A deep dive into the comparison between personal income tax vs. corporate tax, including key considerations for business registration and growth.
Starting or expanding a business often raises an important question: “Is it time to register a company?” Many believe that incorporating a company helps save on taxes, but this is not always the case. Both personal income tax and corporate tax have distinct advantages and drawbacks.
This article will provide an in-depth understanding of taxation, from progressive tax rates for individuals to corporate tax rates, while analyzing the breakeven point for company registration. We will also explore other key factors to help you make a confident decision about the best business structure for you.
Comparing the Two Tax Systems
Before deciding which tax structure to choose, it is essential to understand the differences between personal income tax and corporate tax. These differences go beyond just tax rates—they also involve taxable income calculations, deductible expenses, and various tax benefits.
Some may assume that registering a company always results in tax savings. However, multiple factors must be considered. Let’s examine the key differences and determine which structure best suits your business.
1. Progressive Tax Rates for Individuals
Individuals pay taxes based on a progressive system with the following rates:
- 0% : 0–150,000 THB
- 5% : 150,001–300,000 THB
- 10% : 300,001–500,000 THB
- 15% : 500,001–750,000 THB
- 20% : 750,001–1,000,000 THB
- 25% : 1,000,001–2,000,000 THB
- 30% : 2,000,001–5,000,000 THB
- 35% : More than 5,000,000 THB
2. Corporate Tax Rates
Corporations are taxed at a flat rate of 20% on net profits. However, SMEs receive special tax exemptions, as follows:
- Net profit 0–300,000 THB : Tax-exempt
- Net profit 300,001–3,000,000 THB : 15%
- Net profit exceeding 3,000,000 THB : 20%
(Applies to businesses with paid-up capital not exceeding 5 million THB and annual revenue not exceeding 30 million THB.)
When Should Individuals Register for VAT?
Value-Added Tax (VAT) is another crucial aspect for entrepreneurs to consider. Beyond being a legal requirement, VAT registration can also benefit your business. Individuals should register for VAT in the following cases:
- Annual revenue exceeds 1.8 million THB (mandatory registration)
- Need to enhance business credibility
- Majority of customers are corporations requiring tax invoices
Strategic VAT registration can elevate your business to a professional level, increase opportunities, and enhance competitiveness. If you plan to expand in the future, setting up a well-structured tax system from the beginning will facilitate smoother and more sustainable growth.
How Much Revenue Should You Have Before Registering a Company?
Deciding to register a company is a major milestone that requires thoughtful consideration. Beyond tax matters, this decision impacts your management structure, business credibility, and potential for long-term growth. So, when is the right time to make the move to a legal entity?
There is no one-size-fits-all revenue figure that determines when you should register a company. It depends on various factors such as net profit, tax burden, expenses, and your business goals. However, there are two widely used guidelines that can help you assess the right timing:
1. Annual Revenue Exceeds 1.8 Million THB → VAT Registration Required
If your business generates more than 1.8 million baht in total revenue per year (not profit), you are legally required to register for Value Added Tax (VAT). Once you pass this threshold, establishing a company may provide better tax planning opportunities.
2. High Net Profit and Increasing Tax Burden
As an individual, you are taxed progressively up to 35%, while companies are taxed on a tiered rate with a maximum of 20%. This means that once your net profit reaches into the millions, converting to a legal entity may result in significant tax savings.
There are also non-revenue-related factors to consider. For instance:
- You have substantial business expenses that can be deducted for tax purposes.
- You want to build business credibility.
- You plan to expand in the near future.
- You have multiple partners and need a clear ownership structure supported by legal agreements to avoid future conflicts.
Registering a company isn’t just about numbers or tax advantages. It also requires readiness in operations, including management systems, personnel, and working capital.
Making this change at the right time can position your business for sustainable, long-term success.
Additional Considerations
Before registering a company, it’s important to think beyond revenue and taxes. Becoming a legal entity offers many advantages—but also comes with greater responsibilities. Here are key aspects to consider:
- Legal Compliance: Once incorporated, a company must follow more structured accounting procedures, maintain complete documentation, and handle more complex tax matters in compliance with legal requirements.
- Increased Operating Costs: These include accounting service fees, government filing fees, and expenses related to ongoing legal compliance.
- Business Benefits: On the plus side, a legal entity can enjoy greater tax deductibility, enhanced business credibility, and better opportunities for expansion.
Conclusion
Choosing between remaining a sole proprietor or registering a company is not solely about taxation—it also involves long-term business goals, operational readiness, cost structure, and growth plans.
If your business is scaling with net profits exceeding 2 million THB annually, corporate tax may be a more beneficial option in the long run. However, if you run a small business requiring flexibility, operating as an individual remains a practical choice.
Related Search Terms
- personal income tax
- Corporate Tax
- progressive tax rates
- VAT registration for individuals
- Corporate Tax Rate
