eventually was forced to terminate the employee who did not agree to resign in order to save the business as a whole.

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What to know and do about bad debts in Thailand – Part II

In Part I of this two part article we noted the importance for your company to comply with the legal requirements to “write-off” uncollectable or “Bad Debts” so that your company would not be required to pay income tax on these uncollected monies. And we saw that under Section 65 of the Thailand Revenue Code (“RC“) and Ministry of Finance regulation No. 186 (1991) (“MR”) in order for Bad Debts to be written-off they generally my have (1) arisen from your company’s business and (2) it must not be too late to file a court action to collect them.

Now we look at the rest of requirements under the MR to write-off Bad Debts. These additional requirements are further outlined in the following clauses of the MR and in doing so the debts are categorized by amount as follows:

(i) debt(s) by a debtor exceeding Thai Baht 500,000 (Clause 4 MR);

(ii) debt(s) by a debtor between Thai Baht 100,000 and Thai Baht 500,000 (Clause 5 MR); and

(iii) debt(s) by a debtor not exceeding Thai Baht 100,000 (Clause 6 MR)

Different conditions for a write-off are applicable for the different categories. The strictest requirements are applicable to category (i). MR Clause 4 requires:

(1) “[d]emands for payment have been made and the matter has been pursued to the extend suitable to the case of such acts being expressly recorded and yet debts remain unsettled (…)” because “(a) the debtor died, is missing or proved to be missing and has no property to pay the debts or (b) the debtor dissolved his business, and the debt due from him to the other creditors with preceding preferential rights over his entire properties exceed the value thereof”; and either

(2)(a) a civil action has been brought against the debtor and after a court order or injunction the debtor does not have sufficient property to settle the debts; or

(2)(b) a bankruptcy action has been brought against the debtor and a compromise has been reached with the debtor with court approval or the debtor has been adjudged bankrupt and the first lot of the debtor’s properties have been shared out.

With regard to category (ii) debts, pursuant to MR Clause 5, the conditions for a write-off are the same as those for category (i) debt but that with regard to the requisite civil court proceedings it is sufficient that the court has accepted the plaint. Whereas with regard to the relevant alternative bankruptcy proceedings, the action against the debtor needs only to have been accepted by the court. However, in this case category (ii) debts, it is also required that the director or managing director of the juristic company creditor issue an order within 30 days from the last day of the relevant accounting period authorising the write-off of the Bad Debt.

Finally for category (iii) debts the requirement are the least strict. Pursuant to MR Clause 6, it is not necessary to comply with the requirements in MR Clauses 4 and 5. Court proceedings, for example, are not required. Rather, it is sufficient that “demands for payment have been made and that the matter has been pursued to the extent suitable to the case, and yet debts remains unsettled” provided that any court action in relation to the debt would entail higher costs in relation to the court proceedings than the amount expected to be recovered.

The final requirement is that once the creditor has complied with all above mentioned rules and regulations the creditor must write-off the receivable as a Bad Debt expense in the same accounting period. However, in case of a category (ii) debt, the accounting period in which this must be done is the accounting period when the relevant court accepts the civil complaint or the bankruptcy petition.

To manage the risk of unnecessary tax liabilities in connection with Bad Debts you should continually monitor company’s accounts receivable in order to keep abreast of its various debts and determine when and what action is appropriate and as needed competent tax counsel should be consulted directly.

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What to know and do about bad debts in Thailand – Part I

Is your company unable to collect money from a person that owes you certain funds? In that case your company might be eligible to write-off that Bad Debt. From a corporate accounting perspective, a “Bad Debt” is generally defined as an account receivable that is uncollectable.

From a tax perspective, however, Bad Debt is also not automatically and in all cases eligible to be erased from your company’s accounts receivable ledger or “written-off”. If your company writes-off a Bad Debt then it would be relieved of the tax burden it incurred. Thus, the Revenue Code of Thailand (“RC”) contains certain hurdles for a creditor before such creditor is able to use the Bad Debt as an expense that reduces the taxable profit.

