New tax regulation closes loophole in foreign income brought into Thailand

A new tax regulation in Thailand will require Thai tax residents to pay personal income tax on foreign income brought into the country.

Key Takeaways

• A new tax regulation in Thailand will require Thai citizens and foreign residents to pay personal income tax on any income from a foreign source when brought into the country, closing a longstanding tax loophole.
• The implementation of the Common Reporting Standard will aid Thailand’s Revenue Department in cracking down on tax evasion on foreign assets and earnings.
• The new tax ruling may boost the Thai government’s Long-Term Resident visa scheme by attracting wealthy individuals who can benefit from tax exemptions on their foreign assets or earnings.

Previously, there was a loophole that allowed individuals to avoid paying taxes by sending their foreign earnings to the next year. However, in an effort to combat tax evasion and address budget constraints, the government has implemented new tax rules. These stricter measures are intended to close the loophole that allowed people to delay transferring their overseas income to a different year.

Key Provisions outlined in the Revenue Department Order

• Starting from January 1, 2024, Thailand tax residents will be required to declare and pay Personal Income Tax (PIT) on any income sourced from offshore, when it is brought into Thailand. This means that individuals must report their offshore income to the Thai Revenue Department in their tax return for the respective taxable year.
• Residents of Thailand who spend 180 days or more in the country during a tax year are required to include their assessable income from work duties or activities conducted abroad, as well as income from assets located abroad, in their income tax calculation for the year in which the income is brought into Thailand.
• Any rules, regulations, orders, written responses to consultations, or practices that are determined to be inconsistent with or in opposition to the provisions of this order will be revoked.

However, the ruling is expected to benefit the Long-Term Resident (LTR) visa scheme, which aims to attract wealthy global citizens and generate new investments. The new tax rule is seen as a way to tax wealthy Thais investing abroad, as the value of Thai investments in foreign capital markets reached $106 billion in 2022.

The new regulation has sparked concerns among expatriate retirees and investors in foreign assets. The law is vague on the taxation of benefits and pensions, which depend on double taxation treaties.

Double Tax Agreement (DTA)

Double Taxation Agreements (DTAs) play a crucial role in providing relief from income taxes for individuals who reside in Thailand and have signed an agreement with another country. However, it is essential to understand that even with these agreements in place, individuals are still obligated to pay income taxes in the country where they currently reside.

1. Avoid conflicts on taxing rights ensuring income is taxed once or at a reduced rate. 
2. Ensure fair treatment on taxation from discrimination. 
3. Prevent tax evasion and fraud by sharing information with the contractual party.
4. Promote economic activity in stimulating cross-border transactions and investments between the treaty countries.

Thailand has entered into Double Taxation Agreements (DTAs) with 61 countries. Nonetheless, it is crucial to acknowledge that individuals may still face the possibility of being taxed twice in Thailand and in countries where Thailand does not have a DTA in effect.

While Revenue Departmental Order Por. 161/2566 has recently overturned the longstanding exemption and introduced a blanket collection of Personal Income Tax (PIT) on offshore-sourced income upon its entry into Thailand, it is yet to be determined how effective and efficient the Thai Revenue Department will be in collecting the tax that is owed.