Personal Income Tax
Part 1: Tax Considerations for foreigners who come to work in Thailand as a permanent employee in a company registered in Thailand
At present, there are many foreigners who come to work in Thailand. Some are under the misunderstanding that if they come to work in Thailand only for a short period of time then they won’t need to pay income tax in Thailand or that if they pay income tax in their own country then that is sufficient. Foreigners should be aware that if they come to work as a permanent employee in a company registered in Thailand (“Thai Company”) (even if only for a day) then they may be subject to a duty to pay tax in Thailand. Furthermore, foreigners should be mindful that paying personal income tax (PIT) abroad for the same income will not necessarily enable them to avoid liability to pay PIT in Thailand.
1. Case One: Only working for a Thai Company
A foreigner shall be subject to income tax liability in Thailand if they are employed by:
a. a business that is carried on in Thailand, or
b. a business where the employer resides in Thailand under the first paragraph of Section 41 of the Revenue Code (for example a business where the registered office is located in Thailand).
In the above cases, the income tax liability of the foreigner won’t be different from Thai employees.
2. Case Two: A foreigner working for a Thai Company and a foreign company
In this case, it is necessary to consider whether the foreign company who is employing the foreigner is related to the Thai Company or not and whether such income is brought into Thailand or not. In determining PIT liability in this case, it is necessary to consider the following factors:
2.1 Is the foreign company related to the Thai Company such as parent company/affiliate relationship?
If a foreigner has income under Section 40 (1) of the Revenue Code, for example, salary, bonus or rental allowance, etc., that is earned from a foreign company that is related to a Thai Company, then it may lead to the foreigner having an increased PIT liability given the Thai Revenue Department’s tax ruling No. Gor Kor 0702/4899 dated 22 June 2009 which provides that where an employee is working for both a Thai Company and a foreign company, such employee must combine both income sources when calculating their the PIT liability in Thailand. Furthermore, Section 41 of the Revenue Code prescribes that the employee must pay tax in Thailand regardless of whether such income is paid within or outside of Thailand in accordance with any relevant Double Tax Agreement (DTA) between Thailand and other countries unless the foreigner can prove to the Revenue Department Officers that the income received from abroad is not related to their employment in Thailand.
In any case, foreigners should be aware even though such other country, where the foreign company is registered, does not have a DTA with Thailand, they may still be subject to a duty to include such income received from the foreign company in their PIT calculation when determining their PIT liability in Thailand as provided under Section 41 of the Revenue Code.
2.2 The foreign company does not relate to the Thai Company
Even if such foreign company is not related to the Thai Company whom the foreigner works for, (i.e. it is not a parent company/ affiliate company of Thai Company), it does not necessarily mean that the foreigner shall not be subject to a duty to pay income tax on income derived in Thailand. Indeed, a foreigner may still have a duty to include such income in their Thailand PIT calculation if such income is received from employment or from a business carried on abroad or from a property situated abroad provided that the foreigner brings such assessable income into Thailand in the same tax year as when they received such income, in accordance with the second paragraph of Section 41 of the Revenue Code.
3. Tax credits (Case Study Involving US Citizen)
For foreigners working as a permanent employee in a Thai Company, this can lead to them being subject to tax liability which is the same as for the Thai employees even if the foreigner only works for one day. However, it should be noted that the period of time that the foreigner stays in Thailand is also relevant as it shall determine whether the foreigner is to be considered as a resident of Thailand or not. This issue is important as it will have an impact in relation to whether such foreigner is able to claim a tax credit in the case where they have paid PIT in a foreign country on the same income that they have already paid PIT on in Thailand.
For example, if a foreigner is an American citizen who has the duty to pay PIT in Thailand as well as in the USA (for the same income), then they can submit an application for a tax credit in accordance with the following conditions:
(1) If a foreigner (US citizen) stays in Thailand for more than or an aggregate of 180 days in a year, then they shall be deemed to be a resident of Thailand. Thus, they are under an obligation to file a PIT form in the USA and also make a request for an Income Tax Payment Certificate from the Revenue Department of the USA (i.e. Internal Revenue Service or IRS), then they shall need to file their PIT form in Thailand and in doing so they shall need to calculate all income received from outside and within Thailand and deduct the PIT that they have already paid in the USA as a credit against the Thai PIT payable in respect of that income. However, it should be noted that the credit shall not exceed tax payable in Thailand as computed before the credit is given under Section 41 paragraph three in conjunction with Clause 4, 16 and 25 of the DTA between Thailand and USA.
(2) If a foreigner (US citizen) stays in Thailand for a period of less than 180 days, they shall instead be deemed as a resident of the USA. Thus, they must file a PIT form in Thailand and then request for the Income Tax Payment Certificate from the Revenue Department of Thailand, they shall then need to file the relevant PIT form in the USA by calculating all income received from outside and within Thailand and deduct the income tax paid in Thailand as a credit against the US tax payable in respect of that income. However, the credit shall not exceed the tax payable in the US as computed before the credit is given under Section 41 paragraph three in conjunction with Clause 4, 16 and 25 of the DTA between Thailand and USA.
Nevertheless, the writer would like to point out that Thai tax law is a complicated matter and as such, readers should be mindful that, there may be some cases where the law exempts a foreigner from PIT liability in Thailand, such as for foreign teachers who come to teach in Thailand for a period not exceeding 2 years, as they shall be exempted from PIT in Thailand.
If you require legal support with respect to Thai tax law then please contact us at:
Dharmniti Law Office Co., Ltd.
2/2 Bhakdi Building 2nd Floor, Witthayu Road, Lumphini, Pathumwan, Bangkok 10330
Tel: (66) 2680 9777 Fax: (66) 2680 9711
Email: hatairats [at] dlo.co.th or info [at] dlo.co.th
Writer: Ms. Hatairat Sukprasert (DLO Tax Department)
Email: hatairats [at] dlo.co.th