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Why is the Tax Code in Thailand essential for international companies operating in Thailand?
The Thailand Tax Code or Revenue Code of Thailand is the legal basis for taxation in the country. First enacted in 1938 as Revenue Code B.E. 2481, the code was designed to reorganise and modernise the country’s tax system, which until then consisted of a number of disparate tax laws.
Since its initial introduction, the Tax Code in Thailand has been extensively amended to reflect economic and technological developments and Thailand’s international commitments. For example, the Income Tax Code Amendment Act (No. 53) B.E. 2564 (2021) introduced VAT provisions on electronic services provided from abroad, reflecting the growing importance of digital commerce. In addition, the Income Tax Code Amendment Act (No. 54) B.E. 2564 (2021) was adopted to promote the international exchange of tax information following Thailand’s accession to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters in 2020.
These reforms demonstrate Thailand’s commitment to aligning its tax system with international standards, particularly those established by the Organisation for Economic Co-operation and Development (OECD) and the G20, in terms of transparency and the fight against tax evasion.
For foreign companies, it is crucial to understand the key provisions of Thailand’s Tax Code in order to comply with tax obligations and avoid penalties for non-compliance.
Table of Contents
What are the main components of the Tax Code in Thailand?
Personal income tax (PIT)
- Tax residence and scope:
The Tax Code in Thailand distinguishes between tax residents and non-residents. A resident is defined as an individual who has spent at least 180 days in Thailand during a calendar year. Residents are taxed on their worldwide income, while non-residents are taxed only on income sourced in Thailand.
- Progressive tax scale:
Personal income tax rates in Thailand are progressive, ranging from 0% to 35%, depending on annual taxable income brackets.
- Tax changes in 2024:
Since 1 January 2024, all Thai tax residents are required to declare foreign-source income that is transferred to Thailand, even if it was generated before that date. In addition, an exception has been added whereby foreign income received before 1 January 2024 and transferred to Thailand after that date will not be taxed.
Corporate income tax (CIT)
- Standard tax rates and reductions:
In Thailand, the standard corporate income tax rate is 20%. However, reduced rates apply to small and medium-sized enterprises (SMEs) and vary according to their annual net profit.
- Foreign companies and withholding tax:
Non-resident companies registered in a third country but carrying out activities that generate income in Thailand are subject to a withholding tax of 15%, except for dividends, which are taxed at 10%.
- Implementation of the global minimum tax:
From 1 January 2025, Thailand will apply a global minimum tax of 15% on multinational companies with annual global turnover exceeding €750 million, in accordance with OECD guidelines.
Value added tax (VAT)
VAT is collected by businesses on behalf of the government and paid by end customers. The Tax Code B.E. 2481 (1938) and its subsequent revisions establish the legal basis for VAT, with Section 77/1 clearly defining it as a tax on the value added at each stage of manufacture or distribution.
- Current rates and exemptions:
Currently, the standard VAT rate in Thailand is 7%, which is temporarily lower than the statutory rate of 10%. However, this rate is reduced until 30 September 2025.
- Registration requirements:
Companies with an annual turnover of 1.8 million baht are required to register for VAT. In addition, foreign electronic service providers supplying services to non-VAT-registered customers in Thailand are also required to register and collect VAT.
Registration fees (stamp duty)
- Documents subject to tax:
Stamp duty is applicable to various legal documents such as lease agreements, property transfers, share transfers and loan agreements. The applicable amounts differ depending on the type of document; a table of stamp duty rates is appended to Chapter V of Title II of the Thailand Tax Code.
For the full list, please consult the Revenue Code on the website of the Thailand Revenue Department.
- Payment terms and penalties:
The registration fee must be paid within 30 days of the date of execution of the document. Failure to pay the amounts due or insufficient payment may result in penalties of up to six times the initial amount due.
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How does the Tax Code in Thailand affect foreign companies?
Establishing a presence in Thailand
The Tax Code in Thailand taxes companies on income generated within the country, including foreign entities with a “permanent establishment” in Thailand. The concept of permanent establishment is not limited to the presence of a locally registered entity. It also applies to activities carried out on a regular or significant basis, even without a formal legal structure.
A permanent establishment in Thailand is recognised when the foreign company:
- Has an office, a dependent agent, a factory or a long-term construction site;
- Provides services in Thailand for a continuous or cumulative period exceeding six months;
- Generates income from Thai sources through a regular operational presence.
International tax treaties
Thailand has signed double taxation agreements with many countries to avoid double taxation of income. These agreements provide for reduced withholding tax rates on dividends, interest and royalties. It is essential for foreign companies to check whether their country of origin has such an agreement with Thailand.
A tax treaty was signed between France and Thailand on 27 December 1974 to avoid double taxation and prevent tax evasion in relation to income tax.
Withholding tax obligations
Companies must withhold tax at source on certain payments made to non-residents, such as dividends, interest and royalties. The rates depend on the type of payment made and the applicable tax agreements. Failure to comply with these obligations may result in penalties.
What are the reporting requirements under the Tax Code in Thailand?
- Tax returns:
Companies must file periodic tax returns, including monthly VAT returns and annual corporate income tax returns. The deadlines and forms required are specified by the Revenue Department. Failure to meet the deadlines may result in fines.
- Accounting:
In accordance with the Tax Code in Thailand, companies’ accounts must be kept in accordance with Thai standards. Accounting records must be kept for at least five years and be available for inspection by the tax authorities. Sections 8 to 14 of the Code specify these obligations.
- Tax audits:
The Revenue Department may conduct tax compliance audits. Companies must provide all necessary information and cooperate. Failure to do so may result in tax adjustments and fines.
What tax benefits does the Tax Code in Thailand offer?
- Investment incentives
To attract foreign investment, the Thai government offers numerous tax incentives, ranging from corporate tax exemptions to customs duty reductions and additional tax deductions. They are generally granted by the Board of Investment (BOI) and are subject to specific conditions. These tax benefits are provided for in the Investment Promotion Act B.E. 2520 and reinforced by the Competitive Enhancement Act B.E. 2560. For certain sectors of activity, it is possible to obtain up to 8 years of exemption.
- Special economic zones
Certain special economic zones offer additional tax benefits, such as reduced tax rates and VAT exemptions on certain goods. These zones aim to promote regional economic development and attract specific industries.
- Deductions for specific expenses
The Tax Code in Thailand also allows, under certain conditions, tax deductions for certain expenses, such as research and development, staff training and donations to approved charities. These deductions can significantly reduce the tax burden on businesses.
How to ensure compliance with the Tax Code in Thailand?
- Consult with local experts
It is best to consult local tax specialists to verify compliance with the Tax Code in Thailand. Tax legislation can be complex and change frequently. Such an advisor could help avoid costly mistakes.
- Set up effective accounting systems
Companies must also keep strict accounts to track their transactions and generate accurate reports, which will facilitate the preparation of their tax returns and audits.
Conclusion
The Thailand Tax Code is an essential pillar for any foreign company wishing to establish itself or invest long-term in the country. It strictly regulates the applicable taxation, both for local income and international flows, and sets out specific obligations in terms of reporting, withholding tax and accounting. In a constantly changing tax environment, particularly with the implementation of the global minimum tax and the integration of OECD standards, it is essential to surround yourself with experts to ensure compliance and optimise your tax structure. A good understanding of the Code is the key to a secure and profitable investment.