July 25, 2022 Thailand gazettes income tax exemption for gains from disposal of shares in companies engaged in target industries, venture capital companies and trusts
Executive summary The Thai Government promulgated Royal Decree No. 750 (the Decree) on 14 June 2022 granting an income tax exemption on gains from: (i) disposal of shares in companies engaged in the target industries; (ii) disposal of shares and the dissolution of venture capital companies investing in companies engaged in the target industries; and (iii) disposal of trust units and the dissolution of trusts investing in companies engaged in the target industries effective from 15 June 2022 to 30 June 2032, provided that the relevant conditions are met. The objective of the Decree is to promote investment in the target industries identified by the Thai Government. Detailed discussion The Decree was issued to grant a Thai income tax exemption (including withholding tax) on the gains from the following transactions subject to meeting certain conditions:
In this respect, the companies engaging in the target industries are companies or registered partnerships established under Thai law that develop and apply technology or innovation as an important part of their business operations and operate in identified target industries. The incentive is granted in order to promote the investment in the "target industries" as prescribed under the National Competitiveness Enhancement for Target Industries Act, B.E. 2560 (2017) (the Act). The Committee on Policy for National Competitiveness Enhancement for Target Industries identifies the following industries as the target industries under the Act:
Education and human resource development More specifically, the following gains are exempt from income tax (including withholding tax), subject to certain conditions: (1) Gains from the transfer of shares of a Target Company that has earned at least 80% of its total income from business operations in the target industries in each of the two consecutive accounting periods prior to the share transfer date; (2) In the case of investments through a VCC or a trust, gains from the transfer of shares of a VCC or trust units established for the purpose of engaging in venture capital business (i.e., a venture capital trust), under the following conditions: (a) If the VCC or trust has no accumulated profits, gains are exempted from income tax in proportion to its investment in Target Companies that have earned at least 80% of their total income from business operations in the target industries in each of the two consecutive accounting periods prior to the share transfer date. (b) If the VCC or trust has accumulated profits from its investment in Target Companies that have earned at least 80% of their total income from business operations in the target industries in each of the two consecutive accounting periods prior to the share transfer date, gains are fully exempted from income tax. In determining whether a VCC under (a) or (b) has accumulated profits, earnings distributed to the legal reserve (as required under company law) are to be excluded. (3) Gains realized by the shareholders or unitholders upon the dissolution of a VCC or trust are exempted from income tax in proportion to the amount of accumulated profits attributable to investment in Target Companies that have earned at least 80% of their total income from target industries in each of the two consecutive accounting periods prior to the dissolution date. In the cases of (1) and (2), investors must have held the shares or trust units for at least 24 months prior to the transfer. To be eligible for the exemption for (2) and (3), the VCC or trust must also meet the following criteria.
Note: If a VCC/trust does not meet any of these qualifications in any particular tax year or accounting period, suspension of the right to claim the exemption for the shareholders and unitholders is limited to that tax year or accounting period. The periods of the income tax exemption on gains under the Decree will be effective for the transactions that take place from 15 June 2022 to30 June 2032. Implications The tax incentive under Royal Decree No.750 is beneficial for companies who wish to invest in companies operating in Thailand that develop and apply technology or innovation in businesses that have been identified as target industries by the relevant authority as announced by the Director-General of the Revenue Department and is notably available until 30 June 2032. However, investors should ensure that all the specified conditions are met, and that relevant guidelines are followed. In particular, in the case of VCCs and trusts, it should be confirmed that they have not previously utilized the income tax exemptions available under other specified regulations. _________________________________________ For additional information with respect to this Alert, please contact the following: EY Corporate Services Limited, Bangkok
Ernst & Young LLP (United States), Thai Tax Desk, New York
Ernst & Young LLP (United States), ASEAN Tax Desk, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago
Ernst & Young LLP (United States), Asia Pacific FSO Tax Desk, New York
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