Guide to Personal Income Tax on Foreign Sourced Income

Our firm is pleased to present our comprehensive guide on the implications of Thai personal income tax pertaining to foreign sourced income in light of 2023 reinterpretation of Section 41 of the Thai Revenue Code and new developments. The guide aims to provide clarity and insights for individuals navigating the complexities of tax obligations in Thailand.

Since late 2023 the Thai Revenue Department has reinterpreted Section 41 of the Revenue Code to apply Thai personal income tax on foreign sourced income of Thai tax residents with the Departmental Instruction No. Por. 161/2566 (as amended by the Department Instruction No. Por. 162/2566) even if the foreign sourced income is not brought into Thailand in the same calendar year, which under the previous interpretation was not subject to Thai personal income tax.

This guide is compiled to:

(i)???????? offer recent updates in Part 1; and

(ii)??????? address certain mostly frequently asked questions in Part 2 Q&As.

Part 1.??2024/Recent Updates

Since late 2023, there are certain developments that are noteworthy.

1. Applicable Year/2024 (No Retroactive Application to Pre-2024 Income)

Having issued two Q&A Guides in Thai, the Revenue Department has issued the Q&A Guide in English (https://www.rd.go.th/fileadmin/user_upload/lorkhor/newspr/2024/FOREIGNERS_PAY_TAX2024.pdf).

In the latest Q&A Guide in English, the department has presented a below table to clarify that personal income tax is only applicable to any income derived in 2024 and thereafter. In other words, this reinterpretation does not apply to any assessable income derived in 2023 or before 2023.

2.?Paper Filing Only (No Online Filing)

A deadline for midyear return filing was September 30, 2024 for paper filing (or October 8, 2024 for online filing). As of the aforementioned deadline, it became apparently clear that any individual taxpayer intending to file a PIT return to report foreign sourced income while claiming a foreign tax credit must do so using a paper-based return exclusively. The Revenue Department does not support online filing with foreign tax credit.

2.1?At this time online filing is still unavailable.

2.2?Online filing might be possible without claiming a foreign tax credit.

While the Revenue Department was one of the first government departments to introduce online filing, the department has not adjusted the system to make room for a foreign tax credit in the system yet.

With paper-filing as the only option, it is somewhat inevitable that a use of professional is necessary.

3.? Remittance Basis to Deriving Basis

The Revenue Department recently indicates that the department is set to amend Section 41 of the Revenue Code, effectively changing from the remittance basis to the deriving basis (the cash basis). Under a proposed amendment, a tax resident (i.e. a residence in Thailand for 180 days or longer in one calendar year) will be required to pay Thai personal income tax on one’s worldwide income, regardless of whether such offshore income is remitted into Thailand or not.

4.??Certain Planning Strategies

As about a year has passed since this U-turn interpretation, certain planning ideas (besides staying in Thailand for less than 180 days in one calendar year) have emerged as we will address in Part 2, Q&As.

• Gift/Inheritance
• Minimal Remittance
• Remittance of Pre-2024 Saving

5.? Need to Get the Tax Clearance Certificate (Similar to the Exit Visa) Prior to Leaving Thailand

The tax clearance certificate is briefly summarized here below.

• A tax clearance certificate was introduced to the Revenue Code in B.E. 2502 (1959) as an anti-avoidance measure.
• An original idea behind it was that a foreigner may come to Thailand, but leave the country without properly paying Thai income tax.
• A foreigner had to obtain a tax clearance certificate before leaving the Kingdom, it operated like an exit visa.
• Leaving the Kingdom without a tax clearance was and is still a misdemeanor (or a pretty offence) under Thai law. A violator shall face a criminal fine not exceeding Baht 1,000 or imprisonment not exceeding one month or both the criminal fine and the imprisonment.
• Then, in B.E. 2527 (1984), the government amended the Revenue Code to give lengthy exemptions to this tax clearance requirement.
• With promotion of tourism in late 1980s, everyone had forgotten about this tax clearance certificate.
• These days, immigration officers do not actively ask for this certificate at border check points.
• A revenue official now seems to take a position that if a return filing deadline passes without tax being paid, then personal income tax is deemed overdue. And a tax clearance certificate is required.

