On June 10th, 2020, the Minister of Finance announced guidelines for (1) the adoption and use of foreign functional currencies for Petroleum Income Tax purposes and (2) the calculation of the value of remaining currency, assets, liabilities, and other items in a company’s financial statements at the end of the accounting period. The regulations went into effect on May 15th, 2020.
Adoption and change of foreign functional currencies
Companies and juristic partnerships that wish to use a currency other than Thai Baht for Petroleum Income Tax purposes must comply with the following rules:
1. A foreign functional currency may be adopted in a company’s accounting books and records in abidance with accounting principles. The foreign functional currency must be certified as such by an accredited auditor.
2. The foreign functional currency to be used must be authorized by the Notification of the Ministry of Finance concerning Petroleum Income Tax (Issue No.1), announced on April 21, 2020. The approved currencies are as follows:
USD, GBP, EUR, JPY, HKD, MYR, SGD, BND, PHP, IDR, INR, CHF, AUD, NZD, CAD, SEK, DKK, NOK, CNY, VND, KRW, TWD, AED
3. Companies must notify the Director-General of the Revenue Department of their intention to adopt the foreign functional currency within six months from the first day of the accounting period in which the functional currency is used.
4. Once a company adopts a foreign functional currency in accordance with the above regulations, it must use it indefinitely from the first day of the accounting period in which the Direct-General has been notified. If a company wishes to change its functional currency, it must obtain approval from the Director-General.
To change an approved foreign functional currency to another foreign currency or to Thai Baht, a company must follow the same procedure as above. An application to change the functional currency must be submitted to the Director-General within six months from the first day of the accounting period in which the company wishes to change the functional currency. Once the Director-General has approved the request, the new functional currency can be used from the first day of the accounting period in which the application was submitted.
All forms must be submitted digitally. To adopt a foreign functional currency, companies must submit the Sor. Ngor. Por 1 form directly through the Revenue Department’s website. They may use their registered username and password for the e-Filing system or the Ministry of Finance’s Tax Single Sign On system. Companies must also submit a certificate verifying that the company has prepared their accounting books and records using a foreign currency as their functional currency.
To change their functional currency, companies must submit a Sor. Ngor. Por. 2 form directly through the Revenue Department’s website. If the company is changing their functional currency to a currency that is not Thai Baht, they must also upload the required accounting certification.
Conversion into foreign functional currencies
Once the Director-General approves the request to adopt or change a foreign functional currency, the value of remaining currency, assets, liabilities, and all other items, including the remaining annual losses according to Section 28 (1) of the Petroleum Income Tax Act BE 2514 (1971), that are used to calculate the income tax at the end of the accounting period must be calculated using the approved functional currency.
Furthermore, all items in the financial statements on the last date of the accounting period immediately preceding the accounting period in which the functional currency was adopted or changed must be prepared using the foreign functional currency. All items must be converted into the functional currency using the average between the buying and selling rates of commercial banks, as calculated by the Bank of Thailand on the end date of the preceding accounting period. This must be done in compliance with accounting principles, and the foreign functional currency used must be certified as such by an accredited auditor..
Notification of the Ministry of Finance on Petroleum Income Tax (Issue No. 2)
By virtue of the provisions of Section 8 and Section 8/1 of the Petroleum Income Tax Act BE 2514 (1971) and as amended by the Petroleum Income Tax Act (No. 9) BE 2562 (2019), the Minister of Finance has announced the rules and regulations on the use or exchange of currency as a functional currency and on the calculation of the value of currency, assets, liabilities and other items in financial statements at the end of the accounting period for Petroleum Income Tax operations as follows;
Article 1: Companies that wish to use a currency other than Thai currency as the functional currency for Petroleum Income Tax operations shall comply with the rules and conditions as follows;
✓ The relevant currency must be adopted for accounting preparation as per accounting principles. Certification, by a certified auditor, that the currency used is the functional currency must be given.
✓ The implemented currency must be one which is authorized by the Notification of the Ministry of Finance concerning Petroleum Income Tax (Issue No.1) on April 21, 2020.
✓ Notification must be given to the Director-General of the Revenue Department within six months from the first day of the accounting period it wishes to use the foreign currency as its functional currency.
✓ The implemented currency shall be used consistently from the first day of the approved accounting period onwards, unless a request to change it is approved by the Director-General.
Article 2: Companies that are granted the use of foreign currencies under Article 1 and wish to change their functional currency shall follow the rules and regulations as follows;
✓ The relevant currency must be adopted for the accounting preparation as per accounting principles. Certification, by a certified auditor, that the currency is the functional currency must be given.
✓ The implemented currency must be one which is authorized by the Notification of the Ministry of Finance concerning Petroleum Income Tax (Issue No.1) on April 21, 2020, unless the request to change is to use Thai currency as the functional currency.
✓ An application to change the functional currency must be submitted to the Director-General within six months from the first day of the accounting period the company wishes to change the functional currency.
✓ The changed currency can be used only after the Director-General granted approval and is effective from the first day of the approved accounting period.
Article 3: Companies that wish to use a currency other than Thai currency as a functional currency according to Article 1 must submit the Sor. Ngor. Por 1 form or companies that wish to change the currency must submit a Sor. Ngor. Por. 2 form directly through the Revenue Department’s website, www.rd.go.th, by using the registered username and password for e-Filing system or the registered username and password for the Ministry of Finance’s Tax Single Sign On system. The steps are as follows:
✓ Fill out the Sor. Ngor. Por 1 or Sor. Ngor. Por 2 form, as the case may be, through rd.go.th.
✓ In the case that the company uses currencies other than Thai currency, scan the accounting certification and upload it to rd.go.th.
Article 4: Once the Director-General approves the request according to Section 8 of the Petroleum Income Tax Act BE 2514 (1971), calculation of the value of currency, assets, liabilities and other items in the financial statements must be done at the end of the accounting period approved by the Director-General. All items, including the remaining annual losses according to Section 28 (1) of the Petroleum Income Tax Act BE 2514 (1971), that are used to calculate the remaining income tax on that day must be in the functional currency according to the rules and regulations as follows;
✓ The value of currency, assets, liabilities, and other items in the financial statements on the last day of the accounting period before the accounting period approved by the Director-General must be calculated in accordance with accounting principles. Certification, by either a certified auditor or certified tax auditor, must be given.
✓ All items, including the remaining annual losses according to Section 28 (1) of the Petroleum Income Tax Act BE 2514 (1971), that are used to calculate the remaining income tax on the last day of the accounting period before the accounting period approved by the Director-General must be calculated at the average between the buying and selling rates of commercial banks as calculated by the Bank of Thailand at the end of the accounting period preceding the accounting period in which a foreign function currency is adopted or changed, as the case may be.
Article 5: This notification shall come into effect from May 15, 2020 onwards.