Thailand’s Tax Tightening on Foreign Income Raises Questions About Implementation

Earlier this month, the Thai Revenue Department issued new guidance for tax officers on how to interpret Section 41 Paragraph 2 of the Thai Revenue Code. The change in interpretation has wide tax ramifications for foreign residents in the country.

Under the previous interpretation of the Code, tax residents in Thailand bringing foreign-earned income to the Kingdom were subject to personal income tax on those funds only if the foreign income was brought to Thailand during the same tax year in which it was earned. 

For example, Thailand tax residents who earned foreign sources in fiscal year 2021 would be exempt from Thai personal income tax on that income if they waited until FY2022 to bring it in. 

According to tax experts commenting in the Bangkok Post, many native Thais had used the previous interpretation of the rules to source their income abroad and wait until the subsequent tax year to remit the same to Thailand, thereby successfully gaining an exemption from tax on this income. The tighter measures would terminate the possibility of avoiding Thai personal income tax through deferred remittance of foreign earnings.

The same experts tell the newspaper that these Thai individuals, along with foreigners residing in Thailand while trading securities or cryptocurrencies online, are among the chief targets of the new interpretation.

As of January, however, under the new interpretation of the Revenue Code, tax residents in the Kingdom will be liable to pay personal income tax on all assessable income they bring to Thailand, regardless of when it was earned.

If the income is derived from a country with which Thailand has a Double Taxation Agreement (DTA) – and the income is taxable in that country – the Thai tax resident can credit the taxes paid in the source country against his income tax liability in Thailand, per the applicable rules of the particular DTA.

But whether a tax treaty exists or not, foreign income brought to Thailand will now be subject to tax one way or another, regardless of timing.

Which countries have Double Taxation Agreements with Thailand?

Thailand has DTAs with the following 61 countries:

• Armenia
• Australia
• Austria
• Bahrain
• Bangladesh
• Belarus
• Belgium
• Bulgaria
• Canada
• Chile
• China
• Cyprus
• Czech Republic
• Denmark
• Estonia
• Finland
• France
• Germany
• “Great Britain and
• Northern Ireland”
• Hong Kong
• Hungary
• India
• Indonesia
• Ireland
• Israel
• Italy
• Japan
• Korea
• Kuwait
• Laos
• Luxembourg
• Malaysia
• Mauritius
• Myanmar
• Nepal
• Netherlands
• New Zealand
• Norway
• Oman
• Pakistan
• Philippines
• Philippines
• Poland
• Romania
• Russian
• Seychelles
• Singapore
• Slovenia
• South Africa
• Spain
• Srilanka
• Sweden
• Switzerland
• Taiwan
• Tajikistan
• Turkey
• Ukraine
• United Arab Emirates
• United States of America
• Uzbekistan
• Vietnam

In a communiqué to stakeholders, a representative of the Thailand Privilege Company, which administers the country’s popular Thai Elite Visas, said it was still unclear how the new interpretation would impact foreigners living in Thailand on long-term visas: “This is a developing issue and will be subject to updates.”

Commenting on the development, investment migration specialist Philippe May, CEO of Singapore-based EC Holdings, said the changes showed, once again, that residency in Thailand is “not a suitable Plan B for HNWIs.” In addition to offering no path to permanent residency or PR, Thailand’s Elite Visa program, he remarked, also did not offer residents any protection from new tax regulations, which “can change quickly and unfavorably.”

Thailand, he concluded, “is not a place to build up a life and stay for the long term if you are wealthy and looking to protect your assets. It may be a good place to spend some years on the beach, it may be a good middle-class destination thanks to its lower costs, but it’s not for HNWIs.”

An article from the Australian Chamber of Commerce in Thailand points out that the new guideline “poses significant challenges for Thai tax residents who have income from both Thai and foreign sources. While the departmental instruction doesn’t have the force of law, it serves as the tax authority’s enforcement directive.”

The same article also highlights that many questions regarding implementation remain unanswered. For example, authorities have yet to determine the applicable tax rates for remitted income; would it be a flat tax, a specific rate for foreign income, or will they apply the standard progressive rates?

Another question is how authorities will differentiate between the remittance of principal capital (accumulated earnings from the past) and earnings (interest, dividends, salaries, and so on).