Part 2.??Q&As on Foreign Sourced Income

1.?Are assets received from inheritance from overseas subject to Thai personal income tax or not?

No. Any property received from inheritance in a foreign country is explicitly exempt from Thai personal income tax by the Revenue Code. Whether such inheritance will be subject subject to Thai inheritance tax or not is another matter.

2.?Is a pension payment from overseas subject to Thai personal income tax or not?

Yes. Largely, a pension payment is subject to Thai personal income tax and an individual must report a remitted portion of the pension payment as part of annual income in a tax return and pay tax on this income.

If a pension payment is made from a country/territory that has a tax treaty with Thailand, certain treaties may provide complete exemptions under specific circumstances, but not all circumstances.

In the event that a pension payment is made from a country/territory whose applicable tax treaty does not exempt Thai income tax outright, typically a foreign tax paid shall be utilized as a foreign tax credit in paying Thai personal income tax. (More on claiming a foreign tax credit will be provided later in this Part 2.)

3. Is a gift made from overseas to a lawful spouse or a girlfriend subject to Thai personal income tax?

First, a gift granted to a lawful spouse is exempt from Thai personal income tax up to Baht 20 Million per one calendar year, insofar as the gift is duly granted. A lawful spouse may remit such gift to Thailand tax free up to Baht 20 Million per one calendar year.

Second, a gift granted to a girlfriend (i.e. a domestic partner, a common law wife or a quasi-spouse without a marriage registration) is exempt from Thai personal income tax up to Baht 10 Million per one calendar year, insofar as the gift is duly granted.

The Revenue Department recognizes that a couple may choose not to register a marriage these days. In one recent revenue ruling, the department held that the money given by a foreign unregistered husband to a Thai unregistered wife to spend in household expenses is exempt from personal income tax up to Baht 10 Million per one calendar year. The revenue ruling clarifies that a couple must live together in accordance with the conditions laid down in the Notification Re Criteria for a Couple Living Together Without Registering for Marriage Who Shall Be Deemed (Quasi/Unregistered) Spouses of the National Anti-Corruption Commission. (The National Anti-Corruption Commission has laid down the conditions for a couple that lives together without registering for marriage but being deemed an unregistered spouse. A list of property and debts of an unregistered spouse of a political office holder/high ranking government official must be filed to the Office of the National Anti-Corruption Commission as part of an anti-corruption measure.)

4.?If an individual has duly paid income tax to a source country and such source country has a tax treaty with Thailand, the individual does not have to bother to file a Thai tax return to the Thai Revenue Department at all. Is this understanding correct or not?

No. This understanding is not entirely correct.

The first step is to check whether an applicable tax treaty exempts Thai personal income tax outright or not. If the tax treaty does offer any outright Thai income tax exemption, then there is no need to file a Thai tax return at all.

If the tax treaty does not exempt Thai income tax outright, the individual may try to claim and utilize the amount of tax paid to the source country as foreign tax credit in paying Thai income tax under the tax treaty. Claiming the foreign tax credit under the tax treaty is not that straight forward. To be eligible to claim the foreign tax credit, certain conditions (as listed below) must generally be fulfilled.

1. Documentation

• An individual must obtain a certificate of foreign tax payment from a tax authority in the source country that is acceptable to the Thai Revenue Department.
• The Revenue Department falls short of indicating the certification required for such certificate of foreign tax payment to claim a foreign tax credit.
• In B.E. 2547 (2004) revenue ruling, the department held that a taxpayer had to present the provable evidence if requested by the Revenue Department.??(But this ruling fails to elaborate on what the provable evidence is.)
• To be on the safest side, such certificate of foreign tax payment should be consularized (certified) by the Thai Embassy or the Thai General Consulate, which is time consuming.

2. Source Country’s Right to Tax the Income

• The Revenue Department has to agree with the individual that under terms and conditions of the applicable tax treaty the source country has the right to tax such income. In other words, if tax treaty's terms and conditions do not allow the source country to tax such income (and giving Thailand the exclusive right to tax such income), the individual ought to claim the tax exemption under the tax treaty instead of paying such income tax to the source country.)
• In B.E. 2566 (2023) revenue ruling, the department rejected a claim for foreign tax credit in utilizing the already paid Canada tax on a ground that a source country (Canada) did not have a right to tax such income under the tax treaty.

