From time to time, new Orders in Thailand can unexpectedly cause panic, hysteria, and mass confusion among long-term foreign residents and even Thais themselves. This year, there is a hotly discussed debate over the Order No. Por. 161/2023 issued by the Revenue Department, dated 15th September 2023, and coming into effect on the 1st of January 2024. The Order serves as new internal guidance for tax officers in interpreting Section 41, Paragraph 2 of the Thai Tax Code. According to this new Order, Thai tax residents who earn income from abroad will be subject to personal income tax on such an income upon transferring it into Thailand in any calendar year from 1 January 2024 onwards ( Citation: The Revenue Department, 2023 The Revenue Department (2023). Order No. Por. 161/2023. กรมสรรพากร The Revenue Department. Retrieved from https://www.rd.go.th/fileadmin/user_upload/kormor/newlaw/dn161A.pdf ) .

Before we immerse ourselves into breaking down the new guidance, we have to put it into perspective with the current practice first.

What is the current practice?

How do Thai tax residents handle the foreign-sourced income brought into Thailand?

Current rules

Thailand operates two schemes (rules) of taxation that are as follows ( Citation: The Revenue Department, 2021, [41] The Revenue Department (2021). Revenue Code. กรมสรรพากร The Revenue Department. Retrieved from https://www.rd.go.th/english/37749.html ) :

• Thai-sourced income, regardless of where it is paid, and regardless of their tax residence status, will be taxed in Thailand in the calendar year that he receives it.
• Foreign-sourced income, regardless of the nationality of the recipient of the income, and regardless of where it is made or paid (i.e. foreign-sourced income is income derived from work performed outside of Thailand, business conducted outside of Thailand, or property situated outside of Thailand), it will be taxed in Thailand only if two criteria were met:
  • an individual is a Thai tax resident; and
  • such individual brings such income into Thailand in the same calendar year that they receive it.

Thai tax residents are defined as persons residing in Thailand at one or more times for an aggregate period of 180 days or more in any tax (calendar) year. Your Thai residence status affects whether you need to pay tax in Thailand on your foreign-sourced income.

Short-term residence is not defined under Thai tax regulations.

Significant loophole

Under the existing rules, there exists a significant loophole: For example, if a Thai tax resident receives foreign-sourced income on 31 December 2020, deposits it in his foreign bank account, and subsequently transfers it to his Thai bank account the next day (1 January 2021, the calendar year after that in which he received the income), the income would not be liable to taxation in Thailand.

Notably, the foreign-sourced income has been exempted for nearly 40 years.

Multilateral treaties

Thailand has joined the multilateral treaty to promote tax transparency and combat tax evasion on a global level. Particularly, Thailand has joined the Global Forum on Transparency and Exchange of Information for Tax Purposes and has signed the multilateral agreement on assistance. In terms of tax administration (MAC) and the Multilateral Agreement between Competent Authorities on the Automatic Exchange of Financial Data (MCAA CRS), the Revenue Department needs to improve tax collection to be more fair among taxpayers from sources of income within and outside the country ( Citation: The Revenue Department, 2020 The Revenue Department (2020). News 37/2020. กรมสรรพากร The Revenue Department. Retrieved from https://www.rd.go.th/fileadmin/user_upload/news/englishnews37_2563.pdf ) :

… which would increase the ability to compete of domestic entrepreneurs and expand tax base which would provide the greatest benefits to Thailand in the future.

What does change?

Unusual as it may seem in Thailand, the words are surprisingly taken into action addressing the loophole: under this new guideline, Thai tax residents who earn income from abroad will be subject to personal income tax on such income upon bringing it into Thailand in any calendar year.

Giving importance to the keyword “any,”: the Revenue Department is effectively closing the previous loophole in the tax law through this newly issued guideline.

As a result, individuals cannot avoid personal income tax by deferring the repatriation of foreign-sourced income to a subsequent tax year. It aims to ensure fair and consistent taxation between foreign source income and Thai source income and aligns with Thailand’s commitment to enhancing tax compliance and revenue collection.

Though it is a matter of discussion whether the changes would eventually lead to the desired effect, it is not within the scope of this article.

Double Tax Agreement

Does it mean that everybody has to pay income tax in Thailand regardless of their tax duties back in their home countries?

If the income is derived from a country with which Thailand has a Double Taxation Agreement (DTA) and the income is taxable in that country, the Thai tax resident can credit the tax paid in the source country against his income tax liability in Thailand according to the applicable rules of the particular DTA. For example, in the case of income received from selling the house, the tax treaty between Germany and Thailand states that such income shall be taxed in the country the property is situated in.

Here is a list of such countries: https://www.rd.go.th/english/766.html

And the practice?

There is often a significant gap between the theory and practice, and I cannot stress enough how accurate this is in Thailand. Now, you may start to wonder:

• How Thailand traces my income and identify it is a subject of tax?
• Under what circumstances do banks notify the financial department?
• If 800k is transferred into my account (for example to fulfill the requirements of a Non-Immigrant O Visa extension based on retirement), will banks be obliged to inform the financial department?
• Should I always file the tax return even if I have either no taxable income or the calculated tax would be zero? Or should I only upon a random check?
• What’s the procedure for confirming the income tax payments in my home country? Do I need a certified translation? What is the minimum acceptable proof of taxed income?
• What if the proof of taxed income uncovers the fact I conduct business activities on the Thai soil albeit online and based in my country, i.e. continuing to do something I was doing before I came to Thailand anyway?
• Are the health and social taxes in my home country categorized as an income tax as long as they are calculated from the income itself?
• If 50% of my income is taxed in my home country, and the other 50% is not, how can I prove that the specific amount transferred from abroad was indeed taxed?
• With 1000k earned abroad, 200k in taxes paid based on complex and calculation, and 500k transferred, is my tax responsibility in Thailand proportional to the transfer?

Unfortunately at this stage, it is still unclear how the new interpretation would impact foreigners living in Thailand who derive income by way of pension, surviving‘s spouse benefit, salary for remote work, proceeds of the sale of property overseas. This issue is evolving and needs clarification from the Revenue Department.

What to expect soon?

The Order No. Por. 161/2023 only provides a fundamental idea. It is not the last Order relevant to the foreign-sourced income taxation, and we can expect that more Orders will follow. However, it is yet unclear when and how many Orders the Revenue Department will release, so is their level of detail. Given the Order comes into effect on the 1st of January 2024, we should not wait long. Until then, nobody can give you an exact answer, and be careful of those who claim otherwise.

Conclusion

The Order No. Por. 161/2023 does not bring anything specific and only introduces a rough idea with no practical details or explanation on how the gist of foreign-sourced income tax would change in practice. We have to await for releasing the further Orders in a strong hope for a detailed and comprehensive description covering the edge cases. Remember that these are just Orders that serve internal purposes and not actual laws that go through the whole legislation process.

Right now, you have a chance to prepare for upcoming changes if you are planning to transfer money into Thailand in the next year:

1. Identify if you are already a Thai tax resident or expect to become one.
2. Verify if the home country you plan to import the income from has a Double Taxation Agreement with Thailand: https://www.rd.go.th/english/766.html
3. Confirm if the income you plan to import is subject to taxation in your home country.

I’ll follow up on my research as more details come to light.