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Tax Treaty Considerations for Expats in Thailand

Submitted: August 2014

Tax treaties exist to protect taxpayers from being taxed twice on certain money flows between two countries. Treaties are particularly important if you have investments outside Thailand, and intend bring money earned from them into Thailand during your stay. They also apply if you build up some investments in Thailand during your stay, and intend to leave them there after you have left Thailand. Thailand has a network of tax treaties in force with over 55 countries worldwide.

Most tax treaties will conform to the OECD Model Treaty, and typically will state how the various forms of income are taxed. A treaty will state whether the specific income is only taxed in Thailand, only taxed in your home country, or taxed in both countries. It may also state what rate of tax is applicable in different cases. The treaty will also contain a definition of residence only for the purposes of the treaty; this is not the same as the definition of tax-residence in tax law. The types of income covered by a treaty may include:

  • property income
  • business profits
  • dividends
  • interest
  • royalties
  • capital gains
  • employment income
  • directors fees
  • income from sports and entertainment
  • state and private pensions, alimony and child support
  • money for the full-time education of students, and
  • income from teaching.

It is important to recognise that a tax treaty operates on money flows both into and out of the treaty countries.

The withholding tax rate in Thailand on dividends sent to a country without a tax treaty is 10%, which is low by world standards. As a result, for dividends sent to a country with a tax treaty, the rate is not generally reduced as the Thai non-treaty rate is generally lower than the rate set between the two countries, so the non-treaty rate applies.

The withholding tax rate in Thailand on interest sent to a country without a tax treaty is 15%, which is low by world standards. As a result, for interest sent to a country with a tax treaty, the rate is not generally reduced as the Thai non-treaty rate is generally lower than the rate set between the two countries, so the non-treaty rate applies. Some lower rates are in Thailand’s treaties, but they generally only apply to interest sent to central banks, government organisations or financial institutions and banks.

The withholding tax rate in Thailand on royalties sent to a country without a tax treaty is 15%, which is low by world standards. As a result, for royalties sent to a country with a tax treaty, the rate is not generally reduced as the Thai non-treaty rate is generally lower than the rate set between the two countries, so the non-treaty rate applies. There are one or two exceptions, so it is necessary to read the relevant treaty to see whether a lower rate is available.

Thai tax treaties with other countries generally restrict the amount of withholding tax those countries can charge Thai residents. For the complete rules and rates it is necessary to read the treaty itself. A list of each Thailand treaty in force can be found here with links to the wording of each treaty. The sections dealing with dividends, interest and royalties can usually be found half way through the treaty document.

Prior to arriving in Thailand you may be able to arrange your existing investments so that the maximum advantage is gained from the terms of any treaty. This may involve moving investments from one non-Thai country to one with a more favourable tax treaty, or even to Thailand itself, to reduce the tax rate paid.

If your home country has a generally higher rate of tax than Thailand, you may benefit by becoming tax-resident in Thailand as early as possible. At the end of your stay in Thailand, you can also rearrange your affairs to ensure that any on-going income from Thai employment or investments is also taxed at the lowest rate possible in the future.

 

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