Will my foreign-sourced income become taxable in Thailand?
Yes, but it always has been, sort of....
Pao. 161/2566 (“DI. Paw. 161”) is a new interpretation of the personal income tax of foreign-sourced income from an individual tax resident (Thai or foreigner) in the Thai Revenue Code.
“Any income from a foreign source derived by a Thai individual tax resident is subject to Thai personal income tax upon bringing it into Thailand, regardless of the tax year the income is received.”
The aforementioned is a description of the new law for a layperson, but it's fairly complete.
The underlined is the key. A loophole in 1987 allowed for bringing in foreign income without tax if you brought it in the next calendar year or later from when it was received. (This is a little strange; I don't know the legislative history on it, but like most revenue codes throughout the world, it's usually ridiculous.)
This new law is actually guidance on a law from the 1980’s, section 41 of the Thai Revenue Code. It rules that an individual shall pay personal income tax in Thailand under the following two rules:
I. Source rule: A taxpayer who derives income from employment, a business carried on in Thailand, a business of an employer residing in Thailand, or from a property situated in Thailand shall pay Thai personal income tax on such income.
This is normal, not unusual compared to other countrys' codes (unless you’re an American or have a business in America) It basically says that you must pay tax in your tax residence, on (almost) any income derived from within Thailand.
II. Resident rule: A Thai tax resident who derives income from employment or business carried on abroad or from a property situated abroad shall pay tax in Thailand upon bringing such assessable income into Thailand.
Any person staying in Thailand for a period or periods aggregating 180 days or more in any tax year shall be deemed a resident of Thailand.
This is the rule from the 1980s. It is the new rule. A somewhat odd interpretation in 1987 ruled that you don’t have to pay tax on the foreign source income if you bring the income into Thailand one year or longer after it was received.
The Revenue Department, in 1987 (BE2530), issued a tax ruling to extend a condition for Thailand to impose tax on income from a foreign source, that the assessable income must be brought into Thailand in the same calendar year that the income is received (the Revenue Department's tax ruling no. Gor. Kor. 0802/696 dated 1 May 1987). Since then, the Revenue Department and Thai resident taxpayers have relied on this interpretation that foreign-sourced income is exempt from Thai personal income tax if the income is brought into Thailand in a calendar year following the year in which the income is received. This long-standing interpretation has also significantly influenced tax planning for individuals with offshore businesses and assets.
This means that if your offshore business or your offshore trading or whatever foreign source income was created in 2023, as long as you brought it into Thailand in 2024, it was tax-free.
The new rule removes the exemption in the aforementioned example.
The new rule raises concerns from multiple types of people:
One is if you trade securities abroad, you get graduated income tax rates where if you trade securities in Thailand, you get standard capital gains rates.
This seems unfair. Moreover, it’ll hurt the Thai economy and especially the very wealthy. Only tax lawyers and other financial services providers will really benefit from this as we’ll just get more creative and bill more hours.
Social Security, Pensions, Government Pensions, and the like.
First, let's discuss Social security and other government pensions. These will not fall under the current law if your country has a social security treaty with Thailand. Most Western countries do, and many other countries as well. Because treaty law is superior to domestic law, this shall not affect your government pension or your Social security payments.
Private pensions may fall within the scope of this new law, but nobody wants this. This hurts everybody, first and foremost Thailand. They know that these remittances are spent almost exclusively in Thailand. Thailand's already taxing them via other mechanisms. (VAT, etc.) Our prediction is that they will make a further ruling on this to exempt it.
Another issue that will create a further ruling to limit the scope of the new act: withdrawals and remittances from foreign bank accounts into Thailand.
Spending in Thailand from earnings kept in a bank account overseas from e-banking or debit cards may be considered remitting income into Thailand and then taxable in Thailand.
They will definitely make a ruling to exempt this. If not, it will immediately impact Thailand’s economy because foreigners will be afraid to bring a lot of money to spend in Thailand.
Nobody wants this.
Also, it is important to look at the big picture. Included among the Forest when we look at this tree is the relatively new law on the legalization of marijuana. This was done to enhance tourism.
Also, and very recently, taxation on alcohol is going to be significantly reduced. Also, bara and clubs can now stay open to 4 a.m. again. This is also to enhance tourism and spending by tourists.
This is not because Thailand wants everyone stoned and drunk.
To put a new interpretation on a pre-existing law that will only retard the foreign spending of foreign source income in Thailand is contrary to the spirit of the three new laws in the preceding paragraphs.
The best practice right now is to wait on bringing in any foreign sourced income in amounts more than you absolutely need until further clarity is provided on this issue, and we can be sure that it will be.
Just be patient. In the meantime, contact us at the following: