Key takeaways
A tax reserve account separates tax money from the operating account from the very first baht received from customers. The base rate is gross margin × 20%, and you should add 3.3% Specific Business Tax (SBT) on the money received, because SBT is paid in full on the transfer day. Review it quarterly against corporate income tax (CIT) after accumulated losses and WHT credits.
What it is and why you need one
A company receives booking deposits and down payments 2-4 years before the transfer day, but recognises revenue on the transfer day and pays CIT after that. This gap is where many projects run into liquidity problems, because the money has all been spent on construction costs.
A tax reserve account is a deposit account kept separate from the operating account, set aside solely to pay CIT, SBT and other accrued taxes.
Five benefits
1. Prevents a liquidity crisis
Overdue tax carries a surcharge of 1.5% per month or part of a month, not compounded and not exceeding the amount of tax, and penalties may also apply if a return is not filed or an assessment is issued. The impact is therefore not limited to the surcharge.
2. Builds discipline at project level
Setting money aside every time a down payment is received shows management the cash that is genuinely available to use.
3. Increases credibility with lenders and investors
A reserve account is more tangible evidence than the estimated figures in the financial statements.
4. Softens the impact in years with heavy transfers
Reserving per unit means a large CIT bill does not shock cash.
5. Serves as an internal KPI
The accumulated balance compared with the expected tax burden indicates the project's financial health.
How to manage it
Step 1: Set the formula
CIT reserve rate = expected gross margin × 20%
| Gross Margin | CIT reserve | Total reserve including 3.3% SBT |
|---|---|---|
| 15% | 3.0% | 6.3% |
| 20% | 4.0% | 7.3% |
| 25% | 5.0% | 8.3% |
| 30% | 6.0% | 9.3% |
On a down payment of THB 1,000,000 with a gross margin of 25%, the CIT reserve is THB 50,000. If you also reserve for SBT, add THB 33,000, giving a total of THB 83,000.
SBT on real estate sales is filed and paid when the rights and juristic acts are registered. The formula that includes SBT is therefore an advance set-aside, not a monthly payment. Before deciding on the actual rate, adjust for accumulated losses and the 1% WHT credit.
Step 2: Account structure
| Account | Inflows | Outflows |
|---|---|---|
| Operating Account | Booking deposits, down payments, transfer proceeds | Construction costs, salaries, expenses |
| Tax Reserve Account | Transfer from the operating account as soon as money is received | Tax only |
Keep the accounts at separate banks to reduce unintended withdrawals, and appoint approvers separate from those handling day-to-day finance.
Step 3: Monthly process
| Period | Activity |
|---|---|
| When money is received from customers | Calculate the amount and transfer it to the reserve immediately |
| Before the transfer appointment | Prepare the money for SBT, WHT and fees |
| Month-end | Reconcile with the accumulated tax liability |
| Before the end of August | Prepare to pay PND 51 |
| Within 150 days after the financial statements are closed | Pay PND 50 or claim a refund |
Step 4: Quarterly reconciliation
| Item | THB |
|---|---|
| Opening balance | XXX |
| Add: transfers in from receipts this period | XXX |
| Less: SBT paid on transfer day | (XXX) |
| Less: CIT paid | (XXX) |
| Closing balance | XXX |
| Expected tax liability: CIT + accrued SBT, less tax credits | XXX |
| Over or under reserve | XXX |
If the account is under-reserved, transfer the shortfall immediately in the next period.
Accounting entries
| Item | Debit | Credit |
|---|---|---|
| Transfer money into the reserve | Cash: Tax Reserve | Cash: Operating |
| Pay SBT | SBT Expense | Cash: Tax Reserve |
| Pay CIT | Current Tax Payable | Cash: Tax Reserve |
How the account is presented in the financial statements depends on the policy and the conditions restricting its use. If the restriction is purely internal, it may still be presented as cash, with the policy disclosed separately. Discuss this with the auditor.
Multiple projects at once
- Keep a separate account for each project or legal entity to prevent reserves from being used across projects.
- Use a conservative rate while gross margin is still an estimate, for example reserving at 20% even if you expect 25%.
- If you received down payments in the past without reserving, review the history and transfer compensating funds, and check actual SBT payments with a tax adviser.
Conclusion
A tax reserve account changes cash management from chasing taxes to being prepared from the very first baht. Companies that build this discipline from the start will control risk far better.