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The Thailand Hotel "Tax

Bad Debts - Part II

Chiang Mai proves itself a “Creative City”

Rimping to open store at latest mall

The Thailand Hotel "Tax

The surprising increase of the so called “local tax” for hotels from 1% to 2% in Phang Nga Province created a fear among hotel business operators in other provinces of Thailand that they could also be affected by an increase or the establishment of such “local tax”. In the following we would like to explain briefly the legal basis of such local "tax” and whom it affects.

In 1997 Thailand enacted the Provincial Administrative Organization Act (“Act”). In accordance with such Act, the Provincial Administrative Organization, or the "Orborjor", was created. The Orborjor is an administrative organization existing in every Thai province. The Orborjor is responsible for certain provincial administrative matters.

Sections 45(1) and 51 of the Act empower the Orborjor of every province in Thailand to issue regulations applicable to that specific province. Section 65 of the Act further empowers the Orborjor to collect a certain fee (“Fee”) from the hotel guests (as defined under the Hotel Act (A.D. 2004)(“Hotel Act”)) at a rate to be defined by a Ministerial Regulation(s) issued under the Act. Article 2 of Ministerial Regulation No. 4, (A.D. 1998) (“M.R.”) issued under the Act introduces a maximum Fee at a capped rate of 3% of the hotel room charge. Therefore, currently no province is entitled to implement a Fee in any amount exceeding 3% of the price the hotel charges a guest for the room. However, every provincial Orborjor in Thailand does have the authority to set the applicable rate, up to 3%, at their sole discretion.

To illustrate how the Fee is implemented under the Act, we will use Phuket Province as our example. The Phuket Provincial Administration Organisation Bye-Law Re: Collection of Contribution Fee of Provincial Administration Organisation from Hotel guests (A.D. 2002) (“Bye-Law”) further regulates the exact amount of Fee (currently 1% of the hotel room charge) payable within Phuket Province. The Fee is payable by the hotel guest. The "Hotel Manager" (defined by the Bye-Law as "the operator of a hotel business under the Hotel Act") has the duty to collect the Fee from the hotel guest on behalf of the Orborjor. The Hotel Manager must then remit the collected Fee to the Orborjor within the 10th day of the following month.

Note, the hotel guest and the Hotel Manager are both separately liable under the Bye-Law for payment of the Fee to the Orborjor. A hotel guest who refuses to pay the Fee may be punished by imprisonment for a term of one month or a fine not exceeding Thai Baht 2,000 or both. Whereas a Hotel Manager who fails to collect the Fee may be punished by up to three months or a fine not exceeding Thai Baht 5,000 or both. Additionally, a Hotel Manager who fails to remit the collected Fee to the Orborjor as required may be punished by up to three months or a fine not exceeding Thai Baht 5,000 or both. If anyone fraudulently avoids payment, collection or remission of the Fee may be punished by up to six months or a fine not exceeding Thai Baht 10,000 or both.

The Fee is payable by hotels as registered in accordance with the Hotel Act. Section 65 of the Act only entitles the Orborjor to collect the Fee in relation to a "Hotel" as defined by the Hotel Act. Small guest houses and other establishments that are offering temporary stays to guests and travelers that are excluded from the definition "Hotel" under the Hotel Act are apparently outside of the scope of the Act. It should be noted, however, that if such small guest house or establishment is operating without having registered with the local authorities as required, then they are operating not only in violation of the Hotel Act but also quite likely in violation of the Act if no Fee is being collected and remitted.

Duensing Kippen is a multi-service boutique law firm specializing in property and corporate/commercial matters and is also the only such firm in Thailand that compliments its property and corporate/commercial legal expertise with a core tax law practice. Duensing Kippen can be reached at: [email protected] or for more information, visit them at: www.dktaxandlaw.com.


Bad Debts - Part II

In Part I of this two part article we noted the importance for your company to comply with the legal requirements to "write-off" uncollectable or "Bad Debts" so that your company would not be required to pay income tax on these uncollected monies. And we saw that under Section 65 of the Thailand Revenue Code ("RC") and Ministry of Finance regulation No. 186 (1991) (“MR”) in order for Bad Debts to be written-off they generally my have (1) arisen from your company's business and (2) it must not be too late to file a court action to collect them.

Now we look at the rest of requirements under the MR to write-off Bad Debts. These additional requirements are further outlined in the following clauses of the MR and in doing so the debts are categorized by amount as follows:

(i) debt(s) by a debtor exceeding Thai Baht 500,000 (Clause 4 MR);

(ii) debt(s) by a debtor between Thai Baht 100,000 and Thai Baht 500,000 (Clause 5 MR); and

(iii) debt(s) by a debtor not exceeding Thai Baht 100,000 (Clause 6 MR)

Different conditions for a write-off are applicable for the different categories. The strictest requirements are applicable to category (i). MR Clause 4 requires:

(1) “[d]emands for payment have been made and the matter has been pursued to the extend suitable to the case of such acts being expressly recorded and yet debts remain unsettled (...)” because “(a) the debtor died, is missing or proved to be missing and has no property to pay the debts or (b) the debtor dissolved his business, and the debt due from him to the other creditors with preceding preferential rights over his entire properties exceed the value thereof”; and either

(2)(a) a civil action has been brought against the debtor and after a court order or injunction the debtor does not have sufficient property to settle the debts; or

(2)(b) a bankruptcy action has been brought against the debtor and a compromise has been reached with the debtor with court approval or the debtor has been adjudged bankrupt and the first lot of the debtor's properties have been shared out.

