How Companies in Thailand Can Provide Tax-Free Flood Assistance to Employees
With the recent flooding in Bangkok, several of our clients have asked how they can financially support affected employees and how that support is taxed. Thai tax law has covered this since the 2011 floods. We provide an overview of the tax treatment from both the company’s and the employee’s side.
For the company, assistance is deductible under an internal welfare policy
Assistance paid under a clearly established internal employee welfare policy can be treated as an employee welfare expense and deducted for corporate income tax. The Revenue Department confirmed this in its guidance on the 2011 floods.
The policy should set out the following.
The types of natural disaster covered
Which employees are eligible
The evidence of damage employees must submit
The payment amount, or how it is determined
The application and approval procedure
A company without such a policy can adopt one now and apply it to the current floods.
For the employee, assistance is tax-free up to the actual damage
Royal Decree No. 527 exempts assistance received to compensate for damage caused by a natural disaster in Thailand. Revenue Department Notice No. 206 sets two conditions.
The employee has actually suffered damage
The assistance does not exceed the value of that damage
For example, if an employee suffers THB 100,000 of flood damage and receives THB 20,000 from the company, the full THB 20,000 is exempt. The company does not withhold tax on it.
The limit applies to the total assistance the employee receives from the company and other private sources for the same loss. This includes any payment from an overseas parent company. Government disaster compensation is exempt under a separate rule.
Assistance should not be paid as a flat amount without checking each employee’s actual loss. Any part that cannot be supported as compensation for damage becomes employment income under Section 40(1) of the Revenue Code. The company must then withhold tax on it under Section 50(1).
For example, an employee with THB 6,000 of documented damage who receives a flat THB 10,000 is taxable on THB 4,000. If that tax is not withheld, the company is jointly liable for it under Section 54.
It is recommended to pay the assistance by separate bank transfer rather than through payroll. This keeps it clearly distinct from salary in the company’s records.
Keep supporting documents for each employee
The exemption is assessed employee by employee. For each payment, retain the following.
The signed welfare policy and its approval record
The employee’s declaration of the damage and its estimated value
Photographs, repair quotations or receipts
The payment approval and bank transfer record
To conclude, a written welfare policy makes the assistance deductible for the company. Evidence of each employee’s actual loss makes it tax-free for the employee.
BizWings Thailand provides payroll and personal income tax services as part of an integrated accounting, tax and corporate advisory offering for foreign-owned companies. Contact us for more information.
Comments