Kan | Associate Director – Tax & Accounting, Kreston Thailand
Most finance managers at foreign-owned companies in Thailand already understand that accounting profit and taxable profit are different figures. The concept is not the problem.
The problem is in the detail. Specifically: which items need to be added back to accounting profit when calculating CIT, by how much, and why. These are the adjustments that are most often incomplete, estimated, or missing entirely when we review a new client’s returns.
Below are the add-back items I encounter most frequently with the practical detail that makes the difference between a defensible return and an exposed one.
1. Expenses without a valid tax invoice, invoice, or receipt
An expense is only deductible if it is supported by an adequate document. For purchases from VAT-registered suppliers, this means a full tax invoice showing the supplier’s name, tax ID, description of goods or services, date, and amount. For other suppliers, a proper invoice or receipt is required.
Bank transfer confirmations, internal payment vouchers, and credit card statements are not sufficient on their own. If a Revenue Department officer asks to see the supporting document and the answer is a screenshot of an online transfer, the expense will be disallowed.
| Example: A company pays THB 180,000 for consulting services. The supplier issues a receipt but is not VAT-registered and does not provide a full invoice. The Revenue Department reviews the expense and disallows it on the basis that documentation is inadequate. THB 180,000 becomes a taxable add-back. |
The fix is straightforward but must be applied at the point of payment, not at year end. Establish a document checklist for every expense category and make it part of the accounts payable process.
2. Over-accrued and under-accrued expenses
Thai tax law recognizes expenses in the period they are incurred, not the period they are estimated. A year-end accrual that overstates the actual liability must be added back to the extent of the overstatement. This typically surfaces when a provision raised in December is reversed in January at a lower amount the difference is taxable income in the year the provision was raised, not a correction in the following year.
Under-accruals carry the opposite risk. An expense that should have been recognized in an earlier period may not be accepted as a deduction in the period it is corrected, depending on the circumstances and the amount involved.
| Example: A company accrues THB 500,000 for a service fee in December. The actual invoice arrives in February for THB 380,000. The THB 120,000 difference is an add-back to the prior year’s taxable profit even though the company views it as an accounting correction. |
Companies that use large, unsupported year-end accruals to manage their accounting profit are creating CIT exposure at the same time. Every material accrual should have a calculation or supporting document behind it before the accounts are closed.
3. Foreign currency translated at group rate instead of BOT rate
This is one of the most consistent errors in subsidiaries of multinational companies. The parent group operates a central treasury function and applies an internal exchange rate for intercompany transactions, often a monthly average set by the group finance team. The Thai subsidiary records all transactions at this group rate. Thai tax law does not accept it.
Thai tax law requires two distinct BOT rate applications. For transactions during the year purchases, sales, service fees, intercompany charges use the BOT reference rate on the date of the transaction, or a consistent monthly average BOT rate applied uniformly throughout the year. For foreign currency balances remaining open at the period end trade receivables, payables, intercompany balances, foreign currency cash use the BOT rate as at the last day of the accounting period to restate closing balances and calculate any unrealized exchange difference. The group treasury rate is not a valid substitute for either.
The practical solution is to record BOT rates for all foreign currency transactions throughout the year, and to pull the BOT closing rate on the last day of the accounting period for all open foreign currency balances. Both figures feed into the year-end tax adjustment schedule. BOT daily reference rates are publicly available at bot.or.th and should be part of every accounting team’s month-end close process.
4. Depreciation calculated under group policy instead of Thai tax schedule
Foreign parent companies typically set a single group-wide depreciation policy applied across all subsidiaries. Common examples: IT equipment over three years, machinery over five years, office fit-out over ten years. These rates are chosen for group consolidation purposes and may have no relation to the Revenue Department’s minimum useful-life schedules.
Thai tax law sets minimum asset lives for depreciation purposes. Buildings: 20 years minimum. Machinery and industrial equipment: typically, 5 to 10 years depending on type. Computers and peripheral equipment: 3 years. Where the group policy produces a faster depreciation rate than the Thai schedule allows, the excess is a mandatory add-back.
| Example: A company purchases machinery for THB 2,400,000. Group policy: straight-line over 4 years, giving annual depreciation of THB 600,000. Thai tax schedule: minimum 5 years, giving maximum annual deduction of THB 480,000. Add-back each year: THB 120,000. Over the asset’s life, the total tax effect is timing only but if the add-back is never made, the CIT return is understated in each of those years. |
The Thai subsidiary needs a separate fixed assets register that tracks both the group net book value and the tax written-down value for every asset class where the policies differ. Without this, the add-back cannot be calculated correctly and the CIT return cannot be defended.
5. Entertainment expenses over the statutory cap
Entertainment and hospitality expenses are deductible up to 0.3% of revenue or paid-up capital, whichever is higher, with a maximum of THB 10 million per year. The excess must be added back.
The issue is not the rate it is the tracking. Entertainment costs are often spread across multiple expense codes: meals, events, client gifts, team activities. No single line item exceeds the cap, but the aggregate does. By the time someone totals the figure at year end, the company is already over.
6. Intercompany management fees and royalties without documentation
Charges from a parent company for management services, shared functions, or intellectual property are commercially normal and potentially fully deductible but only if they meet the Revenue Department’s requirements. The fee must reflect an actual service received by the Thai entity, priced at arm’s length, supported by a transfer pricing analysis, and documented with a service agreement and proper invoices.
Companies that treat the management fee as a fixed monthly transfer without this infrastructure are exposed on two fronts: deductibility of the expense in the CIT return, and transfer pricing risk if the amount is questioned. The Revenue Department has become more active on both points in recent years.
The common thread
Most of these add-backs share the same root cause: the Thai subsidiary follows the group’s accounting practices and assumes they satisfy local tax requirements. In many cases they do not.
Correcting this does not require a restructuring of the business. It requires a tax adjustment schedule that is maintained throughout the year, not assembled under time pressure before the return deadline. Each of the items above has a clear methodology once the decision is made to track it properly.
Speak with our team
If you are not certain whether these adjustments are being made correctly in your current CIT returns, contact us. We can review your position and identify any gaps before the next filing deadline.
Contact Kan at Kreston Thailand to discuss your tax compliance situation.