Key Points on Thailand Taxation

 

In Thailand,
taxes are imposed at both national and local levels. The central government is
the main taxing authority. 

Source of Tax Law

The principal
tax law in Thailand is the Revenue Code, which governs personal and corporate
income taxes, value added tax, specific business tax, and stamp duties. Customs
duties are regulated by the Customs Act; the Excise Act governs excise tax; and
the Petroleum Income Tax Act governs petroleum income tax.

Tax Administration Structure

The Revenue
Department of the Ministry of Finance is responsible for the administration of
personal income tax, corporate income tax, petroleum income tax, value added
tax, specific business tax, and stamp duties. The administration of customs
duties is the responsibility of the Customs Department, Ministry of Finance,
while the administration of excise tax is the responsibility of the Excise
Department, Ministry of Finance.

In general,
Thailand's tax administration follows the concept of self-assessment. Taxpayers
have a legal duty to declare their income and pay tax to the authorities. The
income declared and tax paid are assumed to be correct. However, assessments
may be conducted by the authorities in certain circumstances, such as failure
to file tax returns or filing of false or inadequate tax returns.

The Thai Revenue Code imposes taxes on income except income subject to petroleum income tax. There are two types of income tax: personal income tax (income tax on individuals) and corporate income tax (income tax on juristic entities).

In Thailand, the
tax on income of juristic entities is called corporate income tax. All juristic
companies and partnerships established under Thai or foreign law which carry on
business in Thailand are subject to corporate income tax. A domestic corporation
is subject to tax on worldwide income, while a foreign corporation is subject
to tax on income generated in Thailand. Tax is generally levied at the rate of 20% of net profits.

Territorial Rules

  Foreign
juristic entities in the form of corporations, limited companies, or
partnerships carrying on business in Thailand through branch offices or
otherwise are subject to income tax.

b.     The
term "carrying on business in Thailand", for income tax purposes, is
very broad. Foreign juristic entities are deemed to be "carrying on
business in Thailand" if they have
in Thailand an employee, agent, representative or go-between and thereby derive
income or gains in Thailand. Accordingly, such person has the duty to file a
return and pay corporate income tax in respect of such income or gains on
behalf of the foreign juristic entities.

c.      A
juristic entity incorporated in Thailand is subject to tax on its worldwide
income, derived from both domestic
and foreign sources. A juristic entity incorporated abroad but carrying on
business in Thailand is subject to tax only for income arising from or in
consequence of the business carried on in Thailand. The computation of net profits
and the rate applied to foreign corporations carrying on business in Thailand
is the same as domestic corporations. However, a branch remitting its net
after-tax profits to its head office, or the keeping of profits abroad in case
the head office has received abroad a payment for service rendered in Thailand,
is subject to a further income tax (profit remittance tax) at the rate of 10%
of the amount actually remitted or deemed remitted.

d.     Foreign
corporations not carrying on business in Thailand but deriving certain types of
income from or in Thailand, usually in the form of service fees, royalties,
interest, dividends, capital gains, rent, or professional fees are subject to a
flat rate of corporate income tax. This is a final tax but is collected in the
form of withholding tax based on gross income (see Section 9 below for more
information on "Withholding Taxes").

e.     Tax
credit for income tax paid abroad is granted by a Royal Decree issued under the
Revenue Code and double tax treaties, whereby income tax paid in a foreign
country can be used as a credit
against Thai income tax payable. However, the amount of tax credit allowed
shall not exceed the Thai income tax imposed on the same income.

f.       Export
made by any juristic corporation to its head office, branch, affiliated
company, principal, agent, employer, or employee are treated as sales made in
Thailand. The profits from such exports are taxable in Thailand. The revenue
from export is determined according to the market price of the goods on the
date of export, excluding freight and insurance premium.


 

Withholding
taxes apply to various categories of income paid to juristic entities. The
amount of tax to be withheld depends on the category of income and the tax
status of the recipient. The withholding tax rates on some important categories
of income are as follows:

a

           Transfer Pricing Rules

The Revenue
Department has the power to make assessments regarding transfer of assets,
rendering of services or lending of money without any compensation, service
charge or interest or compensation, service charges or interest in an amount
considered to be lower than the market value without justification.

Under the
transfer pricing regulation, the term "market price" is defined as
the price of the remuneration, service fee, or interest which each independent
party shall set fairly in business practice, in the transfer of assets,
provision of services, or extension of loans of the same type as on the date of
such transfer of assets, or provision of services, or extension of loans. The
term "independent party" means a party to the contract that has no
relationship with the other party in the aspects of management, control, or
joint investment, directly or indirectly.

Methods that may
be employed for determining market price are the Comparable Uncontrolled Price
(CUP) Method, Resale Price Method, Cost Plus Method, or other internationally
accepted methods.

Additionally,
the Revenue Department has the power to determine the price of imported goods
by comparing them with the price of goods of the same category and type which
are delivered to another country.

For income tax purposes, unregistered ordinary partnerships are subject to personal income tax (see Section D, "Individuals") in the same manner as a group of persons that do not constitute a legal entity, whereas registered ordinary partnerships, limited partnerships, and limited companies fall within the scope of corporate income tax.

    INDIVIDUALS

In Thailand, the
tax on income of an individual is called personal income tax. The Thai Revenue
Code provides principles for the collection of personal income tax on income
derived from sources both inside and outside Thailand. According to the Code,
individual taxpayers are classified into five categories and assessable income
is classified into eight categories. Taxable income of an individual is derived
after all expenses and allowances have been deducted from the assessable
income. 

 Taxable
Persons

Individual taxpayers are
classified into five categories as follows:

a.    a
natural person;

b.   
a group of persons which do not constitute a
legal entity;

c.   
an unregistered ordinary partnership;

d.    a
deceased person for their assessable income and estate throughout the year in which death occurred;

e.   
an undistributed estate of the deceased.

Thailand imposes personal income tax on income that is derived from Thai sources, regardless of the nationality of the recipient of the income, or the jurisdiction in which the payment is made or received. Thailand also imposes personal income tax on the worldwide income of a Thai tax resident.

The rules on Thai-sourced income and tax residence are as follows:

1. If the income that an individual receives is considered Thai-sourced income, regardless of where it is paid, and regardless of his tax residence status, it will be taxed in Thailand (on a cash basis) in the calendar year that he receives it.

The income will be considered Thai-sourced income if it is derived from:

(1) work performed in Thailand;

(2) business in Thailand;

(3) business of an employer in Thailand; or

(4) property situated in Thailand.

2. If such income is considered foreign-sourced income (income derived from work performed outside of Thailand, business conducted outside of Thailand, or property situated outside of Thailand) it will be taxed in Thailand only if

(1) an individual is a Thai tax resident; and 

(2) the individual brings such income into Thailand in the same calendar year that he receives it.

An individual will be considered a Thai tax resident in a particular calendar year if he lives in Thailand for 180 days or more in that calendar year. 

For example, based on these rules, if a Thai tax resident receives foreign-sourced income overseas on 31 December 2016, and deposits it in his foreign bank account, and then transfers it to his Thai bank account the next day (1 January 2017, the calendar year after that in which he received the income), the income would not be taxed in Thailand.

If a Thai tax resident worked partly outside of Thailand, it would be advisable for him to calculate the income received proportionally, based on the number of days that he spent working overseas versus the number of days that he spent working in Thailand. The portion based on the number of days that he spent working in Thailand would be Thai-sourced income, and subject to Thai personal income tax. The portion based on the number of days that he spent working overseas would arguably be foreign sourced income, and not taxable in Thailand if he did not bring that portion of income into Thailand in the calendar year in which he received it.

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