Companies may enjoy special tax incentive on asset investment

 

Recently, a Royal Decree (No 604) was issued to provide tax incentives to companies planning to expand or make major investments in assets. This Royal Decree will allow companies an additional depreciation deduction for assets acquired between November 3, 2015, and December 31, 2016.

The additional deduction will not simply take the form of a double deduction of the normal depreciation. For instance, to use a simple example, on December 1, 2015, a company purchased a table for Bt1,000, which will be depreciated over a period of five years in both its accounts and tax returns. This means that in its books for the year ended December 31, 2015, the company will only record the related depreciation of Bt16.99 (1,000 times 20 per cent times 31/365). 

However, with this special tax incentive, the company will be able to take a tax benefit of the additional deduction equal to the investment amount divided evenly over the useful life of each class of assets as prescribed in the regulations, which in this case is five years, so will be Bt200 (1,000 times 20 per cent).

To enjoy the tax incentive provided under this Royal Decree, the following conditions have to be met:

The asset must be ready for use on or before December 31, 2016.

Payment for the asset must be made between November 3, 2015, and December 31, 2016.

The company is required to maintain supporting evidence, such as a contract, purchase order, hiring order or an agreement of the same nature.

The asset must be included in the company’s fixed-asset register.

Nevertheless, the Royal Decree contains a number of statements that are open to interpretation and need to be clarified, such as the one relating to payments. 

For instance, if the company makes payments for an asset by instalments, as opposed to a one-off payment, will the company be able to take the additional deduction based on the entire amount of the investment, or will the deduction have to be based on the amount of the actual payments made until December 31, 2016?

Because of the novelty of this regulation, different Revenue Department officers appear to have different opinions on this matter. Some of them take the view that since the accrual basis should be used for both accounting and tax purposes, and not the cash basis, the company may be able to take the additional deduction on the entire investment amount regardless of the actual amount paid. 

On the other hand, other officers take the view that companies can only take the tax incentive based on the actual amount paid by December 31, 2016.

In this regard, companies may want to look out for any subsequent clarification from the Revenue Department.

For those companies that plan to make major asset investments in the near future, it would be worthwhile considering making the investments before the end of 2016 in order to take full advantage of the tax incentive under the Royal Decree.

 

Treethip Wongnongtoey is |associate director at PricewaterhouseCoopers Thailand. 

Nitika Sachdev is manager, tax and legal, at  PricewaterhouseCoopers Thailand.