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Letter No.	:	Kor Khor 0706/10491

Date	:	17 October 2007

Subject	:	Withholding income tax and VAT in case of the payment made to oversea countries

Law Provision	:	Section 77/2, Section 85/6(2), Section 80/1(2), Section 70, Section 80, Section 40(8), Section 40(2) and Section 50(1) of the Revenue Code

Settlement	:	1. Company D. conducts business related to computer software. When the customer hires the company for graphic design or software development, two parties will make an agreement regarding services and scope of work as well as fee. After the agreement is made, the company would hire sub-contractor which may be private or juristic person from India to undertake the job. After the job is complete, the D. company would then deliver work and invoice to customer upon condition that the D. company has no copy right to the job. We would like to ask the following questions: 1.1 To make a payment for sub-contractor who is private or juristic person in India, does the company have to withhold tax and pay VAT? 1.2 In case the company deliver such job to customer overseas, in the condition that the customer has full right on the job including application source code, is the company liable for VAT incurred from such income? 2. To pay and receive advertisement service fee in case where the customer has domicile in Ireland. 2.1 In each month, the company would make an advertisement payment in search engine to G. Company, located in Ireland, is the company liable to withhold tax and VAT? 2.2 The company has provided ad space in the company's website to use it for advertisement. In this case is the company liable for withholding tax and VAT? 3. The company purchases license keys and support contracts from L. Company on condition that the company is not entitled to use the copyright except right to make a sale for its customers. As for support contracts, the first year is without service charge, while the condition in the following year is that if the customer will not buy support contract, customer will not receive any services such as program updates. However, the customer is still able to use the current program. In this case, to make a payment for license keys to L. company, is the company liable for withholding tax and VAT? As for support contracts, L. company agrees that the company may withhold tax from the invoice prior to make a payment, and therefore, the company would like to ask for withholding rate as well as VAT and tax calculation. 4. The company rents web hosting server from R. company, based in USA. Sometimes, the customers request for the confirmation document about network. The company, therefore, has to buy SSL Certificate to re-sale to our own customers (SSL Certificate is valid for 1 year). We would like to ask if the company is liable for withholding tax and VAT? at what rate? 5. The company has made an advance payment for domain service to T company from Canada. After purchase, T company would deduct the advance payment made accordingly (domain requires annual renewal). What is the rate of withholding tax and VAT of purchasing domain? 6. The company makes a payment for service charge to natural person or juristic person in Hongkong in order to administrate marketing management on products or service provided on the website. What is the withholding rate and VAT rate? 7. The company employs Thai and/or foreign employees on occasional basis where types of work is depended on a particular period of time. Work contains no fixed schedule or scope. The company makes a payment to Thai and/or foreign employees as a sale commission. What is the withholding rate?

