Introduction
Thailand has long been an attractive destination for expatriates, remote workers, digital nomads, and retirees due to its high quality of life and favorable tax policies, especially for holders of Long-Term Resident (LTR) visas. However, recent reports indicate that significant changes may be forthcoming, potentially affecting how foreign-sourced income is taxed. While it’s crucial to stay informed, it’s equally important not to overreact to speculative reports and to maintain a balanced perspective.
Current Taxation System: Remittance Basis
Currently, Thailand operates on a remittance basis for foreign-sourced income. This means tax residents in Thailand are required to pay taxes on foreign income only if those funds are transferred (‘remitted’) into the country. Income that remains outside of Thailand is not subject to Thai taxation. This system has been particularly attractive to expatriates and digital nomads, allowing them to manage their global income more flexibly.
It’s worth noting that last year, the interpretation of these rules was revised to tighten the controls on foreign income remitted to Thailand. Now, any foreign income transferred to Thailand is subject to taxation, regardless of when it was earned.
Anyone who stays in Thailand for 180 days or more in a tax year is considered a tax resident, according to Section 41 of the Thai Revenue Code. The tax year corresponds with the calendar year.
Proposed Changes: Shift to an Arising Basis for Foreign Income Taxation
On June 5, 2024, the Bangkok Post reported that that Thailand’s Revenue Department is considering revising the tax laws to tax foreign income even if it is not remitted to Thailand. This proposed change would shift from the current remittance basis to an arising basis for the taxation of foreign-sourced income.
Under the arising basis, Thai tax residents would be required to pay taxes on their worldwide income, regardless of whether the funds are transferred to Thailand. This would bring Thailand closer to international tax standards and could potentially increase tax revenue. As of the June report, discussions were still in the early stages.
In a follow-up report on September 6, 2024, the Bangkok Post confirmed that the Revenue Department is actively drafting legislation to implement the arising basis for foreign-sourced income. According to Kulaya Tantitemit, the department’s director-general, the draft law would amend Section 41 of the Thai Revenue Code. If enacted, tax residents who have lived in Thailand for 180 days or more in a tax year would be required to pay taxes on foreign income, even if it is not remitted to Thailand.
Understanding the Legislative Process and Timeline
Any amendment to the Revenue Code to implement such a reform would be a complex, multi-stage process involving various stakeholders. This process could take several years, and while discussions have begun, there is no certainty that the changes will be officially initiated. Lawmakers would need to thoroughly evaluate the potential impacts, and there is no guarantee the proposed changes will be approved. Therefore, significant changes are unlikely in the near future.
Potential Impact
If these changes are implemented, they would significantly alter how Thailand taxes foreign income, aligning the country’s tax system more closely with those of many developed countries, including members of the OECD (Organisation for Economic Co-operation and Development), which Thailand is actively seeking to join. While this could help increase tax revenues, it would also require careful consideration of all potential consequences.
These changes might expand Thailand’s tax base but could also make the country less attractive to expatriates, digital nomads, and retirees who currently enjoy favorable tax treatment on foreign income. This could have a ripple effect on sectors like real estate and tourism, which benefit from long-term foreign residents.
Potential Impact on Tax Benefits for LTR Visa Holders
There are concerns about how these changes could affect the tax benefits currently enjoyed by Long-Term Resident (LTR) Visa holders.
The Long-Term Resident (LTR) visa program, effective since September 1, 2022, offers special tax and other benefits aimed at attracting “high-potential foreigners”. Tax benefits are provided under Royal Decree (RD) No. 743 (2022).
Foreign Income Tax Exemption for LTR Visa Holders
LTR visa holders in three categories are exempt from tax on foreign-earned income:
1. Wealthy Global Citizens
2. Wealthy Pensioners
3. Work-from-Thailand Professionals
This exemption applies to taxable income under Section 40 of the Revenue Code for the previous tax year, including income from work, business outside the country, or assets located abroad and transferred to Thailand.
If the Revenue Code is amended to implement a worldwide income tax system, the Royal Decree governing LTR visa benefits would likely need to be revised to maintain these tax advantages. Given the importance of attracting wealthy foreigners and skilled professionals, we believe that even if these changes are made, they will likely continue to favor LTR visa holders to keep Thailand competitive.
Conclusion
Initial reports indicate that a draft law to change Thailand’s tax system is in development, but the process is lengthy, and there is no certainty it will be enacted. Stay informed and avoid unnecessary concerns. For specific advice on how these changes might impact you, feel free to reach out.
Related Articles
For more information, you might find these articles on my blog useful:
Personal Income Tax in Thailand
How to Obtain an LTR Visa
If you have any questions about taxes in Thailand, please feel free to email us or use the form below.