By this point, you can see that is not true that if one pays income tax in a source country, there is no need to file a Thai tax return.

5. What is an exchange rate used for conversion to Thai Baht?

Under existing Section 41, personal income tax is still based on the remittance basis. Therefore, the exchange rate on the remittance date shall be used for a computation purpose. The Revenue Code allows a taxpayer to use either:

(i)???an exchange rate of a commercial bank that has been announced daily for the purpose of converting a foreign currency into Thai Baht (selling rate); or

(ii)??a daily reference rate announced by the Bank of Thailand for the purpose of converting a foreign currency into Thai Baht (average selling rate).

6.? How can the Thai Revenue Department find out about remitted foreign sourced income?

The department has three sources of leads to catch a potential evasion if such foreign sourced income is not reported.

Source No. 1 Saving Account(s)

Any holder of every saving account must consent a bank to send the account data to the Revenue Department in order to claim the income tax exemption for an interest derived from all saving accounts up to Baht 20,000 per one calendar year, otherwise 15% withholding income tax on the interest shall apply immediately from the first Baht 1 of an interest (instead of applying 15% withholding income tax from the portion in excess of Baht 20,000 of the interest in one calendar year.)

In the event that any holder of a saving account refuses to give a consent to the bank, the bank will then deduct 15% withholding income tax on the interest right away. Hence, the department will receive 15% withholding income tax on the interest remitted by the bank and consequently the department can work out how much the money the account holder has in each bank saving account. Banks in Thailand seem to offer the similar (if not the same) interest rates for saving accounts.

Source No. 2 Frequent Incoming Remittances

A bank must notify the Revenue Department within March of the next calendar year if any holder of account(s):

(i)???????? has received the incoming remittance for 3,000 times or higher in one calendar year (regardless of the total received amount); or

(ii)??????? has received the incoming remittances for 400 times or higher in one calendar year and the total amount of incoming remittances is Baht 2,000,000 or a higher amount in one calendar year.

(3,000 times or 400 times will include all incoming remittances to all accounts of the same holder at one commercial bank, not just one account. Likewise, a computation of Baht 2,000,000 will include all accounts of the same holder.)

Source No. 3 Common Reporting Standard (CRS) Automatic Exchange of Information

Thailand has committed to implementing the CRS. A financial institution (i.e. a bank) back in any of the participating countries to the CRS (a source country) will have to report account holder’s information to the Thai Revenue Department. In contrary to the common belief, the CRS works based on the tax residence, not based on the citizenship. In opening a bank account in the country in CRS (the source country), an account holder must self-certify a jurisdiction of residence for tax purposes to the bank. Normally, the account holder has to update the tax residence as he/she moves to Thailand. So regardless of account holder's citizenship, the bank in the source country will have to send account holder's data to Thailand.

7.??Can a taxpayer claim a child school tuition deduction or a medical expense deduction (or any other deduction) in paying Thai personal income tax?

Although the individual may have actually paid a significant amount of a child school tuition or a medical expense (or even a medical insurance premium) back in a source country, unfortunately the Thai Revenue Code not only offers a minimal personal deduction, but also offers small amounts of other deductions, which apparently do not keep up with the inflation (or the actual expenses). The personal deduction and other deductions are summarized in the below table to convey a complete snapshot of the system.

Disclaimer: This guideline is designed to provide the information only. It is distributed with the understanding that the author/Firm is not engaged in rendering legal, tax accounting or other professional advice. Professional advice should be sought.

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This legal article was written by Narit Direkwattanachai, a corporate, tax & trial attorney at NARIT & Associates with expertise in corporate & commercial, commercial dispute and tax law. He holds a bachelor of laws (1st class honors) from Chulalongkorn University, a master of law from the University of Cambridge, UK and an MBA in finance from the Georgia Institute of Technology, USA. He can be reached at [email protected]

Visit: www.naritlaw.com

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