Tax on overseas income: what’s going to happen in Thailand?
Thailand is drafting a new law to tax on overseas income of individuals residing in the country. This initiative follows a widely accepted international principle known as “worldwide income under the residence rule,” which requires individuals to pay tax on income earned abroad in their country of residence. This marks a significant shift in how Thailand handles foreign-sourced income and is part of the government’s broader effort to align with global tax practices.
Background: The Worldwide Income Principle
The concept of worldwide income taxation is not new and is practiced in many countries. Under this principle, an individual’s income, regardless of where it is earned, is subject to tax in the country where they reside. In Thailand, the current tax system already requires individuals who live in the country for 180 days or more per year to pay personal income tax on both local and foreign income. However, the new draft law aims to clarify and expand the scope of this taxation, ensuring that income earned overseas is taxed even if it is not brought into Thailand.
The key change involves an amendment to Section 41 of the Thai Revenue Code, which would mandate individuals who meet the 180-day residency rule to pay taxes on all overseas income, irrespective of whether it is remitted to Thailand. The draft law specifically targets personal income tax, leaving out corporate income tax and income from mutual funds investing abroad, except for private funds.
Changes to Taxation of Foreign Income
In January 2024, a significant revision came into effect regarding how Thailand taxes foreign income. Under the previous system, residents were required to pay personal income tax on foreign income only if the funds were brought into the country within the same year the income was earned. However, starting in 2024, this has changed. Now, tax is payable on foreign income regardless of when it is brought into Thailand.
To illustrate, imagine a scenario where an individual sold shares in a foreign company in 2020, resulting in a capital gain that was kept in an overseas bank account. If the individual transfers that capital gain to Thailand in 2024, they would now be required to report this income when filing their tax return. This represents a major shift in the Thai tax landscape, especially for expatriates and foreign investors residing in Thailand.
tax on overseas income: Impact on Expatriates and Pensions
The new rules raise important questions for expatriates living in Thailand, particularly regarding the tax treatment of pensions. Many expatriates receive pensions from past employment abroad and transfer these funds into Thailand. If their home country has a double taxation agreement with Thailand, theoretically, they should not be taxed twice on the same income. However, in practice, there has been debate over how these laws are interpreted and applied.
Thailand has agreements with 61 countries to prevent double taxation, and these agreements could help expatriates avoid paying taxes on their pensions both in Thailand and in their home country. However, ongoing discussions suggest that clarity on the interpretation of the law is still needed.
International Cooperation and Information Exchange
The enforcement of the new tax on overseas income will largely depend on Thailand’s ability to cooperate with other countries and exchange financial information. Thailand is already a member of the Organisation for Economic Co-operation and Development (OECD)‘s tax information exchange network. This global cooperation will allow the Thai Revenue Department to access relevant financial data from other countries, making it easier to track and tax overseas income.
Corporate Tax and Minimum Global Tax
In addition to taxing overseas personal income, the Thai Revenue Department is also drafting legislation to implement a global minimum tax (GMT) for multinational corporations. The GMT, spearheaded by the OECD, requires large multinational corporations to pay a minimum tax rate of 15% worldwide. If a corporation pays less than 15% in any country, it will be required to make up the difference in the country where its parent company is headquartered.
This new corporate tax regulation will apply to multinational companies with global revenues exceeding €750 million (approximately $870 million) per year. The GMT is part of an international effort to prevent profit-shifting and ensure that large corporations pay a fair share of taxes.
Conclusion
Thailand’s move to tax overseas income marks a significant step in modernizing its tax system in line with international standards. By adopting the principle of worldwide income, the country aims to increase tax revenue while aligning with global trends. For expatriates and investors, these changes highlight the need for a clear understanding of the new tax rules, especially regarding the timing of foreign income transfers and how double taxation agreements apply.
As the law progresses, individuals residing in Thailand who earn income overseas will need to be more mindful of their tax obligations, both locally and internationally.
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