Thailand's New Income Tax Law and What It Means For Your Pension and Foreign Income
At the start of 2024, the Thai Revenue Department introduced a new tax policy on foreign-sourced income, which includes wages, pensions, and interest from abroad. Under this current policy, income will be taxed if it meets either of two conditions:
However, as of early September 2024, the department is drafting a new law that will, if passed, revise the tax system again and align it with the global principle of worldwide income based on residency. If implemented as planned, this new law would mean that tax residents of Thailand will have to pay Thai taxes on more of their foreign income, including pensions.
What is the New Thai Tax Law Draft for Foreign Income?
The principle of worldwide income means that all income you earn, regardless of where it originates, is taxed by the country where you reside for most of the year. In Thailand, if you spend 180 days or more within a calendar year, you are considered a tax resident and must pay income tax.
Currently, tax residents in Thailand are only required to pay taxes on foreign-sourced income if they bring that income into the country. But with the proposed new law, this is set to change, as tax residents will need to pay taxes on their foreign income, whether it is brought into Thailand or not.
So even if you as a tax resident of Thailand earn income overseas from wages, a pension, and other sources and leave that money in the country where it was earned, you may still have to pay Thai income tax on it. It is hoped that operating under the worldwide income principle will clamp down on tax residents, Thai citizens included, who live in Thailand and benefit from government spending but shelter their income in tax havens to avoid being taxed like everyone else.
To further clarify how it will affect tax residents in Thailand, the Director-General of the Thai Revenue Department, Kulaya Tantitemit, stated that this new draft law will only impact personal income taxes in Thailand. Thai Corporate taxes and income from foreign mutual funds will not be affected under the new law.
What is Personal Income Tax in Thailand?
According to the current tax law in Thailand, personal income tax includes the following:
The tax bracket ranges from 0% to 35% and is calculated from the total income earned between January 1st to December 31st. Once the year ends, you have between January 1st and April 9th to file your tax return. You can file your tax return in two ways, as shown below:
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However, if the new tax draft law on foreign-source income is passed into law, all tax residents will be required to report more of their foreign income on their returns, even if it has already been taxed in the country it was earned. However, there are several mechanisms already in place to prevent this double taxation.
What is Double Taxation?
To prevent foreign-sourced income from being taxed fully by two governments, Thailand has signed Double Tax Agreements (DTA) with several countries, including the US-Thailand Tax Treaty of 1998.
However, this doesn’t mean you can avoid paying Thai taxes altogether. Each DTA is different, and in some cases, you may still owe taxes in Thailand. For instance, if the tax rates in both countries are different and you earn income in a country with a lower tax rate than Thailand, you may need to pay the difference to Thailand.
Let’s say you’re a tax resident of Thailand and you make $10,000 in a foreign country that has a DTA with Thailand. The foreign country taxes you at 15%, which comes out to $1,500. However, in Thailand, your tax rate is 20%, meaning you would owe $2,000. The terms of the DTA in place may require you to pay the additional 5% ($500) to the Thai Revenue Department.
(Note that this is an example, and the amounts and tax rates mentioned are purely for demonstrative purposes. Your experience will vary)
Currently, this would only occur if that money was brought into Thailand and deposited into a Thai financial institution, but under the new law, this taxation would occur regardless. Therefore, it is a good idea to learn the details of any DTA in place between Thailand and any foreign country in which you earn income to determine what your tax burden is.
Get Professional Tax Consulting with Siam Legal International
If you are a tax resident in Thailand and are unsure about your tax obligations, reach out to the expert tax advisors at Siam Legal. We will help you understand which of your income sources are taxable, what your tax duties are, and how to prepare for the changes that may come when the new law is passed.
Our experienced Thai tax consultants will also assist you in identifying which DTAs, deductions, and tax credits apply to your situation, ensuring that you minimize your tax liability through all legal avenues.
By working with us, you can avoid the risk of accidentally committing tax fraud and any potential legal issues while keeping more of your hard-earned money secure.
Contact Siam Legal to schedule a tax consultation today!