Thailand, a globally recognized destination for businesses and investors, holds a distinctive tax landscape including withholding tax. Comprehending this tax is paramount for companies and investors looking to establish a presence in Thailand. Withholding tax, a tax deducted at the source of income can be a complex concept for those unfamiliar with the country’s tax system. As a leading audit and tax firm in Thailand, through this article, let us tell you how to file withholding tax in Thailand – on time and with perfect documentation!
What is Withholding Tax in Thailand?
In Thailand, withholding tax is collected at the source of income by a payer (person or entity) making income payments to another person or entity. The withheld tax is then remitted to the Revenue Department on behalf of the income recipient.
Thailand’s withholding tax system ensures that the government collects taxes on income earned by non-residents and Thai residents who may not be subject to personal income tax.
Several types of income in Thailand are subject to withholding tax, including employment income, rental income, dividends, interest, royalties, and other income earned by non-residents. The withholding tax rate varies based on income type, recipient’s residency status, and other factors.
Understanding the regulations and requirements related to withholding tax is crucial for businesses and investors operating in Thailand. Compliance with Thai tax laws and avoidance of penalties depend on this understanding.
Rates of Withholding Tax for Individuals in Thailand
In Thailand, taxpayers must submit their annual tax computation to the Revenue Department at the end of each tax year. This computation should include their total annual income from all sources, such as dividends and interest. The department uses this information to determine the total personal income tax due, considering any withholding tax already deducted throughout the year. On the basis of this final calculation, individuals are either eligible for a tax refund or make an additional payment.
It’s worth noting that taxpayers in Thailand have the option to include their dividend or interest income in their taxable income when calculating their tax liability. Here are the tax rates applicable to individuals for reference to file withholding tax in Thailand:
| Type of Income | Withholding Tax Rate |
|---|---|
| Salary and wages | 0-35% |
| Provision of services | 0-35%.15% if the recipient (foreigner) of the income is not a resident of Thailand |
| Interest | 15% (of payment) |
| Rent | 5% (of payment) |
| Dividend | 10% (of payment) |
| Royalties | 0-35%. 15% if the recipient (foreigner) of the income is not a resident of Thailand |
What are the rates of withholding tax for a corporate entity in Thailand?
In Thailand, businesses generally don’t have the obligation to withhold income tax when conducting transactions with other Thai companies, with a few exceptions.
Specific income sources necessitate obligatory withholding tax (WHT) payments. These include:
| Type of Income | Withholding Tax Rate |
|---|---|
| Services provided | 3% of the payment |
| Interest | 1% of the payment paid to a Thai Company, 0% of the payment paid to a Thai Bank |
| Rent | 5% of all rental payments made; or 10% of rental payments made to associations and foundations |
| Income from liberal professions (e.g. laws, arts of healing, engineering, and architecture) | 3% of the payment |
| Income from payments to contractors who provide essential materials besides tools: | 3% of the payment |
| Royalties | 3% of the payment |
| Income paid by Government Agency | 1% of the payment |
| Income paid from the sale of goods | 0% of the payment |
WHT Rates for Foreign companies that do not conduct business in Thailand?
Section 40 of the Revenue Code in Thailand generally mandates foreign corporations to pay income tax. This is irrespective of their business operations. Consequently, individuals or entities making payments to these foreign corporations are accountable for withholding income tax from those payments. The specific withholding tax rates vary based on the nature of the income received.
| Type of Income | Withholding Tax Rate |
|---|---|
| Services provided | 15% of the payment |
| Interest | 15% of the payment |
| Dividends | 10% of the payment |
| Rent | 15% of the payment |
| Income from liberal professions (e.g. laws, arts of healing, engineering, and architecture) | 15% of the payment |
| Royalties | 15% of the payment |
In Thailand, the dividend tax rate is set at a relatively low 10%, in contrast to other tax rates. This favorable tax policy prevents double taxation on dividends, considering that corporations already pay a 20% corporate income tax rate.
- When a local business in Thailand rents property from a foreign entity, the Thai company must withhold taxes from rental payments at a rate of 15%.
