New Thai Tax Law for Foreigners Being Drafted by Revenue Department

At the beginning of 2024, the Thai Revenue Department enforced a new tax policy regarding foreign-sourced income,which stated that if it met any one of two conditions, it would be considered taxable. These conditions included the following:

• 1. Income is earned by a tax resident in Thailand
  2. Income is brought into Thailand

However, as of early September 2024, the Thai Revenue Department is drafting a new law that if passed, will change Thailand’s current tax system on foreign-sourced income again and align it with the international principle of “worldwide income” under the residence rule. This new amendment to the Thailand Revenue Code will also have a significant effect on multinational corporations, as it will set the minimum corporate tax to 15%, which is the current OECD standard.

Thailand’s New Tax Law Draft for Foreign Income

The principle of worldwide income under the residence rule requires that the income an individual earns, regardless of its source, must be taxed by the country where the individual has resided for the majority of their time. In Thailand, one is considered a tax resident if they spend 180 days or more in the country within any Thai tax year, which is the same as the calendar year.

Currently, Thailand only requires an individual to pay income tax on their foreign-sourced income if they are a tax resident and they bring that income into Thailand. But with this new draft law, which follows the principle of worldwide income, all tax residents in Thailand will be subject to paying taxes on their foreign-sourced income, whether they have brought it into the country or not.

To further explain how the draft will impact tax residents in Thailand, the Director-General of the Thai Revenue Department, Kulaya Tantitemit, has stepped in to add that the new draft law will only affect personal income taxes in Thailand. This means that corporate tax income or income from foreign mutual funds will not be affected if the draft is passed into law.

Double Taxation with New Draft Law in Thailand

Under the current tax law in Thailand, tax residents in Thailand are liable to pay taxes on the following sources of income:

• • `Income from employment (such as wages, salaries, and remuneration).
  • `Income from business operations.
  • Passive or property-related income (such as interests, dividends, rental income, and goodwill).

If the new draft law on foreign-sourced income is passed into law, individuals may be subject to paying tax twice, both in their home country and in Thailand. However, Thailand maintains many Double Tax Agreements (DTAs) with countries around the world which will remain unchanged by the new law. DTAs will help tax residents avoid paying twice.

However, a DTA does not necissarily mean that taxpayers can avoid paying Thai tax entirely. Every DTA is different, and in some cases, tax residents of Thailand will still have to pay some tax, such as is if the tax rates in both countries vary. In this situation, if a tax resident earns income in a foreign country that taxes it at a lower rate than Thailand would, the tax resident will typically have to pay the difference, but not the full amount.

For example, Mr. A, a tax resident of Thailand, earns $10,000 in a foreign country that has a DTA with Thailand. The foreign country levies a tax rate of 15%, or $1,500. But under Thai tax rules, Mr. A is in a tax bracket that requires him to pay 20%, or $2,000. In this case, Mr. A must then pay the 5% difference ($500) to the Thai Revenue Department.

Again, under the new law, this would occur regardless of if Mr. A brings that money into Thailand at all. He will still need to pay income tax in the Thai tax year in which it was earned.

Thailand’s New Tax Law Draft for Corporates

Alongside drafting the new tax law for foreign-sourced income, the Thailand Revenue Department is also in the process of organizing a global minimum corporate tax rate in Thailand. This decision follows the international agreements established by the Organisation for Economic Co-operation and Development (OECD). Thailand is a member of this organization and a party to the tax information exchange group.

The global minimum tax (GMT) rate, which is 15%, will only be required of multinational enterprises with global revenues exceeding $870 million per year.

From what has been shared, once the law has been implemented, all multinational enterprises will be obligated to pay the 15% minimum tax rate in the countries they operate. If an enterprise pays less than the 15% minimum tax rate in the country it operates, the enterprise will then need to pay additional tax in the country where the parent company is situated to bring the total to 15%. This is known as a “top-up tax.”

Professional Tax Consulting in Thailand

If you are experiencing any uncertainty regarding your responsibilities as a tax resident in Thailand or your business’s liabilities, contact the expert tax advisors at Siam Legal. With our help, you will gain a deeper understanding as to which of your sources of income are taxable and what your tax responsibilities are, along with how to prepare for what is to come when the new law is passed.

Our experienced tax consultants can also help you determine which DTAs, deductions, and tax credits you are eligible for so that you can minimize your tax burden in Thailand through all legal methods.

Not only will you avoid accidentally committing tax fraud and the risk of prosecution, but you’ll also have peace of mind knowing that you and your company will be able to keep as much of your hard-earned money as possible.