Conclusion	:	1. In case of 1 The company is liable for withholding tax and VAT as follow: 1.1 The customer hires the company to create graphic design which refers to designed picture by using graphical program, and software development refers to computer program. That the company would contact natural person and juristic person in India to undertake the job and submit the job to customer once it is completed on the condition that the company has no right on such job, is classified on hiring. The job is conducted overseas while the service is being applied in Thailand, therefore, the liability is under VAT. The company that pays for sub-contractor is liable for VAT under Section 77/2, 83/6(2) of the Revenue Code. 1.2 In case the company employs juristic person in India to undertake graphic design work and software development, the payment for such work is classified as profit derived from business . upon circumstances that such juristic person has no management, branch in Thailand, the juristic person is not liable for income tax incurred in Thailand. However, pursuant to Article 7, Paragraph 1 of the MOU between Thai and India government and Section 3 of the Royal Decree (Edition 18) B.E. 2505, the company is no liable for withholding tax and submit such tax to the Revenue Department. In case when the company hires natural person, payment for such service is not classified as income derived from work or activity conducted within Thailand since business of employer in Thailand, under Section 41, Paragraph 1 of the Revenue Code, the work contract convened between foreign individual is not deemed as labor contract which bind relationship as employer and employee, but as income derived from work undertaken overseas. If it is found that the foreign individual has domicile in India, not in Thailand during the year receiving such income, the said foreign individual is not liable for income tax to Thailand. Under Section 41, Paragraph two of the Revenue Code, the company that make a payment is, therefore, not liable for withholding tax and there is no reason to consider that the foreign individual has domicile in the country that signs in MOU or agreement for exemption on double taxation whatsoever. 1.3 In case the overseas customer hires the company for graphic design and software development and the company subsequently hire individual person and juristic person in India to undertake such job. Upon job completion, the company would deliver job to customer abroad in condition that the customer receive all copyrights including source code of such program - this is considered as hire of contract to overseas entrepreneurs. The company conducts business which is categorized as material matter of hire of contract within Thailand and deliver result of such contract overseas. If such contract contains written evidence, the company is entitled to pay 0% of VAT pursuant to Section 80/1(2) of the Revenue Code and Notification of the Director-General of the Revenue Department Regarding VAT (Edition 105) dated 12 July 2000 2. In case of 2. In regard to payment and receipt of advertisement fee, the company is liable for withholding tax and VAT as follow: 2.1 In case of 2.1, the company pays for advertisement fee in search engine - an Internet searching engine, to G company located in Ireland - which means that G. put on advertisement to the company in search engine - this is classified as service provision oversea. The payment for such service is classified under Section 40(8) of the Revenue Code. The company is not liable to withhold tax thereof under Section 70 of the Revenue regardless the service provider is in the country which sign MOU of exemption on double taxation. If, upon such advertisement, the company has applied the result from advertisement - which is classified as service provided overseas, but applied within Thailand, and therefore it is subjected to VAT. The company is liable to submit VAT at 7% rate under Section 77/2 and 83/6(2) of the Revenue Code. 2.2 In case of 2.2, G. company uses parts of company website for advertisement is classified as service provision, which is classified as an income under Section 40(8) of the Revenue Code. The company is not liable to withhold tax incurred thereof under Section 70 of the Revenue Code. In addition, partial use space of the website for advertisement where customers in Thailand may click and open the website - therefore, it is not deemed as service provided within the Kingdom for overseas users. The outcome of service is used oversea, however, the service is deemed as conducted within the Kingdom - which is subjected to 7% VAT pursuant to Section 80 of the Revenue Code and Article 2(1) of the Notification of the Director-General of regarding VAT (edition 105) dated 12 July 2000 3. In case of 3 The company pays for License Keys- the software or hardware copyright number used for "Info At Hand" for L. company from Canada - under condition that the company has no right on that copyright, only right to sell to customers. Hence such right is for using program from L. company with purpose to derive benefit from customers - such activity is classified as the Royalty under Section 40(3) of the Revenue Code. The company is liable to withhold 15% of the income paid to L. company. pursuant to Section 70 of the Revenue Code, and Article 12 of MOU between Thailand and Canada. Furthermore, payment made to L. company is classified as service fee made to company oversea and such service is applied in Thailand. Thus the company is liable to submit VAT pursuant to Section 83/6(2). Support Contract refers to technical support agreement, for example program update, under condition that customer can still use the old program version. Such payment made to L. company for service provision is classified as a profit derived from business operation. If L. company has no business place or branch in Thailand, therefore, it is not liable to income tax in Thailand as per Section 70 of the Revenue Code and Article 7 of MOU between Thailand and Canada and the Royal Decree (edition 18) B.E. 2505. such service provision is classified as service provided oversea but the service is applied within Thailand, therefore, it is liable for VAT pursuant to Section 77/2 of the Revenue code. The company that make a payment shall submit 7% VAT pursuant to Section 83/6(2) of the Revenue Code. 4. In case of 4, the company rents Web Server for web hosting purpose and purchases SSL Certificates - an extra file installed within network to enable user to check the connection status from R. company USA. Such business involves service which requires advance technology and high cost of investment. Once the company has made a payment to R. the payment is classified as an income pursuant to Section 40(8) of the Revenue Code. The company that makes a payment ,hence, is not liable for withholding tax pursuant to Section 70 of the Revenue Code. In addition, such service is provided oversea, but being used within Thailand. Once the company makes a payment oversea, the company is liable for 7% VAT of which the foreign company is liable for pursuant to Section 83/6(2) of the Revenue Code. 5. In case of 5. The company purchases domain to use as the website name (which is unique) from T. Company Canada. Such service is a service provision that requires new technology and cost expensive investment - which is classified pursuant to Section 40(8) of the Revenue Code. The company that makes a payment is not liable to withhold tax as per Section 70 of Revenue Code. Such service provision is provided oversea but the service is used within Thailand. When the company pays service fee to overseas company, the company is liable for 7% VAT pursuant to Section 83/6(2) of the Revenue Code. 6. In case of 6 The company pays for marketing plan, product sale management or advertisement on website to individual person and juristic person from special administration territory Hong Kong. If such service contains no information that disclosing technology or information related to commercial or industry or science experience, it is classified as business profit. Hence, that the company pays for service fee to juristic person from Hong Kong, which has no permanent business address in Thailand, the company is not liable for withholding tax pursuant to Section 70 of the Revenue Code and Article 7 of mutual agreement between Hong Kong from China government and Thailand in order to exempt double taxation and to prevent avoidance of taxation concerning income tax and Section 3 of the Royal Decree (edition 18) B.E. 2505. However, the payment for such service is made to oversea company, but the service is used in Thailand, the company is liable for 7% VAT pursuant to Section 83/6(2) of the Revenue Code. The payment made to individual is not classified as income derived from work or business conduct in Thailand or employer’s business in Thailand pursuant to Section 41 , Paragraph one of the Revenue Code, but classified as income derived from work overseas. If it is found that the individual from Hong Kong is not in Thailand during the year of receiving income, the individual is therefore, not liable for income tax in Thailand pursuant to Section 41 , paragraph two of the Revenue Code. The company that makes a payment is therefore, not liable for withholding tax. 7. In case of 7 The company employs Thai and/or foreign employees on occasional basis where types of work is depended on a particular period of time. Work contains no fixed schedule or scope. Commission is classified as income derived from hire of work pursuant to Section 40(2) of the Revenue Code. The person who makes a payment is liable for withholding tax pursuant to Section 50(1) of the Revenue Code. If the payment is made to foreign individual having domicile abroad and there is MOU or agreement to exempt double taxation with Thailand, the commission is classified as business profit. The this case, the company has no business address in Thailand, it is therefore exempted from income tax in Thailand pursuant to Section 3 of the Royal Decree (edition 18) B.E. 2505. The payee is not liable for withholding tax.

Box No.	:	70/35377

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Withholding income tax and VAT in case of the payment made to oversea countries