Key takeaways
- When the CIT exemption ends, tax at the normal 20% rate reduces profit after tax by 20%, not by nearly half. But the effect on cash, dividends and debt conditions may be heavier than expected.
- In the first year after the privileges end, only part of the cash outflow is usually visible, from the half-year filing. In the following year, the outstanding tax and the next half-year tax fall due together.
- Start planning at least 2–3 years ahead, using methods with genuine business substance, not by shifting profit to stretch out the privileges.
No tax is payable this year, but next year the privileges expire. The owner sees the same level of profit but does not know when the cash will disappear, or whether shareholders will receive the same dividends. This does not happen suddenly, because the end date is known years in advance. The problem is that many financial plans do not extend as far as that year.
What changes in the year the privileges end
| Topic | While privileges apply | After the privileges end |
|---|---|---|
| CIT of a promoted business | Exempt under the certificate, subject to the cap | Normal rate of 20%, unless other reliefs apply under the certificate |
| Dividends paid from exempt profit | Not included in taxable income, subject to conditions | Check that the payment timing meets the rules. PwC concludes that this includes payments within 6 months after the privileges end |
| Half-year tax (PND 51) | There may be no liability on the exempt portion of profit | Profit must be estimated and tax paid on the required basis |
| Deferred tax | The result may differ depending on the nature of the temporary differences | Must be reviewed under TAS 12 or the standard the company applies |
| Accumulated losses during the privilege period | – | Generally can be deducted from profit within 5 years after the privileges end, subject to legal conditions |
Example: tax liability and cash
Hypothetical example Profit before tax of 100 every year, EBITDA of 180, annual debt service of 90. The exemption ends at the end of year 8, and the company pays half-year tax equal to half of the full-year tax. Figures in THB million.
| Item | Year 8 | Year 9 | Year 10 |
|---|---|---|---|
| CIT per the financial statements | 0 | 20 | 20 |
| Profit after tax | 100 | 80 | 80 |
| Cash paid for that year's half-year tax | 0 | 10 | 10 |
| Cash paid for the remaining tax of the previous year | 0 | 0 | 10 |
| Cash paid for CIT | 0 | 10 | 20 |
| (EBITDA − CIT per the financial statements) ÷ debt service | 2.00x | 1.78x | 1.78x |
Assume the shareholder is a Thai individual and the full amount is paid out as dividends. Where the profit of 100 is exempt and no dividend tax is withheld under the conditions, the shareholder receives 100. After the privileges end, the shareholder receives 80 × 90% = 72, before considering the dividend tax credit in the annual tax return.
Cash in the first year looks manageable because part of the tax is deferred to the following year. If cash is used to pay full dividends in year 9, year 10 will face THB 20 m all at once, so start building up a tax reserve from the first month after the privileges end.
If the group falls within the Top-up Tax threshold of EUR 750 million or more, effective from 1 Jan 2025, the result must be reviewed separately alongside the BOI privileges, including the option to convert the exemption into a reduced rate under the relevant announcement.
36-month advance plan
- 36 months before the privileges end: prepare a table of expiry dates by certificate and check the remaining cap.
- 24 months: build a 5-year post-privilege model covering CIT, dividends and Covenants.
- 18 months: finalise the dividend policy against accumulated exempt profit and check the period in which payment is permitted.
- 12 months: review actual investments that could apply for new promotion, which must have their own business rationale.
- 6 months: start setting aside the tax reserve, adjust the forecast and inform the bank if necessary.
- After the privileges end: close the separate accounts on schedule, review deferred tax and prepare PND 51 using realistic assumptions.
What to avoid
- Accelerating revenue recognition into years that still have privileges, in a way that does not comply with accounting standards and the transfer of control.
- Deferring expenses into the years after the privileges end without a commercial reason.
- Setting up a new company or moving an existing business to make it look like a new project.
- Paying dividends without separating profit earned under the privileges from taxed profit.
Next steps
- Put the expiry dates and remaining caps of every certificate in a single table.
- Prepare cash and Covenant forecasts that include CIT at the full rate.
- Separate retained earnings by tax status and check the conditions for paying dividends.
- Set up a tax reserve account and set the monthly set-aside proportion.
- Assess carried-forward losses and deferred tax with the auditor.
- Consult a tax adviser before changing the structure or applying for new privileges.