Foreigners can benefit greatly from the Double Tax Agreement in Thailand. It is true that the Thailand Board of Investment grants special tax and non-tax benefits for foreign business units. Moreover, this can be another added advantage. Therefore, the goal of this article is to give you an overview of Thailand’s double tax treaties.
Moreover, individuals or businesses in Thailand might receive tax relief in the form of tax exemptions or tax credits if certain conditions are met. Therefore, let us take a look at the specifics of Thailand’s double tax treaty. Note that, foreign taxes cannot be taken as a credit against Thai taxes unless permitted under a double tax treaty (DTT).
Double Tax Agreement (DTA) in Thailand: Overview
When two or more jurisdictions claim tax on the same declared income, it is double taxation.
This can arise when a person or a firm lives and operates in more than one jurisdiction. Therefore, bilateral tax treaties are the methods to mitigate this. Owing to this method, taxation on the earnings will only be once.
The income on business profits is susceptible to an exemption if an individual earns in Thailand but does not have a permanent establishment in the nation. Moreover, without a permanent establishment, only interest, dividends, and royalties are subject to taxation in the country.
Furthermore, under the double tax agreement, withholding taxes on payments of income to foreign juristic companies without the business in Thailand may be lesser.
Permanent Establishment in Thailand
In Thailand, a permanent establishment can be any of the following:
- A place of management.
- A branch, or an office.
- A factory or a Workshop.
- A warehouse, in relation to a person providing storage facilities for others.
- A farm.
- An oil or gas well, a mine, a quarry, or any other place of extraction of natural resources.
- A building site, construction, installation, or assembly project where such site, project, or activities continue for more than six months.
The following establishments are not permanent:
- Storage facilities.
- Display and delivery of company’s goods or merchandise.
- The management of a company’s stock of commodities or merchandise for storage, exhibition, or delivery.
- Maintaining a stock of commodities or merchandise owned by the company that will be processed by someone else.
- Maintenance of a fixed location of business for the purpose of purchasing goods or merchandise or gathering data for the company.
- Maintenance of a stationary place of business for advertising, information distribution, scientific research, or other similar purposes.
Double Taxation Agreements in Thailand: Regulations
Eligibility
Individuals and juristic persons from contracting states are covered by the double tax treaty. Moreover, a person must meet one of the following qualifications to be eligible for treaty benefits :
- Individual who spends at least 180 days in Thailand during a tax year.
- A juristic person with incorporation under Thailand’s Civil and Commercial Code.
Coverage
A Double Taxation Agreement applies to only income taxes such as personal income tax, corporate income tax and petroleum income tax. However, other indirect taxes such as the Value Added Tax (VAT) and Specific Business Tax (SBT) are not covered by the DTA. Moreover, the DTA does not specify any specific amount of income and tax rate. In general, it prescribes whether the source or resident country is entitled to tax on certain income. Moreover, if the source country has taxing rights, the income will be taxable according to the domestic laws of that country.
However, DTA also stipulates a tax rate level on investment income such as dividends, interests and royalties. Therefore, the source country can tax such income at a rate not exceeding the rate within the treaty. Normally, the tax rates within the DTA are lower in comparison to the domestic tax rates in order to decrease tax impediments to cross border trade and investment. However, some articles of the DTA clearly do not accept the source country. Moreover, this is to exercise taxing rights on income such as income from international air transport and business profits. However, this is possible only if the business is not carried through a permanent entity in the source country.
Exemptions
Generally, Thai DTT place a resident of the foreign country in a more favorable position for Thai tax purposes than under the domestic law. For example, the Thai Revenue Code of the Revenue Department. Additionally, it provides income tax exemption on business profits in Thailand by a resident of a foreign country if it does not have a permanent establishment in Thailand. Furthermore, the withholding taxes on payments of income to foreign juristic entities not carrying on business in Thailand may be reduced or exempted under the DTT.
Income from services and rent from movable property is tax-free in the country in which it is received.
