Thailand’s Revenue Department drafts global tax legislation. It may link visa issuance to tax returns soon. Expats staying over 180 days must file by March 2025, impacting residency decisions. It also raises concerns about tax treaty interpretations and compliance.
It emerged this week that the Revenue Department is preparing draft legislation to further its global tax initiative. At length, this includes plans to tax all foreign residents on their worldwide income, irrespective of whether the money is remitted to Thailand. However, for most expats and those considering Thailand as a place to live, the discussion is only just beginning. In the meantime, the key consideration is that for those who stay over 180 days in Thailand this year, a tax return is due by March 31st, 2025. Certainly, at the very least, foreigners should have obtained and studied their country’s tax treaty with Thailand. Afterwards, how the Revenue Department moves to impose its new powers remains to be seen. For instance, it may choose to link tax reporting with the issuance of long-term visas very shortly.
Thailand’s Revenue Department has announced that it is drafting legislation to implement its global tax initiative. In short, the plan is to tax all foreign residents in Thailand on global income.
Significantly for foreigners in Thailand and abroad, this will take time as the measure is processed through parliament. Certainly, unlike other key tax changes, such as a change in interpretation of the tax code on foreign remittances, this signals that the fundamental change in the taxation code requires parliamentary approval.
At this time, it is not clear how long it will take to complete its passage through parliament. In short, it seems unlikely that the new law will be in place for the 2025 tax year, which begins on January 1, 2025.
Thailand’s new tax law will significantly impact the economy, but more immediate concerns loom for expats
The new provision is bound to have a massive impact on Thailand’s economy. It will affect the country’s property development sector, tourism industry, and the community of expatriates, which has grown significantly in Thailand over the last three decades.
However, in the short term, the issue for this expat community is making returns for the 2024 tax year. Essentially, this applies to foreign residents in Thailand for over 180 days in this tax year from January 1 to December 31 2024. In turn, all income remitted to the kingdom is liable for taxation.
Of course, there are extensive allowances and provisions under Thailand’s 61 foreign tax treaties. For instance, for U.S. tax residents in Thailand, the situation is simpler.
Already, all American residents are required to report their income and file tax returns. This is regardless of the country they reside in.
American retirees in Thailand may face tax issues, despite allowances and deductions under the code
In the United States, the income threshold for taxation is $14,000. For example, if an American is living in Thailand on income lower than this, they would not need to pay tax. They would however be required to file a tax return.
In relation to the Revenue Department, they will be required also to ensure that income is simultaneously declared in Thailand. For this year, this would be only the monies remitted here. This relatively low income may apply, for example, to an American retiree who has the required ฿800,000 deposited to constitute a retirement visa.
Certainly, that individual will also declare a nil tax liability in Thailand. In short, based on the fact that the income has been previously assessed in the United States.
However, in a relatively straightforward case, this would be open to interpretation. We assume that if the income has been treated or assessed by US authorities, it is therefore already taxed. In other words, exempt under the US Thai tax treaty.
Consequently, a clarification will be required from Thailand’s tax authorities. A different interpretation will certainly have a significant impact.
Retired American expats with moderate income may face small tax liabilities, depending on tax treaty clarification
In this situation, the elderly American would be subject to tax.
The taxable income would be ฿490,000 or ฿40,833 a month. In truth, there may be many foreigners in this income bracket. In short, they move to Thailand to avail of a cheaper cost of living.
Of course, this is in addition to more clement weather. Many have Thai wives, although some may also have Thai girlfriends. In the former case, there is an allowance.
In any event, the basic allowance for all taxpayers is ฿60,000. Moreover, there are deductible expenses if the foreigner is generating income of up to ฿100,000. In this case, we will not assume so, although many will be able to make this case.
Certainly, if the foreigner is married, then another ฿60,000 income allowance is applicable. In short, this means the retired American has a tax-assessable income of ฿370,000.
The first ฿150,000 is zero-rated. That leaves ฿220,000. Thereafter, it is 5% up to ฿300,000. In effect, our retired American with his Thai wife is only subject to tax amounting to 5% of ฿220,000, which is ฿11,000. The figure amounts to 2.24% of the American’s income.
In addition, US social security payments are exempt from tax altogether under the US Thai tax treaty.
Costs, paperwork and tax treaty interpretations pose challenges for expats in Thailand’s evolving tax climate
Nonetheless, this, along with the red tape associated with the annual renewal of visas and additional costs, means further paperwork in submitting the annual tax return. Of course, this all depends on the interpretation of the U.S.-Thai tax treaty.
However, the problem arises that only a very small number of working foreigners in Thailand have previously reported for tax. In short, like most people in Thailand, only those registered under the country’s social security system.
It follows that at some point, the tax collection agency may link the tax return to the issuance of visas. Certainly, that will be the moment of reckoning.
The current tax situation came following an order given by former Prime Minister Srettha Thavisin last year. On September 15th, 2023, order P 161/2023 substituted a new interpretation of the tax code in place of a more benign 1985 version.
There is speculation that this may be tested in the courts, not by disgruntled foreign expats but by well-heeled Thai investors who have been remitting money from investments abroad.
Thai authorities continue to implement stricter tax policies for foreigners, causing some to leave the country
The September order was followed by P 162/2023 in November 2023. It set 2024 as the first year of taxation under the new basis. After that, tax returns by foreign residents for 2024 will be required by the end of March 2025.
