‘CONSTRUCTION PROJECT RISK MANAGEMENT 2014’ · ‘CONSTRUCTION PROJECT RISK MANAGEMENT 2014’ Managing Tax Risk in Construction Projects Ruji Aphiworakitphan BDO Advisory Limited

‘CONSTRUCTION PROJECT RISK MANAGEMENT 2014’Managing Tax Risk in Construction Projects

Ruji AphiworakitphanBDO Advisory LimitedTax & Legal Services14 November 2014

Presentation Outline

• Tax considerations:Project Owner & Contractor

• Tax planning:Pre-construction

• Tax monitoring:During and Post-construction

Tax Risk ManagementPage 2


Tax Considerations on Construction ContractProject Owner & Contractor

Tax Considerations on Construction Contract

Project Owner Contractor

Depreciation Offshore & onshore contractors

Deductible & non-deductible expenses Income recognition

VAT creditable Sale of goods & hire of work

Withholding tax liabilities Stamp duty


Tax considerations: Project Owner

Depreciation of construction project: the project is ready to use –when?

• Installation

• Commissioning

• Test –run

• Completion and deliverable



Deductible and non-deductible expenses – What?

• During the construction: capital expenditures e.g. transport fees, interest, taxes, government fees, cost of equipment and services, etc.

• After completion of construction: non-capital expenditures (but not include renovation or refurbishment) e.g. interest, service fees: technical support, supervisory and maintenance



VAT Creditable

• Input VAT on sale of goods and import of goods

• Input VAT on provision of services

• No VAT on hire of service (employment of its employees)



VAT Non-creditable

• Input VAT incurred from the construction of building for usage in the non-VAT business

• Sale or lease out or use of the building in non-VAT business within 3 years from the tax month of completion of construction but not include certain transactions e.g. business rehabilitation, partial and entire business transfer, privatization



Withholding Tax Liabilities

• Offshore constructor: non-DTA tax resident and DTA tax resident (business profit and PE, royalties) and tax rates

• Onshore constructor: hire of work (service, transport)


Tax considerations: Contractor

Joint Venture or Consortium

Offshore & Onshore Contractor

• Offshore contractor: PE, Alien Business License, work permit

• Onshore contractor: subcontract



Income Recognition: Accrual basis

• Percentage of completion contract method: cost to cost and engineering survey/report

(Thai Accounting Standard No. 11 (amended 2009))

(Departmental Instruction No.Tor.Por.1/2528, Clause 3.6)

Supreme Court Judgment No. 2744/2544 ruled to support the percentage of completion method



Stamp Duty

• Construction contract is a hire of work contract – subject to stamp duty

• Liable person: contractor (unless agreed otherwise to be borne by the customer)

• Stamp duty: every Baht 1 for service fee of Baht 1,000 without maximum

How to reduce stamp duty: split of contract – sale of goods contract is not subject to stamp duty



Tax planningPre-construction

Tax planning: Pre-construction

Onshore Contractor

• Split of contracts: sale of goods and services – to reduce withholding tax and stamp duty

• Elements of sale contract and service contract should be absolutely separated: purpose of contract, contract price etc.

• Seller and service provider is not necessary to be separated



Onshore Contractor: Precedent Cases of Split of Contracts

Revenue Department Ruling No. GorKor. 0702/2301 dated 24 March 2009

• Objective of the Company is to provide construction services • Split contract for sale of materials and construction • The price per sale contract and service fee per construction

contract are both income from hire of work



Onshore Contractor: Precedent Cases of Split of Contracts (cont.)

Supreme Court Judgment No. 2091/2553

• Construction of Electricity, Communication, Sanitation and Air Condition System

• Split contract for sale and service separately, separate scope of work/objectives, goods price/ service fee, payment term

• Contractor and seller of construction materials are the same entity



Offshore Contractor

• Split of contracts: sale of goods and services

• Subcontract of onshore construction works to local contractor to avoid PE and Alien Business License



Offshore Contractor: Split of contracts

• Sale of goods is not subject to withholding tax and stamp duty

• Offshore supply contract shall be executed outside Thailand (no employee, agent or go-between in Thailand dealing with the customer for the sale)

• Ownership of offshore goods shall be transferred to the customer outside Thailand



Offshore Contractor: Split of contracts (cont.)

• Provision of offshore services may be exempt from withholding tax under the double tax agreement depending on nature of services.

• Self-assessed VAT for the project owner would not be a cost and would be creditable for VAT business.

• Stamp duty only applies to service contract.



Offshore Contractor: Avoiding PE under the Double Tax Agreement

• No fixed place: office, building site, etc (Asset test)

• No qualified activity: construction, installation, assembly or supervision (Activity test); and

• No qualified period of time: 3, 6 months or 183 days in any calendar year or accounting period (Time-test)

Count by project (being connected)

Consider on the period under the contract

Include suspension period, holiday



Offshore Contractor: Secondment

• Secondment of foreign employees to the subcontractor and not be reimbursed their remuneration to the offshore contractor

• Foreign employees obtain work permit under the employment of subcontractor



Tax MonitoringDuring and Post-construction

Tax monitoring: During & Post-construction

Implementation of Tax Planning• period of services performed in Thailand, invoicing,

reimbursement

Contract Monitoring• party who bears the tax payment, gross up price and tax on tax

calculation

Withholding Tax• double tax agreement, due date, tax rates and filing


Tax monitoring: During & Post-construction (cont.)

Self-assessed VAT• service provided outside Thailand and use in Thailand, due date

and filing

Documentation• transfer pricing, stamp duty and period of retention of

documents

Tax Audit and Disclosure of Information• in-charge person dealing with the Revenue Department,

potential tax dispute and evidences in court trial


BDO THAILANDTax & Legal Contacts

RUJI APHIWORAKITPHANManagerTax & Legal [email protected]: +662 260 7290Mobile: +6687 695 9451Fax: +662 260 7297

QualificationsBachelor of Law degree from Thammasat University and Graduate Diploma from Institute of Legal Education of the Thai Bar.

ExperienceRuji has over 8 years experience providing tax and legal advisory services. Ruji specialises in advising on, personal income tax, corporate income tax, value added tax, stamp duty and property tax. She also has significant experience in advising on tax planning and carrying out tax review and tax due diligence assignments.


BDO PROFILETHAILAND

BDO Advisory Limited specialises in providing tax and legal services to multinationals operating in Thailand and the Asia Pacific region.

BDO Advisory Limited, a limited liability company incorporated in Thailand, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

BDO is the brand name for the BDO International network and for each of the BDO Member Firms

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‘CONSTRUCTION PROJECT RISK MANAGEMENT 2014’ · ‘CONSTRUCTION PROJECT RISK MANAGEMENT 2014’ Managing Tax Risk in Construction Projects Ruji Aphiworakitphan BDO Advisory Limited