On 15 September 2023, the Director-General of the Thai Revenue Department issued an instruction (Departmental Instruction (DI) No. 161/2023) that reverses years of tax policy under which certain foreign-source income remitted to Thailand by tax residents is exempt from personal income tax. The DI will apply to foreign-source income remitted to Thailand on or after 1 January 2024 and it revokes all previous pronouncements and/or practices in this area.
After decades of granting Thai tax residents a tax concession/exemption on foreign-source income remitted to Thailand during the subsequent year of deriving assessable income under section 40 of the TRC, the Revenue Department recently realized that this practice is not necessarily in alignment with the second paragraph of section 41. TRC section 41(2) reads as follows:
“(a) a resident of Thailand who, in the course of the preceding tax year, derived assessable income under Section 40 from a post or office held or business carried on abroad or from property situated abroad, shall, upon bringing such assessable income into Thailand, pay tax in accordance with the provisions of this Division.” [emphasis added]
On its face, the statutory provision is clear: foreign-source income derived in the preceding tax year is taxable in Thailand when the income is remitted to Thailand, regardless of the year of remittance. No mention is made of an exemption from income tax. (The only relevance of the phrase, “in the course of the preceding tax year” is that unless tax is withheld at the time of payment, personal income tax in Thailand is payable on or before 31 March of the following year.) The revenue authorities have now decided that the long-standing exemption policy for foreign-source income will end in 2024.
It should be noted, however, that the change in policy will not affect a specific group of taxpayers. Royal Decree (RD) No. 743 (2022), which applies to long-term visa holders under the categories of wealthy global citizens, wealthy pensioners and work-from-Thailand professionals is not affected by the DI (for prior coverage, see the article in the November 2022 issue of Corporate Tax News). A DI cannot invalidate a law (Royal Decree) and RD No. 743 was issued specifically to provide tax concessions to the three types of long-term visa holders. Thus, RD No. 743 effectively ensures that the taxpayers it covers would be excepted from the general remittance rule even in the event of a change in practice that would remove the protection offered by previous rulings, interpretations or pronouncements.
As well as the obvious implications for Thai residents in receipt of covered foreign-source income, the DI will mean that with the common reporting standard now effective in Thailand, financial institutions will play an increasingly important role in taxing remittances.
Melea Cruz
BDO in Thailand
Current practice and new DI
Currently, tax residents in Thailand are exempt from personal income tax on foreign-source income listed in section 40 of the Thai Revenue Code (TRC) (e.g., income from employment, passive income, etc.) provided the income is remitted to Thailand during the year following the year the income was earned/derived/received (“remittance rule”). A tax resident is any person who has been in Thailand for a period or periods aggregating 180 days or more in a tax year (183 days or six months under relevant double tax agreements).After decades of granting Thai tax residents a tax concession/exemption on foreign-source income remitted to Thailand during the subsequent year of deriving assessable income under section 40 of the TRC, the Revenue Department recently realized that this practice is not necessarily in alignment with the second paragraph of section 41. TRC section 41(2) reads as follows:
“(a) a resident of Thailand who, in the course of the preceding tax year, derived assessable income under Section 40 from a post or office held or business carried on abroad or from property situated abroad, shall, upon bringing such assessable income into Thailand, pay tax in accordance with the provisions of this Division.” [emphasis added]
On its face, the statutory provision is clear: foreign-source income derived in the preceding tax year is taxable in Thailand when the income is remitted to Thailand, regardless of the year of remittance. No mention is made of an exemption from income tax. (The only relevance of the phrase, “in the course of the preceding tax year” is that unless tax is withheld at the time of payment, personal income tax in Thailand is payable on or before 31 March of the following year.) The revenue authorities have now decided that the long-standing exemption policy for foreign-source income will end in 2024.
It should be noted, however, that the change in policy will not affect a specific group of taxpayers. Royal Decree (RD) No. 743 (2022), which applies to long-term visa holders under the categories of wealthy global citizens, wealthy pensioners and work-from-Thailand professionals is not affected by the DI (for prior coverage, see the article in the November 2022 issue of Corporate Tax News). A DI cannot invalidate a law (Royal Decree) and RD No. 743 was issued specifically to provide tax concessions to the three types of long-term visa holders. Thus, RD No. 743 effectively ensures that the taxpayers it covers would be excepted from the general remittance rule even in the event of a change in practice that would remove the protection offered by previous rulings, interpretations or pronouncements.
BDO insight
Subject to the exception discussed above, DI No. 161/2023 will impact all tax residents in Thailand (whether Thai or foreign) deriving offshore income and remitting it to the country (e.g., employees seconded to Thailand, retirees, etc.). Although the revenue authorities’ objective in issuing the DI was to clarify the situation and ensure that practice is in line with Thai law, the DI does give rise to some questions. For example, whether it affects only foreign-source income earned/derived/received in 2023 and remitted in 2024, whether an individual who was tax resident in Thailand for the past 10 years and then remits income on 1 January 2024 can benefit from the exemption, etc. Further clarifications may be needed by the authorities, particularly on timing.As well as the obvious implications for Thai residents in receipt of covered foreign-source income, the DI will mean that with the common reporting standard now effective in Thailand, financial institutions will play an increasingly important role in taxing remittances.
Melea Cruz
BDO in Thailand