Keywords: Mazars, Thailand, Payroll, Revenue Department, Withholding Tax Deductions, Double Tax Agreement, DTA
11 August 2011
In the case where a foreign national works for a Thai company but never sets foot in Thailand, it may first be necessary to consider whether the relationship between the foreign national and the Thai company is that of employer and employee. Determining factors include the existence of an employment contract. If it is established that the foreign national is indeed an employee of the Thai company, the income earned will be considered as assessable income under Section 40(1), hire of service in the form of salary or wages.
Section 41 of the Thai Revenue Code states that every person who derives assessable income from a post or office held or from the business of an employer in Thailand shall pay tax. Regardless of whether the work is performed overseas, the fact that the foreign national has a post (an employment position in the company) means that he would be subject to tax under the domestic laws (section 41). This is consistent with Supreme Court decision number 6054/2549. Accordingly the Thai company will have an obligation to deduct Thai payroll withholding tax from such income and submit this to the Thai Revenue Department.
Please note, however, that the above advice is in respect of the interpretation of the domestic legislation. If the employee comes from a country that has a Double Taxation Agreement (‘DTA’) with Thailand, the application of the DTA will take precedence. In this instance, if the foreign person is resident in another country and the work performed is in another country, the salary will not be subject to tax in Thailand even if it is paid by the Thai employer.
In summary, under Thai domestic laws, the employees will have to calculate personal income tax and deduct withholding tax from such income unless there is a DTA with Thailand which may have a tax exemption.