WHT and VAT compliance in Thailand

WHT and VAT compliance in Thailand

Thailand Franchisees Beware!

The Thailand franchisee disagreed with the Revenue officers’ argument and referred the matter to the Tax Court, which ruled in favor of the Thailand franchisee, saying that the advertising and promotion spending by the franchisee in Thailand cannot be considered as being paid to or received by the foreign company franchisor.

But the Revenue Department officers appealed the Tax Court’s ruling to the Supreme Court, which has just very recently handed down its decision in favor of the Thailand Revenue Department.

Summary of Supreme Court Case No 4440 / 2552 (2009)

A Thailand franchisee entered into an agreement with a foreign company franchisor for the right to use the franchisor’s system, trade name, trademarks etc for the purposes of operating the franchised business in Thailand. According to the franchise agreement, the franchisee is required to incur advertising and sales promotion expenses in an amount not less than 3.5% of annual gross sales.

The franchisee is required, under the agreement, to hire a local advertising company in Thailand to carry out the advertising and sales promotion activities and to pay the amount of not less than 3.5% of annual gross sales to the local advertising company. The Revenue Department officers formed the opinion that the payments to the local advertising company for the advertising and sales promotion activities in Thailand should be treated, for tax purposes, in the same way as the franchise royalty fee payment under the franchise agreement.

The Revenue Department assessed the franchisee 15% withholding tax and penalties on the advertising and sales promotion expenses on the basis that they are royalty payments under Section 70 of the Thai Revenue Code, plus 7% VAT and penalties thereon according to the reverse-charge rule under Section 83/6 of the Revenue Code.

The Supreme Court concurred with the assessment of the Revenue Department. It ruled that because the requirement for the Thailand franchisee to spend on advertising and sales promotion in Thailand is a condition under the agreement, the local advertising and sales promotion spending is therefore part of the consideration payable to the foreign franchisor for the right to operate the franchised business.

Franchise opportunities in Spain In the Spain market alone, the numbers for franchise speak for themselves:

- Over the last few years, the phenomenon of the franchise as a new way of doing business has been undergoing a notable increase in Spain, with year on year growth rates of around 40%

- According to a Spanish Franchise Association report, there are 919 franchise brands in Spain and growing.

- The latest franchising reports show that Spain is experiencing exponential growth and success within the franchise industry. There are already more than 57,000 franchise brand outlets in Spain.

- The Spanish economy is developing to embrace more franchises each year and will most likely become a larger contender in international franchising in the future

- Franchising turnover in sales has been Euro 25 Billion in recent years

It's your turn to become a part of the vibrant franchise industry! For over 30 years, franchising has grown into what it is now - one of the most widely recognized and reputable forms of business in the world!