Companies operating in Thailand are legally obligated to withhold tax when making income payments and must subsequently submit a tax submission of the tax withheld to the Thailand Revenue Department at the District Revenue Office, accompanied by a withholding tax report. Additionally, they are required to withhold taxes from employee compensation during each pay period. The withholding tax rates are contingent upon the amount and type of income disbursed.
The entities are mandated to deduct withholding tax if:
No deduction is required for payments made to non-taxpaying business entities such as the government or the Board of Investment (BOI) promoted company.
Thailand's Personal Income Tax (PIT) is the most common type of withholding tax. It is a direct tax levied on an individual's income by their employer. The actual amount is based on a schedule published by the Thai Revenue Department. Individual taxpayers are required to file a return each calendar year and to pay any additional tax that may be due.
Every 7th day of the following month which the payment was made the WHT money must be paid to the Revenue Department. Late payments will be penalized as follows:
1-7 days = 100 baht
7 days or more = 200 baht
A penalty of 1.5% of the outstanding amount will be added to the total amount each month. It was announced by the Revenue Department that companies registered for e-filing have an additional eight days to file all their tax returns. This incentive will apply until 31 January 2024.
With some other types of payments for services rendered/ made to persons that are not employees of the company, the company must withhold tax at the time of payment.
The company is required to file a tax return and submit the amount of tax withheld to the Department of Revenue. Withholding tax rates are determined by the federal income tax revenue department.
Taxpayers are classified as either residents or non-residents. Being a resident means you have resided in Thailand for more than 180 days of the tax year. A resident of Thailand is required to pay income tax on any income generated in Thailand along with a particular portion of the income generated from a foreign company and brought into Thailand. Conversely, a non-resident is only liable to pay tax on income generated in Thailand.
1. Assessable Income
The income subject to charges as Personal Income Tax is referred to as assessable income. This term covers income in any form. If an employer or any other person provides benefits, like a house without rent or the tax paid on behalf of the employee, these benefits are also treated as the employee's assessable income for the purpose of personal income tax. There are eight income categories that constitute assessable income:
1. Income of personal services rendered to any employer.
2. Income of positions, jobs, or services rendered.
3. Income derived from copyright, franchise, goodwill, annuity, other rights, or income with the nature of annual payments coming from a will, the judgment of the Court, or another juristic Act.
4. Income originating from interest, dividends, or deposits with any bank in Thailand, profit shares or benefits derived from a juristic company, mutual fund, or juristic partnership, any payments derived from capital reduction, an increased capital holdings, a bonus, acquisition, or dissolution of juristic companies or a partnership, amalgamation gains, and any gains acquired from the transfer of partnership holdings or shares.
5. Income generated from liberal occupations.
6. Employment income generated from work contracts, such as construction.
7. Income generated from contract breaches, property letting, hire purchase contracts, or sales installments.
8. Income generated from commerce, agriculture, business, transport, or any other activity that has not been specified here.
2. Deductions And Allowances
Deductions allowed along with some types of income allowances are allowed in the computation of taxable income. The taxpayers will make the necessary deductions from assessable income prior to the granting of the allowances
3. Tax Credit On Dividends
Taxpayer who is domiciled in Thailand and is the recipient of dividends paid by a juristic company or an incorporated partnership in the country is eligible for a tax credit of 3 over 7 of the total amount of received dividends.While computing assessable income, the taxpayer must calculate the total dividends by the total tax credit. The total tax credit is amendable against the taxpayer's tax liability.
Every 7th day of the following month in which the payment was made, the withholding tax (WHT) must be remitted to the Revenue Department. Late payments will incur penalties according to the following guidelines: a penalty of 100 baht will be imposed for payments delayed by 1 to 7 days, and payments delayed by more than 7 days will be penalized with 200 baht. Additionally, a penalty of 1.5% of the outstanding amount will be added to the total amount monthly.
The Revenue Department has stipulated that companies registered with the e-withholding tax system for e-filing are granted an additional 8 days to file their tax returns. This extension applies until January 31, 2024.
Let's consider the following example to comprehend how to calculate withholding taxes. Suppose a legal firm receives a gross payment of THB 107,000 for services rendered, which is subject to a 3% tax rate.
Withholding tax is calculated using the net VAT, which would be THB 100,000. Therefore, the tax withheld will be THB 3,000 due to the 3% withholding tax rate. The legal firm will then receive THB 104,000 instead of THB 107,000, and once the company submits these figures to the Revenue Department, the THB 3,000 withholding tax will be attributed against the final tax liability.
Essentially, the legal firm's client pays the corporate income tax on behalf of the firm. The client or the payer of the withholding tax is required to provide the legal firm with proof of the tax deduction in the form of a tax certificate.
The primary intent of withholding tax is so that the Revenue Department can collect the tax liability of the relevant parties in advance and not wait until the end of the financial year comes.
Progressive Tax Rates
Personal income tax rates that apply to taxable income vary with tax years and should be thoroughly tracked if it relates to you.
There are a few types of income that taxpayers must not include or can choose to exclude such income in the calculation of assessable income when computing tax liability.
Sale of Immovable Property
Taxpayer must not include the income generated from selling immovable property acquired by means of gift to assessable income or request when computing personal income tax. However, if the sale is executed for commercial purposes, it is crucial that such income is treated as assessable income and included in the calculation of personal income tax.
The below forms of interest income can, if the taxpayer so chooses, be excluded from the calculation of personal income tax, given that a 15% tax withheld is implemented at the source.
- Interest on any savings deposits into a commercial bank if the interest amount is less than THB 20,000 in a given tax year.
- Interest received on debentures or bonds provided by a government organization.
- Interest gained from a financial institution according to a particular Thai law with the intent of lending money to promote commerce, industry, or agriculture.
A taxpayer who is a resident of Thailand and receives shares of profits or dividends from a mutual fund or a registered company can exclude these dividends from assessable income when computing personal income tax if a withholding tax of 10% was implemented at the source.
Juslaws & Consult offers comprehensive payroll services, which encompass remitting withholding tax and submitting reports to the Department of Revenue in Thailand. Our payroll management service addresses the payroll administration needs of our clients, ensuring their compliance with Thai tax laws.
We have partnered with reputable firms and also provide in-house payroll services, catering to companies of all sizes across Thailand. If you require additional information on any of our payroll management services, please do not hesitate to contact us. We are here to assist you.