I. Current Tax Collection Regime in Thailand
Thailand’s personal income tax system incorporates both territoriality and residency-based principles:
✓ Territoriality (Source-Based): Tax is imposed on all income generated within Thailand, regardless of the taxpayer’s residency status.
✓ Worldwide Income (Residency-Based): Residents are required to report foreign-sourced income if it is remitted into Thailand within the same tax year.
Key concepts include:
✓ Accrual Basis: Income is recognized when the right to receive it arises, not necessarily when received.
✓ Remittance Basis: Foreign-sourced income is taxable only when brought into Thailand.
Under Section 41 of the Revenue Code, taxpayers must pay tax on income earned in Thailand, while residents earning foreign-sourced income must report it when brought into Thailand. Individuals are considered residents for tax purposes if they stay in Thailand for at least 180 days in a tax year.
II. Recent Updates on Foreign-Sourced Income
The Revenue Department issued Order No. Por. 161/2566 and No. Por. 162/2566, providing clarity on the taxation of foreign-sourced income:
✓ Por. 161/2566 (September 2023): Introduced guidelines for taxing foreign income but left ambiguity regarding income earned before 2024.
✓ Por. 162/2566 (November 2023): Clarified that foreign income earned before January 1, 2024, will not be taxed if brought into Thailand in 2024 or beyond. Only foreign income earned after January 1, 2024, and remitted into Thailand, will be taxed under Section 41 of the Revenue Code.
Conditions for Taxability:
1. Residency Requirement: The taxpayer must reside in Thailand for at least 180 days in the relevant tax year.
2. Income Remittance: Foreign income must be brought into Thailand within the tax year or later to be taxable.
These updates provide clarity and alleviate concerns about retroactive taxation.
Figure 1. Overview of Revenue Department Orders Por. 161/2566 and Por. 162/2566.
III. New Tax Calculation Regime
Thailand employs two methods for calculating personal income tax, with taxpayers required to pay the higher of the two amounts:
1. Section 48(1): Tax is calculated based on assessable income, less exemptions, expenses, and deductions, then multiplied by the progressive tax rate.
2. Section 48(2): Tax is calculated at 0.5% of the total assessable income (excluding exempt income).
Taxable Income Categories:
✓ Income from employment, business, rentals, and investments.
✓ Royalties, interest, dividends, and capital gains.
Currency conversion for foreign income follows the rates specified by the Exchange Rate Act B.E. 2568.
IV. Tax Credits and Double Taxation Agreements (DTAs)
To mitigate double taxation, Thailand offers tax credits for foreign taxes paid, governed by DTAs established with 61 countries. Key provisions include:
✓ Tax credits are capped at the lesser of the foreign tax paid or the Thai tax due on the same income.
✓ Credits are calculated separately for each type of income.
Example: If a taxpayer paid 75,000 THB in foreign taxes on 500,000 THB of income and the Thai tax liability is 50,000 THB, the allowable credit is capped at 50,000 THB.
Taxation Rights Under DTAs:
✓ Real Estate, Dividends, and Interest: Taxable by both residence and source countries.
✓ Business Profits: Taxable by both countries if there is a permanent establishment (PE); otherwise, taxed by the residence country.
✓ Employment Income and Pensions: Taxable by the residence country.
V. How These Changes Impact Taxpayers
From January 1, 2024, the updated rules clarify Thailand’s taxation of foreign-sourced income, providing certainty for residents earning income abroad. The inclusion of tax credits ensures that individuals are not doubly taxed, making Thailand’s system more aligned with international standards.
Figure 2. Summary of Tax Implications for Income Earners Bringing Income into Thailand.
Mahanakorn Partners Group (MPG) is well-positioned to assist individuals and businesses in navigating these changes, ensuring compliance with Thai tax laws while optimizing tax strategies. Whether you need guidance on foreign income reporting, tax credit calculations, or structuring your finances to minimize liabilities, MPG’s experts are here to help.