- If a Double Taxation Agreement (DTA) exists, the withholding tax rate may be reduced.
- When a foreign company conducts business in Thailand by renting property to a Thai company, the Thai company must withhold a 5% tax on the rental payment. Additionally, the foreign company is subject to a 20% corporate income tax on the net profits generated from the rental business.
What are the withholding tax rates for Foreign companies conducting business in Thailand?
In Thailand, foreign corporations engaged in business activities like establishing branch offices, employing staff, having representatives, acting as intermediaries, and generating income within the country, are typically subject to Thai Income Tax under Section 40 of the Revenue Code. Subsequently, entities making payments to these corporations must withhold a portion of that income as tax as a legal mandate. Below are the primary withholding tax rates based on various income categories:
| Type of Income | Withholding Tax rate |
|---|---|
| Services provided | 5% of the payment |
| Interest | 1% of the payment |
| Dividends | 10% of the payment |
| Rent | 5% of the payment |
| Income from liberal professions (e.g. laws, arts of healing, engineering, and architecture) | 3% of the payment |
| Royalties | 5% of the payment. 3% of the payment if the foreign entity has a permanent branch office in Thailand |
According to Departmental Instruction No. Paw 8/2528, a foreign contractor must have a permanent branch office in Thailand solely if they satisfy the following conditions:
- Establish an office in Thailand.
- Engage in business activities in Thailand beyond contractual work, such as buying and selling goods.
- Create a provident fund for the welfare of employees in Thailand.
Provident funds are voluntary setups by employers and employees to encourage savings. This allows retirees or dismissed employees to support themselves without relying on state welfare or family.
The provident fund can be established by at least one employer and one employee. A Fund Management Company, independent of both the employer and employee, is mandatory to manage the fund.
Employee contributions deduction from wages is at a rate between 2% and 15%. Employer contributions must match or exceed the employee’s contribution but cannot exceed 15% of wages.
Income from royalties is subject to a 3% withholding tax rate.
For the repatriation of profits, payments made from a branch in Thailand to a foreign company are subject to a 10% withholding tax rate.
Foreign companies operating in Thailand must pay corporate income tax at a rate of 20% on their net profits. However, they can offset the withheld tax as a credit against income tax.
How do you calculate withholding Tax?
The following are the steps to calculate and file withholding tax in Thailand:
Determine the tax rate
Depending on the payment method and the recipient’s tax status, the tax rate fluctuates. Typically, the tax rates fall between 0.5% and 15% for various payment types.
Calculate the withholding tax amount
To calculate the withholding tax amount, you need to multiply the payment amount by the applicable tax rate. For instance, if the payment is 10,000 THB and the tax rate is 5%, the withholding tax amount would be 500 THB (10,000 x 5%). It’s important to note that the withholding tax amount calculation precedes deducting other expenses, such as VAT.
Deduct the withholding tax amount
Within the specified time frame, deduct the amount of withholding tax from the payment made to the recipient and remit the tax amount due to the relevant taxing authority.
What is a withholding tax certificate?
In Thailand, a withholding tax certificate, known as Form P.N.D. 3 or P.N.D. 53, authenticates the amount of withholding tax deducted from a payment made to a recipient.
Issued by the income payer, the certificate identifies the payer (e.g., employer, organization, or individual) and the recipient. It details the payment amount, tax withheld, and applicable tax rate.
This certificate holds significance for the recipient as evidence of tax paid. It facilitates claiming tax credits, refunds, and adherence to Thailand’s tax regulations.
Various versions of withholding tax certificates exist, corresponding to different income types and tax rates. P.N.D. 3 is issued for income subject to a 1% withholding tax rate, while P.N.D. 53 applies to income subject to a 5% or higher withholding tax rate.
The income payer is responsible for issuing the certificate within the stipulated timeframe, adhering to rules and regulations set by the Thailand Revenue Department.
To make the process smooth, reach out directly to one of our audit and tax experts in Thailand. You can do so by sending an email to [email protected]. Allow us to extend our expert assistance to help you file withholding tax in Thailand.