It is paramount, however, for your company to clear these Bad Debt write-off hurdles when a debt turns bad. If your company does not do so it will have to pay income tax on that debt even though it was never collected. Section 65 of the RC defines “net profit” as the result of taxable income from business or arising out of business in one accounting year less certain expenses. Section 65 requires that this calculation is done on an “accrual basis”. Accrual basis, as opposed to cash basis, is a method of accounting in which each item is entered as it is earned or incurred regardless of when actual payments are received or made. Cash basis recognizes income when funds are physically received. Since the RC follows the accrual basis the RC treats all your company’s receivables as “income” even if they have not yet been physically received by your company.

On the other hand, where a receivable later meets the criteria to be considered as a Bad Debt then, in accordance with Section 65 RC, it is treated as an expense. This of course reduces the net profit and tax burden of the creditor. To be eligible for such “conversion,” such receivable must meet the definitions and requirements outlined in RC Sections 65bis and 65ter. RC Section 65bis(9) states that “[w]riting off bad debts from a debtor’s account shall be done only if it follows rules, procedures and conditions prescribed by a Ministerial Regulation (…)” The relevant Ministry of Finance regulation is No. 186 (1991) (“MR”). MR Clause 3 defines the qualifications of a Bad Debt that is eligible to be written off as follows:

(1) Debts that arose from carrying on a business or in connection with business or have been included as revenue in the computation of net profits, but not including debts owed by a person who is or used to be a director or managing partner whether or not debts arose before or during the time such person is a director or managing partner; and

(2) The claim for debts is not barred from court action by time limitation and is sufficiently evidenced for the purpose of suing the debtor.”

Please note that the following “prescriptions periods” or time limitations beyond which court action is barred, exist in Thailand in accordance with the Civil and Commercial Code of Thailand (“CCC”) depending on the kind of claim:

(a) Ten years is the basic prescription period in Thailand if the law does not establish a shorter period for a specific claim in (CCC Section 193/30);

(b) Five years for certain claims relating to, for example, interest, salaries (CCC Section 193/33);

(c) Two years for most commercial transactions (CCC Section 193/34).

Note: after the expiration of the above mentioned periods, the debt will not be eligible for deduction.

In Part II of this two part blog we will examine the additional requirements for writing off your company’s Bad Debt under the MR.

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The new corporate income tax rates in Thailand

After 2011 elections in Thailand there was little discussion about the new government’s plan to reduce the corporate income tax rates (“CITR”). Attention focused mostly on the potential negative impact of the minimum wage rate increase on businesses in Thailand being proposed by the new government . Meanwhile the new government went ahead and reduced the CITR significantly. Surprisingly — relatively few people seem to be aware of this. Accordingly, please find in the following a summary of the recently enacted revised CITR.

Pursuant to Title II, Chapter 3, Schedule 2(a) of the Revenue Code (“RC”) the CITR on profit for Thai companies is 30%. However, pursuant to Title I, Section 3(1) of the RC, this rate may be reduced for some or all such companies by way of the Cabinet issuing a “Royal Decree” (“RD”).

And, in fact, under RD 471 (2008) the CITR for “small to medium enterprises” (“SME”s) defined there as companies who’s total capitalization was THB 5,000,0000 or less on the last day of the tax year, was exempted for income not exceeding THB 150,000 and further reduced to 15% for taxable income between THB 150,001 to THB 1,000,0000 and to 25% for taxable income from THB 1,000,001 to THB 3,000,000. Also under RD 467 (2007) the CITR for companies listed on the Stock Exchange of Thailand (“SET”) on the “market for alternative investment” (“MAI”) was reduced to 20%, while the CITR for all other companies listed on the SET was reduced to 25%.

