Determining Thai-source income for resident, non-resident individual tax
February 27, 2014 00:00 By Benjamas Kullakattimas
AN INDIVIDUAL who is subject to Thai income tax must file his or her 2013 annual personal income tax return by March 31.
For tax purposes, an individual who is present in Thailand for 180 or more days in a given tax year is treated as a resident, although residency might also be established by other factors.
Resident and non-resident individuals shall be taxed on assessable income derived from employment or business carried on in Thailand, from the business of an employer residing in Thailand, or from a property situated in Thailand, whether such income is paid within or outside Thailand, as prescribed in Section 41 of the Thai Revenue Code (TRC). In other words, Thailand imposes personal income tax on Thai-source income.
Let’s discuss in more detail how income is sourced based on Section 41 of the TRC. Determination of the source of income can be classified into three bases, namely where the services are performed, who the employer is, and where the property from which income is derived is located. Each basis is determined independently.
The first basis for determining the source of income is the country in which you were present and performed the services. If you perform services in Thailand, whether under an employment or self-employment arrangement, your income is definitely Thai-source income. You may notice that this basis does not refer to the employer. That means, regardless of whether you are employed by a Thai or non-Thai resident entity and/or whether your employer is in Thailand or not, your income is Thai-source income if you perform services in Thailand.
The next basis is in relation to the employer, and is determined based on whether the income is derived from business of an employer who resides in Thailand. Under this basis, your income is deemed Thai-source income if your employer is in Thailand, even if you did not perform the services in Thailand.
For example, you may spend most of your time outside Thailand dealing with foreign customers who buy products from your employer in Thailand. Given the fact that your services are for the benefit or for the business of the employer in Thailand, your income is regarded as Thai-source income even though you may not perform services in this country at all.
This basis also applies in case you perform services in a foreign country for a foreign subsidiary of a Thai entity, but while you are still employed by the Thai entity, the parent company. Generally your income is not regarded as Thai-source income if you work outside Thailand for the business of the foreign entity outside Thailand. However, if you are employed by the entity in Thailand, your income will be Thai-source income. As such, you should not be employed by the entity in Thailand if you will perform services for the business of its foreign subsidiary or any foreign entity outside Thailand. However, this should not be the case for employees of the overseas branch of a Thai company (that is, the Thai company is the head office).
Although the head office and its branches are regarded as the same entity, income derived by the employees who perform services outside Thailand for the overseas branch office of a Thai company should not be regarded as Thai-source income on the basis that such employees do not perform services for the business of an employer in Thailand.
For the last basis, the source of income is determined according to the location of the property from which income is derived. This basis is clear, as income is sourced based on the location of property that generates the income. That is, your rental income from property located in Thailand is Thai-source income.
Under the TRC, a non-resident individual is subject to Thai tax on Thai-source income but an exemption may be claimed under a double-taxation agreement. The conditions under various countries’ DTAs with Thailand must be observed. It is a responsibility of each person to determine whether the exemption under the respective DTA can be claimed. There is no requirement to submit any application before claiming relief under a DTA.
To reiterate, where income is paid is not the basis for determining the source. For tax purposes, whether income is paid inside or outside Thailand has no impact on the determination of source of income.
If you have determined that your income is Thai-source income, you will be required to include the portion paid outside Thailand as your taxable income even though your Thai employer does not declare such income for withholding-tax purposes.
Benjamas Kullakattimas is tax partner in charge, KPMG Phoomchai Tax Ltd. This information is intended as a general guide only. Tax law is complex and professional advice should be taken before acting on the information provided.