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October 16, 2023

Thailand: New Order Closes Tax Loophole for Offshore-Sourced Income

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On September 15, Revenue Departmental Order No. Por. 161/2566 was published, fundamentally changing how Thailand tax residents’ offshore-sourced income will be taxed.

Under the order, starting from January 1, 2024, the offshore-sourced income of tax residents will be subject to Thai personal income tax (PIT) in any year that it is brought into Thailand. The purpose of this new rule is to ensure consistent tax collection practices among tax officers and to tackle tax avoidance strategies commonly used by individual taxpayers.

PIT on Offshore-Sourced Income

According to the resident rule in Thailand’s Revenue Code, Thailand tax residents (i.e., persons who reside in Thailand for at least 180 days in a calendar year) are subject to PIT on their domestic-sourced and offshore-sourced income. “Offshore-sourced income” is broadly defined to include income from work, business, or assets outside Thailand.

Existing Practice

Currently, Thailand tax residents’ offshore-sourced income is exempted from PIT if it is brought into Thailand after the calendar year in which it was earned. This exemption was adopted 28 years ago in the Revenue Department’s interpretation stated in a resolution from February 1985. This exemption by interpretation has led some Thailand tax residents to avoid PIT by simply holding their newly earned offshore-sourced income abroad temporarily and then bringing it into Thailand at a later time. Through the years, a number of tax rulings have affirmed this practice.

New PIT Collection Rules for Offshore-Sourced Income

Revenue Departmental Order No. Por. 161/2566 simply revokes the favorable exemption adopted under the February 1985 resolution so that the delay tactic is no longer able to succeed in avoiding tax. Starting from January 1, 2024, the offshore-sourced income of Thailand tax residents will be subject to PIT whenever it is brought into Thailand, at which time the offshore-sourced income must be declared to the Thai Revenue Department in the tax return for that taxable year.

Considerations

Although Revenue Departmental Order Por. 161/2566 overturns the longstanding exemption and establishes blanket PIT collection on offshore-sourced income when it is brought into Thailand, the effectiveness and efficiency of the Thai Revenue Department’s collection of the tax due remain to be seen. Generally, PIT collection depends on taxpayers’ faithful and full declaration of income in their PIT returns filed by the end of March each year.

Moreover, some valid exceptions remain. For instance, offshore-sourced income retained outside Thailand is not subject to PIT. Also, individuals who reside in Thailand for less than 180 days in a calendar year are not subject to PIT on their offshore-sourced income, even if it is brought into Thailand. Furthermore, certain types of offshore-sourced income that are not recognized as any type of assessable income are not subject to PIT.

For more details on Thailand’s taxation of tax residents’ offshore-sourced income, or on any aspect of tax laws and regulations in Thailand, please contact Tilleke & Gibbins at [email protected].

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