Thailand | Employment Tax | PAW 161 – Closing a Thai tax loophole on offshore income

4 October 2023

Personal Income Tax

Thailand | PAW 161 – Closing a Thai tax loophole on offshore income

Impact: High

Summary

On 15 September 2023, the Departmental Instruction Paw 161/B.E 2566 has recently been issued by the Revenue Department which is the interpretation of Section 41 paragraph 2 concerning Thai personal income tax implications for offshore source income.

Current regulations

New guidelines

Thailand has not taxed its tax residents on their worldwide income. If income earned outside Thailand arising from non-Thai employment, business carried on abroad, or from a property situated abroad, was not remitted into Thailand in the same year that it was earned, that income was exempt from Thai tax. This allowed Thai tax residents to plan ahead so that their offshore income was tax free in Thailand. Remark: A resident of Thailand, i.e., one who resides in Thailand for 180 days or more in the calendar year.

A resident of Thailand must include the amount that is remitted to Thailand in their personal income tax return, regardless of when such income is remitted into Thailand. This instruction is effective for any offshore source income remitted into Thailand from January 1, 2024, onwards. Note: The new guidelines are in line with Thailand’s joining the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MCAA) under the Common Reporting Standard (CRS) which is an international framework for exchanging financial information.

Closing a Thai tax loophole on offshore income

Highlights of changes in tax interpretation

• Closes the tax loophole on offshore sourced income due to timing of remittance. • Tax obligation is on all Thai residents, and not specific to only Thai nationals. • Who is regarded as a Thai resident? Any person who stays in Thailand for 180 days or more in each calendar year e.g.: – Inbound employees to Thailand – Outbound employees from Thailand – Remote workers in Thailand – Pensioners residing in Thailand • All types of income from abroad derived by Thai residents are covered e.g.: – All private income such as interest, rental income, dividends, capital gains, etc. – Non-Thai employment income – Equity compensation from a parent company

What are the possible effects?

• The same income will be subject to tax in more than one country.
• Additional financial costs to individuals/employees/companies if faced with double tax payments with no opportunity of claiming foreign tax credits.
• Claiming foreign tax credits should be possible for those countries with a double tax treaty with Thailand. More guidelines from the Thai Revenue Department (TRD) should be forthcoming.

Recommendations  

As Thai tax rates are considerably high with the top rate at 35%, you should revisit all your earnings and/or future earning and plan how to eliminate the risk of double taxation (where the offshore income is from a non-treaty country) when claiming foreign tax credits is not possible. Where the offshore income is from treaty country, be prepared to claim a foreign tax credit against the Thai tax.

Changes in tax interpretation could impact your net take-home. We will keep you posted since more guidelines from the TRD are expected.

As this interpretation is in its early stages, for more information or a discussion of your circumstances, please visit us at www.vialtopartners.com or contact us.

Contact Us

For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

• Jiraporn Chongkamanont,
Partner
jiraporn.chongkamanont@vialto.com

• Napaporn Saralaksana,
Associate Director
napaporn.saralaksana@vialto.com

• Natchanond Charoenmechaikul,
Senior Manager
natchanond.charoenmechaikul@vialto.com

Further information on Vialto Partners can be found here: www.vialtopartners.com