Thailand’s Revenue Department is revising its approach to the taxation of foreign-sourced income, aiming to attract more capital into the country. Instead of taxing every baht of income brought in from abroad, the department plans to introduce a temporary tax exemption for income remitted to Thailand within a specific timeframe, in a bid to stimulate the domestic economy.
New Tax Strategy
Pinsai Suraswadi, Director-General of the Revenue Department, said the agency is drafting a ministerial regulation to exempt personal income tax on foreign income remitted to Thailand within two years of being earned. The initiative targets an estimated 2 trillion baht currently held by Thai individuals overseas in the form of real estate, insurance, and foreign investments, which generate hundreds of billions of baht in income annually.
The proposed regulation will apply to individuals who spend at least 180 days in Thailand during a calendar year. Normally, such individuals are subject to Thai income tax regardless of where their income originates. Under the new plan, however, foreign income brought into the country within the year it was earned or the following year will be tax-exempt. If the income is remitted after that two-year window, it will be taxed as usual.
This temporary exemption applies only to income earned after the new regulation comes into effect and will not be retroactive.
Stimulating Investment
According to Mr. Pinsai, the policy aims to encourage individuals to repatriate earnings for reinvestment in Thailand, which would boost liquidity and economic activity. Funds could be channeled into the local stock and bond markets, or other productive sectors.
The two-year exemption period is designed to accommodate taxpayers who earn income late in the year, providing ample time to bring funds into Thailand.
The Revenue Department clarified that this policy targets income from investments abroad, such as interest, dividends, and capital gains—not the capital invested itself.
Global Tax Principles
The plan aligns with international tax standards that use the “residency rule,” under which individuals residing in a country for more than 180 days in a tax year are considered residents and are liable for tax on their worldwide income. This rule, coupled with Thailand’s own laws under Section 41 of the Revenue Code, mandates tax on foreign income once it is remitted to Thailand.
To qualify for taxation, three conditions must be met:
- The individual must reside in Thailand for 180 days or more within a tax year.
- The individual must earn income from a foreign source.
- That income must be brought into Thailand.
Double Taxation Relief
For income already taxed abroad, Thailand allows a foreign tax credit under applicable Double Tax Agreements (DTAs), though the process can be complex. The tax credit cannot exceed the tax owed in Thailand. For instance, if the foreign tax rate is 40% but the Thai rate is 35%, the credit is capped at 35%.
If the taxpayer earns both domestic and foreign income, the total income is used to calculate tax obligations under Thailand’s progressive tax brackets. This can make the calculation of tax credits more intricate.
Deductions and Allowances
The same rules for deductions apply to both domestic and foreign income. For example:
- Salaries, wages, and bonuses are eligible for a 50% expense deduction, up to 100,000 baht.
- Interest and dividends are not eligible for expense deductions.
- Personal tax deductions include 60,000 baht for the taxpayer, and another 60,000 baht for a spouse.
- Life insurance premiums for policies over 10 years are deductible up to 100,000 baht.
This new policy is part of the government’s broader efforts to attract foreign-held capital and reinvigorate the domestic economy through investment.