However, on 14 December 2011 the Cabinet issued RD 530 which repealed and replaced RD 471 and repealed and replaced Section 3(2) of RD 467. Accordingly, the CITR for SMEs, which are now defined as any company with a capitalization of not more than THB 5,000,000 on the final day of the tax year and which company does not have income exceeding THB 30,000,000 in that same tax year, is now as follows:

(1) exempted on net profit up to THB 150,000 for all of the following tax years which begin on or after 1 January 2012;

(2) 15% on net profit from THB 150,001 up to THB 1,000,000 for all of the following tax years which begin on or after 1 January 2012;

(3) 23% on net profit of THB 1,000,0001 or more for the tax year which begins on or after 1 January 2012; and

(4) 20% on net profit of THB 1,000,0001 or more for all of the following tax years which begin on or after 1 January 2013.

The CITR for all companies including those that are listed on the SET except for those which listed on the MAI on the SET is now for three consecutive accounting periods only as follows:

(1) 23% on net profit for the tax year which begins on or after 1 January 2012; and

(2) 20% on net profit for the following two tax years which begin on or after 1 January 2013.

The CITR for the companies that are listed on the MAI on the SET remains 20% on net profit under the portion of RD 467 which remains in effect.

In conclusion, these CITR reductions are clearly welcomed by those investing and doing business in Thailand. However, it should be noted that although as provided for under RD 530 the CITR reductions for SMEs are “permanent”, they are not so for all other (non-MAI listed) companies. It is unclear, if it is “planned” to extend or even increase these reductions after the expiration of the reductions in three years.

The perhaps most commonly stated rationales for the CITR reductions is to make Thailand’s business environment more competitive with its neighbors and further to “compensate” Thai companies for the coming minimum wage increases. But the reductions are not “permanent” for most “normal” companies under RD 530. Even if the “plan” is to extend or even increase them three years from now, it will take the political will of and action by the then current Cabinet. Thus, any such extension can only be seen as uncertain. Such can hardly be encouraging for those considering doing business and investing in Thailand beyond the next three years. Therefore, although the business community is welcoming the CITR reductions under RD 530, it is unfortunate that they were not made “permanent” for all Thai companies.

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Business Signs (part II): is Thai language required in yours?

In our last column we had a look at the common legal misnomer regarding businesses organized under a Thai limited company that asserts: “You must have ‘company, limited’ on your business sign.” In this column, we examine a second very common legal misnomer regarding business signs in Thailand. It goes something like: “All business signs must have Thai words that mean the same thing as any non-Thai words and above any such non-Thai words.” Once again, as a generalized proposition, this is incorrect (note, there are indeed cases where Thai language requirements may apply to your business’ sign). In our opinion, it is clear that this legal misnomer is based on an inadequate understanding of the Signboard Tax Act (1967) and as amended (the “STA“). Thus, once again, we turn to this, the relevant law.

Pursuant to Section 9 of the STA, the signboard tax is a local administrative tax collected by the relevant local administrative office (i.e. Testsabaan, Or. Bor. Tor or District Office, depending on where you are located in Thailand). The STA is as “self-assessing tax”. In general, with some specific exceptions and applicability rules, when you put up your business sign you are required to report to the competent local administrative office and pay the tax within fifteen days thereafter.

Section 12 of STA provides that the tax is payable annually in advance no later than 31 March for that year. However, pursuant to Section 7 of the STA, if this is the first year of your business sign is used, then the tax payable is a pro-rata proportion of the annual tax payable for that sign. Depending on which quarter of the first year the the tax becomes payable i.e. if the tax becomes payable in May (the second quarter of the calendar year) then you pay three quarters of the annual tax payable for such a sign.

Under Section 25 of the STA, a late payment of your annual sign tax is subject to a fine of 2% per month of your total payable sign tax. Failure to file the tax return by the due date is punishable by a fine of 10% of the tax payable, which will be reduced to 5% if the sign owner files before he given official notice of the failure to file. A fine of 10% of the arrears tax is applicable if the sign owner files an incorrect return, unless the sign owner requests to correct such before assessment. And, under Section 35 of the STA, a penalty of Thai baht five to fifty thousand is applicable for “intentionally” not filing the sign tax payment application.