However, all rent is subject to taxation under the Thai-Japanese tax treaty. Additionally, there is no exemption for revenue from the rental of move-able property. Moreover, you must consult with the tax lawyer of your nation to get more information on this. Although there may not be much difference in opinion, yet, we recommend that.
Elimination Methods
Each double taxation agreement specifies different procedures for avoiding double taxation of individuals based on the country.
- Exemption Method: The income is not taxed in the country of residency. However, it is taxed in the source nation under the double tax treaty.
- Credit Method: The resident country can tax income that has already been taxed in the source country. It estimates the tax based on the taxpayer’s entire income. Additionally, this includes income from another country where it is taxed. However, it allows a deduction from its own tax for taxes paid in other countries.
Countries with Double Tax Agreement with Thailand
Thailand has 61 double tax agreements in place with countries all around the world.
| Armenia | Hungary | Poland |
| Australia | India | Romania |
| Austria | Indonesia | Russia |
| Bahrain | Israel | Seychelles |
| Bangladesh | Italy | Singapore |
| Belarus | Japan | Slovenia |
| Belgium | Korea | South Africa |
| Bulgaria | Kuwait | Spain |
| Cambodia | Laos | Sri Lanka |
| Canada | Luxembourg | Sweden |
| Chile | Malaysia | Switzerland |
| China | Mauritius | Taipei |
| Cyprus | Myanmar | Tajikistan |
| Czech Republic | Nepal | Turkey |
| Denmark | Netherlands | Ukraine |
| Estonia | New Zealand | United Arab Emirates |
| Finland | Norway | United States of America |
| Germany | Oman | Uzbekistan |
| Great Britain & Northern Ireland | Pakistan | Vietnam |
| Hong Kong | Philippines |
Mutual Agreement Procedure
The mutual agreement procedure is a method of resolving disputes set forth in the double tax treaty. Moreover, under the double tax treaty, the Minister of Finance designated the Director-General of the Revenue Department as the competent authority.
Application for Mutual Agreement
A taxpayer can start a MAP by submitting a written and Thai request to the Revenue Department. Therefore, the following information should be included with the request. Firstly, the name, address, and tax number of the individual who submits the request. Additionally, their identification and contact information are also mandatory. Furthermore, other people who are affected by the request should be identified. However, if signed by an authorized individual, a power of attorney can be used.
Note that, there must be mention of other concerned nations. Additionally, it must include the detailed information of the facts and circumstances of the case.
Generally, the application must state the periods of double taxation or taxation that are not in compliance with the rules of a specific double tax treaty. Additionally, it must include the information on the acts resulting in double taxation or taxation that is not in compliance with the relevant provisions.
Please make sure that, there must be analysis and justifications of the belief of the applicant. Additionally, it must have details of the contracting states’ actions resulting in taxation that is in violation of the double tax treaty’s stipulations. Furthermore, there must be mentions of details on any actions done in Thailand or elsewhere to prevent double taxation.
Henceforth, the application must cover in-depth information on any remedy sought in Thailand or elsewhere. Additionally, it must be supported by a declaration that all information and documents in the MAP request are accurate and complete. Furthermore, the taxpayer must assist the competent authorities by supplying additional information.
Please note that, you must mention more and all information that may be useful in resolving the case.
Submission of MAP Application
Note that, you must know that the MAP request must be made to the Revenue Department within the time frame stipulated in the double tax treaty. Moreover, it is either two or three years from the first notification of the action resulting in non-compliance with the treaty’s terms.
The Bottomline
The Double Tax Agreement not only benefits foreign businesses in Thailand but, is also useful for foreign individuals. So, if you are an Expat in Thailand and save taxes, you can avail benefits from this regulation. Prevent yourself from falling into tax traps in Thailand.
Konrad Legal is one of the premium accounting and taxation firms in Thailand, located in Bangkok. Therefore, for any type of relevant information or services email us at [email protected].
