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[Thailand] Navigating Change: A Comprehensive Guide to Thailand's Recent Reforms in Personal Income Tax for Foreign-Sourced Income

On September 15, 2023, the Revenue Department issued Department Order No. Por. 161/2023 (the “Order”), effective from January 1, 2024. The primary purpose of this Order is to provide further clarification and interpretation of the tax rule pertaining to personal income tax (“PIT”) under Section 41, Paragraph 2 of the Revenue Code (the “Code”).

According to Section 41 of the Code, any individual who resides in Thailand for 180 days or more during a tax year (1st January to 31st December) is classified as a Thai tax resident. To illustrate this, please consider the following examples:

-       Miss A has resided in Thailand from January 1, 2024 to December 31, 2024, totaling 365 days. Consequently, Miss A qualifies as a tax resident in Thailand for the Tax Year 2024.

-       Miss B, on the other hand, only spent time in Thailand during odd-numbered months in 2024, totaling 184 days. Miss B is considered as a Tax resident in Thailand for the Tax Year 2024.

-       Mister C lived in Thailand from the month of January to May of 2024, which amounts to 150 days. Mister C, in this case, is not a tax resident in Thailand for Tax Year 2024.

Previous Tax Rule

When a tax resident earns incomes from an employment or from business carried on abroad or from a property situated abroad (“foreign source incomes”), such tax resident is liable to pay PIT in Thailand. However, being a tax resident does not necessarily imply immediate tax liability in Thailand for foreign source incomes. Individuals are liable to pay PIT in Thailand only when they repatriate such income into Thailand within the same tax year. In other words, a tax resident must meet both conditions to be subject to taxation in Thailand. Conversely, if a tax resident delays the repatriation of income into Thailand beyond the same tax year, they will not be subject to Thai taxation.

Changes under New Order

Now, the Revenue Department has taken steps to close potential loopholes in Section 41, Paragraph 2 by adding a requirement that individuals who remit foreign source incomes, regardless of whether it is in the same year or following years, shall be subject to tax. Nonetheless, exemptions are applicable:

-       If the income is already subject to tax exemption under the Code, there is no requirement to declare and pay tax in Thailand. For instance, inheritance or income received as a living allowance from parents, descendants, or spouses is exempt, provided it doesn't exceed 20,000,000 THB per tax year.

-       If the income remitted into Thailand has been taxed at the source, there is no double taxation for tax residents. They can credit the tax paid in another country against their tax liability in Thailand, based on relevant double taxation agreements Thailand has with that country.

Applicable Scope and Limitations

It is noteworthy that incomes must be declared when they exceed 120,000 THB per year for salaries and 60,000 THB per year for other types of income in Thailand. The progressive PIT rate in Thailand ranges from 5% to 35% for net incomes exceeding 150,000 THB per year. Consequently, individuals who do not self-declare may pose challenges for the Revenue Department to trace the remittance transactions. To address this, the Amendments of the Revenue Code Act (No. 48) introduced legal obligations on banks and financial institutions to submit the financial account information to the Revenue Department by March 31st of every subsequent year. This requirement applies when:

-       Depositing or accepting transfers of money in any bank account 3,000 times or more in a year.

-       Depositing or accepting transfers of money in any bank account 400 times or more, totaling 2,000,000 THB or more in a year.

Impact of New Order

While the Order is not a law by itself, it is issued by the Director General of the Revenue Department to guide tax payers and serves as an explanatory clause of Section 41, Paragraph 2 of the Revenue Code. This new approach in the tax rules is expected to have a broad impact, affecting all individuals, including high net worth individuals in Thailand.

The Revenue Department claims that the rationale behind the Order is to ensure equitable treatment of income as the international pressure on Thailand has been notable to harmonize the internal policy to international and global tax standards.

Several Southeast Asian countries, including Thailand, are active members of the Global Forum on Transparency and Exchange of Information for Tax Purposes. The Global Forum is a prominent international organization dedicated to combating offshore tax evasion, effectively binding Thailand and its fellow member countries to global tax standards. In Singapore, foreign source incomes are generally not subject to taxation, except when these incomes result from employment overseas as part of a Singaporean job. Meanwhile, Malaysia has implemented a significant change as of January 1, 2022, whereby various foreign-sourced incomes are generally subject to taxation. However, the Malaysian government has introduced exemptions from taxation (subject to specific conditions) for all types of foreign source incomes received by individuals, effective from January 1, 2022, to December 31, 2026, with the exception of individuals engaged in partnership businesses in Malaysia.

Hence, Thailand’s new tax policy demonstrates its commitment to aligning with international pressures to conform to global tax standards. The primary objective is to ensure fair and consistent treatment of income, whether it is generated domestically or abroad, as well as the declaration of income derived from and repatriated to Thailand. Thailand's proactive approach in achieving compliance with the standards set by the Organization for Economic Co-operation and Development (OECD) appears to position it a step ahead in OECD compliance compared to other countries in the region.

TWLS will closely monitor subsequent announcements regarding the enforcement of this new tax rule and keep you updated on its impact.

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