Under Section 7bis of the STA, the tax payable (subject to a minimum tax payable of Thai baht two hundred) is calculated by the area of the sign multiplied by the applicable per area rate. Pursuant to Ministerial Regulation 5 (1992) under the STA, the tax rateper each five hundred square centimetres of sign used, is one of three following, currently reduced, amounts:

1) Thai baht three;

2) Thai baht twenty; or

3) Thai baht forty;

And here is the key point for our purposes; the rates are applicable as follows:

(1) is applied, if the sign is in the Thai language only;

(2) is applied, if the sign is in the Thai language and any other non-Thai language and/or has anypicture and/or has anylogo is also in the sign;

(3) is applied, if any part or all of the Thai language in the sign is under/lower down the sign than any non-Thai language in the sign.

And this is, in our opinion, the source of the confusion regarding a supposed legal requirement to include Thai in your business sign. True, if your sign contains only a non-Thai language or a non-Thai language and Thai but the Thai is not completely above the non-Thai language, you are liable to a higher a tax amount under the STA. However, two things should be carefully noted. First, once you calculate it, the payable tax amount for a sign that has Thai wording lower than non-Thai wording or even for a sign that contains only non-Thai wording is, indeed higher but the difference is relatively negligible. Second, you are generally not required to include any Thai language wording above any non-Thai language in your business sign. Indeed, you are generally not required to include any Thai language in your sign at all.

In closing and as noted above, however, there are some specific exceptions with regard to what business signs the signboard tax applies and also some cases where Thai language must be used in business signs. To clarify if and how your business sign is liable to this tax, and whether and how Thai language wording must be used in your case, you should to consult competent tax and legal counsel directly.

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Business Signs (part I): is it required to have “company, limited” in yours?

If you started a business here in Thailand, you probably did so by setting up a Thai company limited. All Thai limited companies are required to have and to report to the authorities a registered address, pursuant to Section 1148 of the Civil and Commercial Code (the “CCC”). And, pursuant to Section 14 of The Offences Relating to Registered Partnerships, Limited Partnerships, Limited Companies, Associations and Foundations Act (1956) and as amended (the “Juristic Persons Offences Act”) if a Thai limited company does not comply with Section 1148 of the CCC, such company will be subject to a fine of up to Thai baht twenty thousand. In addition, the director of such a company limited will be personally liable for another fine in an amount up to Thai baht fifty thousand, under Section 25 of the Juristic Persons Offences Act.

The requisite registered address need not be evident to all or anyone for that matter, it need only be an actual address and registered. However, if the business you limited company conducts requires its office location to facilitate its business activities and interactions with others, then chances are you put up a sign at your company’s registered address to market your business and let the public know where your place of business is located. When you did so, you may have been told, and thought that you must comply with, two very common misnomers. These misnomers, in our opinion, are based on misunderstandings of the relevant law. The first misnomer is that you must put “company, limited” or some abbreviation thereof on your sign. In this Part I of our two part article we have a closer look this first common misunderstanding. And in order to understand this legal misnomer we must, as always, turn to the actual relevant law.

So is the following assertion true?: “You must have ‘company, limited’ on your business sign.” Quite simply, it is not. But why do so many seem to think it is true? Most certainly it is due to Section 5 of the Juristic Persons Offences Act which states, in pertinent part, the following: “If a limited company, except one operating a bank, expresses its name in its commercial seal, sign, brochure, letter, notification, or any other document relating to its business…in a language other than Thai without words or phrases that mean ‘limited, company’… [such company] shall be liable to a fine not exceeding Thai baht twenty thousand and a fine of Thai baht five hundred per day until [such company] has complied with the requirements under this Act.”

Note well, however, that although the Juristic Persons Offences Act requires a Thai limited company to include words communicating that it is, indeed, a limited company when it expresses its company name in a business sign, it does not require that the company use its company name in any business sign it puts up. In other words, a business run by a Thai limited company would be just fine and legally compliant by putting a business sign with, for example, its mere logo, without its company name.

