Thailand’s Global Income Tax Overhaul: Implications for Residents and Investors

December 16, 2024 Posted by ASEAN Briefing Written by Giulia Interesse Reading Time: 4 minutes

Thailand is set to overhaul its tax system by 2025, proposing taxation of residents’ worldwide income and introducing a 15 percent global minimum corporate tax for multinationals, aligning with international standards. These changes aim to broaden the tax base but may impact foreign investment and compliance costs.

Thailand is preparing to overhaul its taxation framework with a proposed amendment to Section 41 of the Revenue Code, aiming to tax the worldwide income of residents. Under this draft legislation, individuals who spend 180 days or more in Thailand would be required to pay taxes on their global earnings, irrespective of whether the income is transferred to Thailand.

This marks a significant departure from the current system, which taxes foreign income only if it is brought into the country within the same calendar year it is earned. The proposal, expected to take effect in 2025, has drawn mixed reactions.

While it reflects Thailand’s alignment with international tax norms, concerns are mounting among expatriates and foreign chambers of commerce over its potential impact on long-term residency and foreign direct investment.

As discussions around the draft legislation unfold, it is crucial to explore its implications for Thailand’s economic landscape, expatriate community, and global competitiveness.

Thailand’s current personal income tax law

Under Thailand’s existing tax framework, outlined in Section 41 of the Revenue Code, an individual is considered a resident for tax purposes if they spend at least 180 days in the country during any given calendar year. Residents are subject to tax on all assessable income derived from sources both within and outside Thailand.

However, foreign-sourced income is only taxable if it is brought into Thailand within the same year it is earned. In contrast, non-resident individuals are taxed only on income from Thai sources, regardless of where the income is paid.

The personal income tax in Thailand operates under a progressive rate structure, which ranges from 5 percent to 37 percent. The tax rates are as follows:

Up to THB 150,000 (US$ 4,398.44): Exempt from tax
THB 150,000 (US$ 4,398.44) to THB 500,000 (US$14,660.61): 10 percent
THB 500,001 (US$14,660.64) to THB 1,000,000 (US$29,321.21): 20 percent
THB 1,000,001 (US$29,321.24) to THB 4,000,000 (US$117,284.86): 30 percent
Above THB 4,000,000 (US$117,284.86): 35 percent

This structure has undergone revisions over the years.

For example, in 2013, the maximum tax rate was reduced from 37 percent to 35 percent for income above THB 4,000,000 (US$117,284.86). The progressive tax system also applies to capital gains from asset transfers, such as property sales, as there is no separate capital gains tax; such income is taxed as part of an individual’s regular income.

Thai residents must file annual income tax returns by the end of March of the following year. For individuals with specific types of income, such as rental income or professional fees, half-year tax returns are also required, due by the end of September.

Failure to file returns can result in penalties, including a surcharge of 1.5 percent per month on the unpaid tax amount.

Changes in 2024: A shift in taxation of foreign-sourced income

On January 1, 2024, a new tax rule was introduced, altering the way foreign-sourced income is taxed. Under the previous tax system, individuals in Thailand who were tax residents (spending 180 days or more in the country) were only taxed on their foreign income if it was brought into Thailand within the same year it was earned.

However, under the new rule, Thai nationals and foreigners who have been in the country for at least 180 days will be taxed on all foreign income, even if it is not brought into Thailand within the year.

This policy change significantly expands the scope of taxable income for residents, including income from employment, business operations, and passive income such as interest, dividends, and rental income from foreign sources. These new rules represent a marked shift from the current approach, making it important for individuals residing in Thailand to reassess their tax obligations, particularly about their overseas earnings.

These changes signal a broader move toward aligning Thailand’s tax policies with global standards, but they also raise concerns about the potential impact on foreign investment and expatriate residents who may now face higher tax liabilities on their global income.

How does the proposed amendment differ from the current tax law?

The draft legislation proposed by Thailand’s Revenue Department marks a significant departure from the current taxation framework, particularly concerning foreign-sourced income. As of January 1, 2024, the existing rules under Section 41 of the Revenue Code mandate that Thai nationals and foreigners residing in Thailand for at least 180 days in a calendar year are taxed on foreign income only if it is brought into the country, irrespective of when it was earned.

This approach has allowed individuals to avoid Thai taxes on earnings kept overseas or transferred after the year in which they were generated. Income subject to taxation includes employment earnings, proceeds from business operations, income derived from an employer’s activities, and passive income such as dividends, interest, rental income, and goodwill.

Under the proposed amendments, however, residents would be liable to pay taxes on their worldwide income, whether or not it is remitted to Thailand. This fundamental shift means that individuals—both Thai nationals and expatriates—would face obligations to report and pay taxes on foreign earnings, even if those earnings remain outside Thailand.

If enacted, this policy amendment would significantly increase the tax liabilities of residents with substantial income from overseas, aligning Thailand with global trends in comprehensive income taxation and broadening the scope of its tax base. It also represents a move toward international norms, ensuring that the tax system is more transparent and in step with global efforts to prevent tax avoidance.

Potential impact of the proposed amendment

Although the proposed amendment primarily targets individual taxpayers, they are accompanied by parallel discussions on corporate tax reform, including the introduction of a global minimum corporate tax rate.

This initiative, aligned with international tax standards set by the Organisation for Economic Co-operation and Development (OECD), reflects Thailand’s commitment to enhancing tax transparency and fairness in multinational business operations.

Under the proposed framework, multinational corporations with annual global revenues exceeding US$870 million would be subject to a worldwide minimum tax (GMT) rate of 15 percent, regardless of the jurisdiction in which they operate. If these companies pay less than this minimum rate in a particular country, they must pay additional taxes to meet the 15 percent threshold.

While the amendments to individual taxation do not directly address corporate income tax, the introduction of the GMT signals a significant shift in Thailand’s approach to taxing large multinationals. It aims to curtail tax avoidance strategies, such as profit shifting to low-tax jurisdictions and ensures that corporations contribute a fair share of taxes in all operating regions.

These measures could increase business compliance costs, particularly those required to navigate complex cross-border reporting obligations. However, they also represent an effort to level the global tax playing field, creating a more equitable environment for both corporations and national economies. For Thailand, these reforms could enhance revenue collection while bolstering its standing as a committed participant in global tax reform initiatives.