Software Tax Treatments
Software is a general term for the various kinds of program used to operate computers and related devices.
- Application software. Software that uses the computer system to perform special functions or provide entertainment functions beyond the basic operation of the computer itself.
- System software. Software that directly operates the computer hardware, to provide basic functionality needed by users and other software, and to provide a platform for running application software. System software includes:
- Operating systems, which are essential collections of software that manage resources and provides common services for other software that runs “on top” of them
- Device drivers, which operate or control a particular type of device that is attached to a computer.
- Utilities, which are computer programs designed to assist users in the maintenance and care of their computers.
- Malicious software or malware. Software that is developed to harm and disrupt computers.
The Revenue Code:
“Software” is not defined in the Revenue Code. However, according to Clause 2.2 of the Revenue Department Explanatory Note Re: Withholding Tax Instruction under Departmental Instruction No. Taw.Paw.101/2544, it prescribes that;
“Payment as a consideration for composing of computer programs, a consideration for the use of computer programs. For example, Company A purchases computer program (software) from Company B. Company A pays to Company B. for computer program, including after warranty maintenance, costs on consulting assistance on direction of uses, training in using the computer program as well as travelling and accommodation costs for expertise in the training.
Total costs in aforementioned paragraph shall be collectively treated as income under Section 40(3) of the Revenue Code”.
Section 40(3) of the Revenue Code prescribes types of payments that fall under “Royalties” income.
Double Tax Agreements:
Thailand has currently concluded Double Tax Agreements (DTAs) with 60 countries. Under definition of “Royalties” in the DTAs, software is referred to as “the use of, or the right to use, any copyright ofliterary, artistic or scientific work”.
The Revenue Department’s precedent Tax Rulings has extensively verified that;
- Software is classified as royalty within the term “the use of, or the right to use, any copyright ofliterary, artistic or scientific work” under the Article governing “Royalties” of the DTAs.
- Software falls under “literary work” under the Copyright Act B.E. 2537.
1) Payments as consideration for the use, the right to use, or sale of software are regarded as royalty income under Section 40(3) of the Revenue Code and under a relevant DTA.2) Taxable income under 1).above shall include costs of service activities related to software. Those services are including the update, upgrade, consulting assistance for the use or application of software, maintenance, training including travelling and accommodation costs of the trainers, regardless of whether the agreement for the sale or use of software and agreement for the related services activities are separately concluded.
3) Payments for software
3.1) Payment is made to a domestic recipient is subject to withholding tax at 3% on gross.
3.2) Payment is made to an oversea recipient;
a) To a recipient who is a resident of the country that does not have a DTA with Thailand. Payment is subject to final withholding tax at 15% on gross (Section 70 of the Revenue Code).
b) To a recipient who is a resident of the country having a DTA with Thailand. Payment is subject to final withholding tax at the rate specified under the relevant DTA.
4) System software to which operates and runs hardware and originally installed together with the computer is considered as a part of the computer device. Payment for system software is not subject to withholding tax.
5) Costs in acquiring software is subject to deduction under asset depreciation rates as follows;
5.1) Software with unlimited period of use. Depreciation rate is 10% of cost. Software with limited period of use. Depreciation rate is 100% divided by years of use.
5.2) Software acquired by a SME is eligible to an initial depreciation at 40% of cost. The remaining value shall be amortized within 3 accounting periods.
6) Payments for the use, the right to use, or purchase of software to ;
6.1) The recipient who is residing in Thailand. The payer is subject to VAT at 7% in accordance with Section 80 of the Revenue Code.
6.2) The recipient who is residing outside Thailand. The payer is subject to VAT at 7% on behalf of the recipient in accordance with Section 83/6 of the Revenue Code. The payer is required to submit a PP.36 VAT return for monthly VAT filing.
7) Agreement for the use, the right to use or purchase of software is not subject to Stamp Duty.
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