In light of recent deliberations by the Revenue Department to update the Tax Code and incorporate principles of global income, a potential amendment may necessitate individuals residing in Thailand for over 180 days to pay taxes on foreign income, regardless of whether the funds are repatriated.
The criteria employed by the Revenue Department for taxing foreign income are grounded on two fundamental principles delineated in the Revenue Code:
- Source Rule: Thailand levies taxes on income generated within its territorial confines, encompassing income derived from employment, activities conducted within the country, employer undertakings, or assets located in Thailand.
- Resident Rule: Individuals residing in Thailand for 180 days or more in a tax year are subject to income tax on their global earnings, regardless of whether the income was generated domestically or overseas.
Notably, not all foreign income is subjected to taxation, as specific criteria must be met:
- The individual must accumulate at least 180 days of residency in Thailand during any given tax year to be classified as a tax resident of Thailand.
- The individual earns income from foreign sources.
- The individual brings the foreign-earned income into Thailand, mandating tax liabilities according to Section 41 of the Revenue Code.
Prior to the 2024 reforms, individuals could minimize their tax burden by repatriating foreign income within the same year it was earned. However, the amended conditions stipulate that all foreign income brought into Thailand is taxable, with a progressive tax rate ranging from 5% to 35%.
Furthermore, exceptions have been made to alleviate the impact on taxpayers, with pre-2024 foreign income still adhering to the prior tax liabilities.
In cases where foreign income remains offshore, individuals are currently exempt from local tax liabilities.
This proposed amendment by the Revenue Department mirrors the global income principle, requiring individuals residing in Thailand for over 180 days to declare and pay taxes on all foreign earnings, irrespective of repatriation status.
Drawing insights from countries like the US that tax foreign income, the department aims to understand their methodologies, successes, and challenges to implement an effective system in Thailand.
The complexity of taxing foreign income lies in international tax agreements and dual taxation scenarios. Individuals must ensure compliance with tax obligations in both their country of residence and the source of income, potentially necessitating the utilization of double taxation agreements to avoid paying taxes twice on the same income.
The facilitation of tax information exchange between countries, Thailand included, underpins global efforts to enhance transparency and combat tax evasion. Thailand’s participation in international frameworks emphasizes the significance of sharing financial data to ensure fair tax practices.
Although data exchange agreements cover a wide array of financial information, certain limitations persist, particularly concerning salary details that may not be disclosed through such agreements.
Overall, the evolving landscape of foreign income taxation reflects a global push towards taxation equity and transparency, ensuring that individuals fulfill their tax obligations responsibly and ethically.
