Can renovation expenses be classified as fixed assets?

After setting up a company in Thailand, office or factory renovation is often the first major investment for many businesses. However, clients frequently ask:

•Can renovation costs be capitalized as fixed assets?

•Are they tax deductible?

•Do they require depreciation?

Although such expenses may seem routine, their treatment involves a complex evaluation based on accounting standards, tax regulations, lease terms, and invoice compliance.

Today, the TMA team offers a comprehensive overview of how renovation costs are recognized as fixed assets under Thai regulations, and how to ensure proper tax treatment. Our goal is to help your company maintain compliance while minimizing risk.

I. Can renovation costs be capitalized? Let’s look at the accounting standards.

Thailand adopts internationally aligned accounting practices. For SMEs, the relevant guideline is the TFRS for NPAEs (Thai Financial Reporting Standards for Non-Publicly Accountable Entities). According to Article 16:

“An expenditure should be recognized as a fixed asset if it is expected to generate future economic benefits and its cost can be reliably measured.”

In essence, renovation expenses can only be capitalized as fixed assets if all of the following four conditions are met:

If the criteria are met, the company may record the expense under “Leasehold Improvement” and depreciate it over the following years.

II. What is the tax authority’s view? Let’s refer to the Revenue Code.

According to the Revenue Code issued by Thailand’s Revenue Department:

✅ Section 65 Bis clearly provides that:

“Any expenditure incurred for the purpose of generating income, if it is of a capital nature, may be deducted over time according to the prescribed depreciation rules when calculating taxable profit.”

Further clarified under Ministerial Regulation No. 145 (B.E. 2527):

“Renovation expenses incurred on leased properties must be depreciated over the lease term or a maximum period of 10 years, whichever is shorter.”

❌ However, Section 65 Ter also emphasizes:

“If the renovation expense is not depreciated according to the regulations or does not qualify as a deductible expense, it shall be considered a non-deductible expense (ค่าใช้จ่ายต้องห้าม) and cannot be deducted from taxable income.”

Therefore, if a company records renovation costs as a lump-sum expense rather than depreciating them as fixed assets, the Revenue Department may adjust the taxable profit and require additional tax payments.

III. How should renovation expenses be accounted for in practice?

✅ Recommended approach: 

📌 TMA Recommends:Before undertaking significant renovation work, companies should prepare a complete renovation contract, construction-related invoices, and payment records. It is essential to specify the ownership of the renovated assets, whether they are detachable, and whether the depreciation period aligns with the lease term. This documentation supports both accounting compliance and tax deductibility under Thai regulations.

IV. What Are the Risks of Improper Accounting Treatment?

Improper accounting treatment of renovation expenses can result in the following risks:

•Classification as “non-deductible expenses” by the Thai Revenue Department, which means the expenses cannot be deducted from taxable income and will negatively affect your company’s net profit.

•Tax reassessment, interest penalties, and the risk of further audits.

•Required reclassification by auditors may disrupt financial statements, affecting group consolidation or the timeline of year-end audits.

•In the case of BOI-promoted companies, incorrect asset classification may lead to the loss of tax incentives and questions during compliance reviews by the Board of Investment (BOI) or accounting authorities.

V. How Can TMA Support You Professionally?

With years of local expertise in Thai tax and accounting services, TMA has helped clients in various industries including manufacturing, trade, consulting, and technology. Our team can assist your business with:

•Accurate accounting and tax classification of renovation expenses.

•Preparing fixed asset registers and depreciation plans.

•Supporting annual audit and financial reporting processes.

•Providing trilingual communication (Chinese-English-Thai) to facilitate understanding by headquarters or board members.

•Delivering tailored tax compliance advice to prevent misclassification as non-deductible expenses.

📞 Curious if your renovation costs are depreciable or if there’s a risk of tax adjustment?

Contact the TMA Tax & Accounting Advisory Team for a free preliminary assessment. We’ll offer clear, actionable guidance based on your renovation contracts, invoices, and financial structure.

TMA Consultant Management Co., Ltd.

📍 66 Tower, near BTS Udomsuk

📞 065-868-1986

📩 accounting@tmathaigroup.com

🌐 www.tmathaigroup.com