With regard to category (ii) debts, pursuant to MR Clause 5, the conditions for a write-off are the same as those for category (i) debt but that with regard to the requisite civil court proceedings it is sufficient that the court has accepted the plaint. Whereas with regard to the relevant alternative bankruptcy proceedings, the action against the debtor needs only to have been accepted by the court. However, in this case category (ii) debts, it is also required that the director or managing director of the juristic company creditor issue an order within 30 days from the last day of the relevant accounting period authorising the write-off of the Bad Debt.

Finally for category (iii) debts the requirements are the least strict. Pursuant to MR Clause 6, it is not necessary to comply with the requirements in MR Clauses 4 and 5. Court proceedings, for example, are not required. Rather, it is sufficient that "demands for payment have been made and that the matter has been pursued to the extent suitable to the case, and yet debts remains unsettled" provided that any court action in relation to the debt would entail higher costs in relation to the court proceedings than the amount expected to be recovered.

The final requirement is that once the creditor has complied with all above mentioned rules and regulations the creditor must write-off the receivable as a Bad Debt expense in the same accounting period. However, in case of a category (ii) debt, the accounting period in which this must be done is the accounting period when the relevant court accepts the civil complaint or the bankruptcy petition.
To manage the risk of unnecessary tax liabilities in connection with Bad Debts you should continually monitor company's accounts receivable in order to keep abreast of its various debts and determine when and what action is appropriate and as needed competent tax counsel should be consulted directly.

Duensing Kippen is a multi-service boutique law firm specializing in property and corporate/commercial matters and is also the only such firm in Thailand that compliments its property and corporate/commercial legal expertise with a core tax law practice. Duensing Kippen can be reached at: [email protected] or for more information please visit them at: www.dktaxandlaw.com.


Chiang Mai proves itself a “Creative City”

By Wouther Van der Stichel

The Public Relations Department of the Royal Thai Government organized the PRD international Press Tour on 24-25 February 2011 as part of the Chiang Mai Creative City initiative, with visits to Lanna Collection, Baan Thawai, Baan Tipmanee, Oasis Spa, Bee Products Inc. in Lamphun as well as PremPhachara Collection and Borsang Umbrella Centre, both in San Kamphaeng.

Lanna collection has 7 companies in its project that are trying to create a portfolio of products for the export market on the transition between traditional and contemporary Lanna art. These products consist of wood carvings, ceramics, textiles and saa paper, as well as bamboo furniture. The Royal Thai Government has set up this project in order to revive traditional knowledge, lead by Ajarn Withee, a professor at Chiang Mai University. He explained that the number of craftsmen skilled in the Lanna style is dwindling and needs to be replenished. A transfer of this knowledge from old to young can no longer be postponed for the risk of losing valuable knowledge and craftsmanship. The basic theme in the creative project is the Naga or cosmological snake. As an element of creation and water, the aesthetical aspects such as movement, color, shape and even calligraphy have been transferred into the new designs. Another important theme is based on the mythical beings dwelling in Himmaphan, the celestial forest garden, with motives such as burana kata, the pot of abundance.

After this introduction we visited Baan Tawai, the export and arts and crafts village, renowned worldwide for its excellent woodcarvings. An introduction into the techniques of woodcarving, gold leaf painting and treatment of the different kinds of wood, both teak and rainforest soft woods gave everyone a good insight into the complexity and time needed to complete these crafts. One collection, Baan Tipmanee, took everyone aback with extreme examples of the beauty of these techniques, displaying entire carved teak wood trees with the most elaborate of detailed jungle, Himmaphan and religious sceneries.

A treatment at one of the foremost spa’s in Chiang Mai displayed the beauty, serenity and enormous benefits of this ancient tradition. Massage is really good for mind and body at the same time, the soothing movements and scents of aromatic therapeutic oils is something nobody should miss on a visit to Thailand.

The visit to Bee Products Inc. in Lamphun really gave us a wonderful insight into the world of bees and honey production, as well as the variety of beneficial products coming from bees. Not only honey, but also propolis, bee venom, royal jelly, bee pollen and bees wax are harvested from these amazing creatures, each of them with wonderful properties and benefits for the human constitution, from nourishment over disinfection to supportive treatment of cancer, as well as patients with weakened dispositions and immune systems. This product has a big potential in the international market, both through its purity and in view of the recent problems worldwide with dwindling bee populations.

Premphachara collection proved to be an amazing view of handmade pottery. The pottery is astonishing and tailored to the needs of the international market. Only local clays are used, resulting in a variety of products that are an amazing example of the creativity of lanna design and tradition, as well as its passing into the modern world of international trade.

Borsang umbrella village showed us the delicate art of handcrafting umbrellas from bamboo and saa paper or cotton cloth, glued together with natural materials made from persimmon fruit and tied with natural fiber. The refined designs painted on the umbrella covers are astonishing to say the least, both in coloration and design. These people are working hard to preserve this tradition, but unfortunately the young people don’t seem to be interested in this kind of handicrafts anymore. Let’s hope the future will bring change, as this amazing craft is shown under the international spotlight.

In conclusion we can say that the international press was positive about the tour, strongly believe in the idea of creative city Chiang Mai. However the implementation needs to be planned in more detail. The future will show us if this initiative will prove to be viable and long lasting, but it seems positive nonetheless.


Rimping to open store at latest mall

Mr. Tjeert Kwant (left), the CEO & shareholder of ECC Group, recently signed an MOU with Mr. Phairoj Phatsorpinyosakul (right), President of Tantraphan Supermarket (1994) Co., Ltd. to secure ‘Rimping Superstore,’ Chiang Mai’s upscale, reputable supermarket well known for its variety of products, which will add to the 2.8-billion-baht resort mall, Thailand’s first, the ‘Promenada Resort Mall Chiang Mai’.