Thailand: The Revenue Department Has Adjusted The Criteria For Collecting Taxes From Income Sources Outside Thailand (Part 2)

In our previous article, we informed that the Director-General of the Revenue Department had issued Revenue Department Order No. Por. 161/2566 dated 15 September 2023, causing a high burden to pay taxes in Thailand for those who have income derived from foreign sources outside Thailand ("foreign-sourced income") and who bring such income into Thailand during B.E. 2567 (2024). However, the criteria of said Order is not particularly clear in practice. Subsequently, the Director-General of the Revenue Department issued Revenue Department Order No. Por. 162/2566 regarding payment of income tax according to Section 41, paragraph two of the Thai Revenue Code, dated 20 November B.E. 2566 (2023); which adds additional information for clarity and explicitly imposes taxes on foreign-sourced income brought into Thailand as of 2024, excluding income generated before 1 January 2024. This clarification implies that only income generated outside Thailand as of 1 January 2024 and brought into Thailand as of the same date will be subject to taxation. In summary, individuals with foreign-sourced income in previous tax years resulting from work or business conducted abroad, or from possessing assets overseas, will be liable to Thai income tax only when both of the following conditions are met:

• Must be resident in Thailand for one or more periods totaling at least 180 days in the tax year of 1 January 2024 to 31 December 2024; and
• The foreign-sourced income must be brought into Thailand as of 2024, regardless of whether or not such income is brought into Thailand in the same tax year as the year in which such income is received, e.g. if income is received in 2024 and brought into Thailand in the same tax year, or received in 2024 but bought into Thailand in the following tax year.

In this regard, the amendment of Revenue Department Order No. Por. 161/2566 by Revenue Department Order No. Por. 162/2566 implies that the taxation for foreign-sourced income before 2024 will still follow the previous interpretation principle, which is that tax liability for foreign-sourced income applies only if the person resided in Thailand prior to 2024 and brought such foreign-sourced income into Thailand within the same tax year it was earned. Hence, there will be a duty to pay income tax according to the Thai Revenue Code; if there was income from foreign sources earned in 2023 and brought into Thailand within 2023, tax is payable for the foreign-sourced income. However, regarding foreign-sourced income as of 2024, if it is brought into Thailand as of 2024, it will be subject to personal income tax according to Section 41, paragraph two of the Thai Revenue Code.

Summary of cases where income earners bring income back into Thailand in various forms

In addition, regarding an investor in foreign stock markets, if such investor has been present in Thailand for one or more periods totalling at least 180 days in that tax year, and has assessable income, meaning "profits" (the difference between the selling price and the cost of purchasing the stock) from the trading of stocks, e.g. trading stocks with an annual stock cost of Baht 800,000, selling the stocks for Baht 1,800,000 and earning a profit of Baht 1,000,000 from stock trading in a given year, the scenarios are as follows:

• Profit earned in 2022 and brought into Thailand in 2023 of Baht 1,800,000. This income comprises both stock costs and profits. The profit gains from the sale of such stocks are not subject to tax according to Section 41, paragraph two of the Thai Revenue Code. This is because foreign-sourced income was brought into Thailand in different tax years before 2024.
• Profit earned in 2023 and brought into Thailand in 2023 of Baht 1,800,000. This income comprises both stock costs and profits. Only profits are subject to tax according to Section 41, paragraph two of the Thai Revenue Code. This is because foreign-sourced income was brought into Thailand in the same tax year before 2024 (if the facts change and it is brought into Thailand in 2024, it will not be subject to tax as it is income incurred before 2024).
• Profits earned as of 2024 and brought into Thailand in 2024 or the following tax year of Baht 1,800,000. This income is comprised of both stock costs and profits. The profit gains from the sale of such stocks are subject to tax according to Section 41, paragraph two of the Thai Revenue Code. This is because foreign-sourced income was brought into Thailand in the same tax year or the proceeding years.

Under scenarios 2 and 3, documentation of stock transactions indicating purchase costs, selling prices and profits that are considered income must be clearly stated, so that such can be used as proof to the revenue office when submitting income tax returns for tax payment and during tax audits by tax authorities.

Furthermore, for income that is exempt from tax in Thailand according to a Double Tax Treaty ("DTA") - or if the DTA specifies the other contracting states (foreign countries) that are designated as the tax collectors and Thailand has no authority to collect tax according to the DTA - if such income is brought into Thailand in the case mentioned above, the Revenue Department has not yet issued clear criteria or guidelines to determine whether or not such income is subject to tax according to Section 41, paragraph two of the Revenue Code. If tax exemptions are not applicable, the Revenue Department will need to determine measures or methods to eliminate the double taxes and how to use foreign tax credits if such income is brought into Thailand in a different tax year from the year in which the income was received. The ambiguity in this law contradicts the principles of good tax collection and is a crucial issue which the Revenue Department must expedite in setting clear guidelines; otherwise, the collection of such taxes could become an obstacle to the development and enhancement of Thailand's tourism sector, which is a significant revenue source. In such regard, the Bank of Thailand has stated in its database on its website that: "The tourism sector is one of the key engines of the Thai economy which, prior to the COVID pandemic, generated income as high as Baht 3 trillion per annum, or approximately 18% of the GDP...creating employment for over 7 million people, or 20% of total employment in 2019". After the COVID pandemic, the Economics, Tourism and Sports Division concluded that: "the GDP value of the Thai tourism economy in 2022 is Baht 980 billion per annum, or approximately 5.66% of the GDP, and tourism consumption and spending is Baht 1.01 trillion."

If the Revenue Department pursues taxation on foreign-sourced income, it may bring a small amount of revenue inflow into the system. However, it could impact the tourism sector and employment in the tourism industry, including elderly care services and other sectors that heavily rely on income from foreign tourists who plan to be long-term residents in Thailand. Some tourist operators and those reliant upon the tourism sector may decide not to continue their businesses if the criteria for collecting such taxes are unclear and unfair.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.