It should also be noted that the opposite holds true as well. Under Section 6 of the Juristic Persons Offences Act, if your enterprise is not a registered limited company and you proffer its name in wording that implies that it is a limited company, then you will be subject to a fine of Thai baht twenty thousand and a daily fine of Thai baht five hundred for each day until you cease doing so.

Therefore, if you put a sign at your office, it is not true that: “You must have ‘company, limited’ on your business sign”.

We will examine the second common legal misnomer regarding business signs in our next column.

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Are you the director of a Thai company? You should be aware of your significant legal liabilities

If you are a managing director of a private limited company in Thailand you may have decided to leave the task of dealing with your company’s legal, tax and accounting formalities to your firm’s in house lawyer and accountant or to outsource it to a law firm and an accounting office.

However, every director should be well aware that he personally has certain duties and liabilities to and on behalf of the company for which the law does not allow delegation. Note, a director is not the company’s owner—the owners are the shareholders. The director is merely the company’s agent who acts for and on behalf of the company. Therefore, the director has certain responsibilities to the company. Such responsibilities result in personal liability and the director may be held civilly liable if:

1) a director acts outside the scope of his authority granted from the company to the director. Company directors must only act for the company in the course of implementing and aiding the company’s objectives and must exercise due skill and care in doing so. The Civil and Commercial Code of Thailand (“CCC”) requires a company director to act as a reasonably and normally skilled businessperson would in acting for the company; and

2) the CCC also requires that a director may not put his interests ahead of the company’s. The interest of the company must always take precedence over the director’s other interests, including a director’s personal interests and other business interests (if any). Thus, for example, a director may not enter into an agreement such as a lease or a loan agreement on behalf of the company and himself personally without the consent from shareholders.

If the director violates any of these example duties, which result in damage to the company, then the director may be held civilly liable for such monetary damage by the company/shareholders.

However, it does not end there. In Thailand, unlike many other jurisdictions, a company director cannot only be held civilly liable for his actions as a director but also may be held criminally liable for such. At DUENSING KIPPEN’s most recent count, there are over 90 different laws providing for a director’s personal criminal liability for acts or omissions on behalf of the company. And many of these laws provide for multiple counts of such criminal liabilities.

For example, under the Determining Offenses Relating to the Registered Partnership, Limited Partnership, Limited Company, Association, and Foundation Act a director may face even higher fines than the company as well as time in prison for such acts. These acts include failures on the part of company to comply with the requirements of the CCC, for example:

1) the CCC requires a company to keep a register of shareholders at the company’s registered office. If the company does not have and properly maintain such a register, the company’s director is liable for a fine of up to THB 50,000; and

2) the director may also be liable for a fine of THB 50,000 if the company moves to a new address without giving proper notice to the Ministry of Commerce; and

3) the same liability is also applicable if the company did not hold its requisite annual general shareholders’ meeting; and

4) if the director failed to issue the legally required notice; and

5) if the company’s shares are not properly and actually paid up, its directors may be held liable for a fine of up to THB 50,000; it is therefore not enough to simply register the company as, for example, a THB 2 M company so that director can obtain a work permit and then leave the matter unattended; and

6) a director is obliged to:

a) submit a proper annual audit to the Ministry of Commerce; and

b) keep all minutes and resolutions of the director’s board and shareholders’ meetings in at the company’s registered office address; and

a director may be not only fined but also imprisoned for up to seven years if the director is found to have entered any false statement or made any material omission from in 6(a);(b) above.

In this article we have pointed out that a director of a Thai company has personal liability for his acts or omissions under several different relevant laws. Please note, the examples of this which we give above are only a very few of the most general legal liabilities applicable to all directors—there are a multitude of others. Furthermore, there are many other such liabilities, which may be applicable to a director depending on the type of activity in which the director’s company engages. Thus, it highly advisable that a director be aware on all of legal liabilities applicable to them so that he may exercise proper caution to avoid incurring any such personal liability.

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DUENSING KIPPEN is an international law firm specializing in business transaction and dispute resolution matters, with offices in Bangkok and Phuket, Thailand and over 100 affiliated offices in more than 50 other countries. Visit them at: duensingkippen.com

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