At this time, the only change has been that all foreign income remitted this year will be taxed. At the same time, this only applies to foreigners living in Thailand for over 180 days. Undoubtedly, the new law has already led to some with substantial foreign incomes leaving Thailand this year to avoid tax reporting obligations.
Economy is in bad shape as the Revenue Department ramps up demands for more taxpayers to pay up
Thai taxman now plans to tax foreigners on all income whether it is remitted to the kingdom or not under global tax rule
For those who have spent over 180 days, a tax return must be made next year. Of course, that is in law. However, it is not yet clear how many people will file such a return.
Foreigners in Thailand need to understand how tax treaties affect their situation to avoid unnecessary tax
After that, the key thing is the interpretation of the tax treaty in respect of the expat’s country. These 61 treaties vary considerably. *For instance, some UK state pensions are exempt. In effect, this only applies to those previously engaged in government service.
At this time, pensions paid out under the UK National Insurance Scheme are not exempt. They are treated in the same way as private pesnions. They are indeed subject to tax in Thailand.
Similary, it can be taken as a ‘rule of thumb’ that where personal income is untaxed in the UK, it will be liable for tax in Thailand. Certainly, that is how one tax expert puts it.
So too is income gained on property. However, this is not a concession on all tax treaties. Nor is it clearly guartanateed under the UK tax treaty. It appears the wording may require clarification. Therefore, it is inevitable that the Revenue Department in Thailand will later have to provide guidance on these conundrums.
Indeed, some of these treaties are long and detailed, while others are simple and short. At the same time, the foreign potential taxpayer should have studied the relevant treaty by now.
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Undoubtedly, short of moving out of Thailand to escape the tax reporting law, there are other options. In this transition stage before the new global income law comes into effect, money can be used without remitting it to Thailand.
Expats should ensure any tax avoidance strategies are within the law, as authorities may clarify rules soon
Anecdotal evidence suggests that this is already happening. However, those engaging in such machinations should be cautious that these are within the law. In particular, it should be noted what financial accounts are inside or outside Thailand.
In the meantime, such measures may not be necessary at all.
This might be best decided by the expat by studying the nature of his or her income and the applicable tax treaties. At this point, many expats have taken preliminary tax advice. Certainly, this is true for those with high incomes. Such a review is de rigueur in this uncertain and fast-changing climate.
It is expected that the Revenue Department will shortly clarify the tax reporting requirements for 2025. It is additionally expected that further clarifications may come regarding interpretations of the tax treaties.
Uncertainty around Thailand’s tax policy changes could impact its appeal to retirees and the broader economy
After that, it remains to be seen how these changes will ultimately impact Thailand’s economy. For instance, it will be a key consideration among those choosing where to retire in Southeast Asia.
In recent years, Thailand has been losing its competitive position in this respect. As well as Cambodia, Malaysia, and Vietnam, the Philippines is emerging as a more attractive lower-cost destination, particularly for retirees.
In turn, this will impact other economic drivers, particularly in property markets. The condominium market in Bangkok has already gone into recession this year.
Furthermore, expats and foreigners in Thailand are asking new questions in light of this changed environment. One is the restrictions placed on foreigners living in Thailand, such as the ban on property ownership. In particular, there is also the matter of onerous reporting restrictions such as the 90-day report.
Certainly, this regime is incongruent with the proper treatment of tax-paying residents based on international norms.
Thailand’s shift to OECD tax policies may bring in new revenue but also comes with significant downsides
In brief, this change will open up a new source of commentary. During the 2020 COVID-19 crisis, it emerged that Thai authorities mistakenly mistook foreigners in Thailand for tourists.
Certainly, there is a beneficial link between both groups of visitors.
However, as this taxation project continues, the government will find this new tax base comes with obligations.
However, the jury is still out on whether, ultimately, this change by Thailand to adopt Organisation for Economic Co-operation and Development (OECD) policies will impact the country’s economy.
In essence, the days of Thailand being a tax-free haven for people instead of corporations are about to end. The impacts of this must be carefully examined. In short, they are as much political as economic. Nonetheless, similar changes, it must also be noted, are being suggested for Thailand’s wider population.
For instance, in 2023, only 12.8 million people out of a workforce of 48 million were paying social security payments. In addition, it is estimated that income tax was only paid by 5 million taxpayers.
In a country that has always valued personal freedom over intrusive laws, the vastness of this undertaking by the Revenue Department should not be underestimated, nor the clamour for rights that will come from foreigners who agree to pay tax.
At the end of the day, the Thai government must remember that this is also a mobile group with other options. Certainly, this will all become clear as matters unfold.
*Note – this article was corrected on September 9th in relation to the UK tax treaty.
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Further reading:
New tax era in Thailand begins as Revenue now shares data with 138 countries within the OECD
Calls for clarification of new Tax regime which appears to target expat foreign income sources
10 year visa a magnet for global citizens setting up in Thailand with zero tax on offshore income
Wealthy foreigners to own small landholdings associated with homes here agreed in principle
New plan for the Thai economy could see an elite foreign visa scheme generate up to 6% of GDP
Economic plan to put the smile back in Thailand’s appeal to western foreigners to live and work
IMF urges government to loosen nation’s purse strings as finances tighten with the tax take down
Plan to allow high tech and skilled foreigners to live and work in Thailand for up to four years
