Thailand implements taxation on foreign income in 2024: How it affects expats living in Thailand
I’ve lived in Thailand for many years, it is a place where I have ended up buying a place of my own and plan to live for the foreseeable. I believe it is a great place to live because you can enjoy a high quality of life, great weather, transport links, cost of living, and healthcare. All these ingredients mixed together make it a great place for an expat to live.
Due to the popularity of Thailand with many expats and those that predominantly earn money from foreign sources but live in Thailand have been exempt from taxes until now. A really quick example could be a business owner in the UK who resides in Thailand.
I will take you through my experience of this new shift in taxes and how it might affect you as an expat in Thailand.
Expats residing in Thailand, brace yourselves for a substantial shift in Thai tax law that demands your immediate attention. On September 15, 2023, the Thai Revenue Department introduced Revenue Order 161/2023, signaling a fundamental reversal in Thailand’s approach to taxing foreign income remitted to the country. This change is poised to impact virtually every expatriate and foreign resident in Thailand.
In conjunction with Thailand’s recent adoption and enforcement of the Common Reporting Standard (CRS), a global financial reporting standard adopted by 115 countries, including Thailand, these alterations carry significant ramifications for your tax affairs, obligations, and overall financial management.
Background:
Historically, Thailand has been a favored destination for expats, offering a desirable environment for living, working, and retirement. Beyond its friendly atmosphere, picturesque beaches, and laid-back lifestyle, Thailand’s territorial taxation system, coupled with tax rates lower than most Western countries, has positioned it as an attractive place to reside.
Financially, one of Thailand’s historical advantages has been that tax residents (those physically present for more than 180 days in a calendar year) were only subject to Thai tax on foreign income if remitted within the same tax year it was earned.
Typically, expats would leave their foreign income offshore until after December 31 each year, effectively exempting it from Thai taxation. This system has long been considered advantageous for Expats with offshore assets and other income seeking to relocate to Thailand.
However, Thailand’s appeal to expats might undergo a significant transformation due to recent developments aimed at enhancing tax collection in the country.
What is Revenue Order 161/2023?
Released on September 15, 2023, Revenue Order 161/2023 dictates that starting from January 1, 2024, any foreign income, regardless of its source (be it from employment, business, pension, or overseas assets), will be subject to taxation in Thailand upon its entry into the country, regardless of the year in which it was initially brought in.
This marks a significant departure and a profound shift from the previous regulation, which permitted the tax-free import of foreign income into Thailand if it was remitted in a different calendar year from when it was earned.
Key Takeaways:
Effective Date: Commencing January 1, 2024. What’s New? All foreign income remitted to Thailand after January 1, 2024, will be taxable in Thailand at the applicable Thai tax rates, necessitating inclusion in your Thai tax return.
Revocation of Previous Rules: All practices inconsistent with the new decree are rendered ineffective and are thus null and void.
Implications for Expats:
If you’ve been practicing financial prudence by keeping your foreign earnings offshore and bringing them into Thailand at your convenience (typically in the year following their accrual), it’s crucial to recognize that those days are now limited.
For expats residing in Thailand, the implications of this new revenue order, coupled with Thailand’s recent adoption of the Common Reporting Standard (further details below), necessitate a more strategic approach to managing the timing and method of bringing funds into Thailand, if at all.
The Common Reporting Standard (CRS):
Alongside the recent revenue order, Thailand has formally embraced and implemented the Common Reporting Standard (CRS) in 2023. The CRS serves as a global financial information and reporting standard designed for the automatic exchange of tax and financial data on an international scale.
Under the CRS, every bank, financial institution, and about 114 other countries are now legally obliged to report all information pertaining to accounts held by Thai tax residents in the reporting countries to the Thai Revenue Department.
What is the CRS?
In essence, the CRS functions as a global financial reporting system, enabling countries to share financial data about each other’s residents. Developed by the Organisation for Economic Co-operation and Development (OECD), the CRS facilitates the automatic exchange of financial account information between tax authorities worldwide, aiming to combat tax evasion.
The information shared through the CRS by most offshore or local banks for expats (if located in a CRS reporting country) and financial institutions includes comprehensive account details, and balances, as well as specifics of all deposited income, encompassing interest, dividends, and sales proceeds from financial assets.
What Information is Shared?
The CRS mandates financial institutions to gather and disclose specific details, including account balances, interest, dividends, and other income derived from financial assets.
Therefore, if you maintain a bank account or investments either domestically or internationally in a CRS reporting country, your bank and financial institutions are obligated, under the CSR, to convey to the Thai Revenue Department comprehensive information about your accounts. This includes all pertinent details such as your name, address, and account numbers, along with a breakdown of all balances and particulars of all deposited income. This encompasses various sources of income such as salaries, pensions, interest, dividends, and proceeds from the sale of assets, each categorized and classified according to the different income types recognized by your bank.
Implications for Expats as Thai Tax Residents
Thailand’s adoption of the Common Reporting Standard (CRS) holds a primary implication for most expats residing in the country: if you are a tax resident of Thailand, the assumption that your offshore income, both from your home and offshore bank accounts, along with other financial accounts, will go unnoticed by Thai tax authorities is no longer valid.
This development carries significant consequences for expats who may be unaware of the shift.
Implications:
Increased Transparency: Your financial assets, encompassing both onshore and offshore accounts, are now subject to heightened visibility by Thai tax authorities
Recommendations for Expats:
- Timing is Crucial: If you have foreign income accrued before January 1, 2023, consider bringing it into Thailand before the close of 2023. Any earnings after January 1, 2023, brought in early will be subject to scrutiny by the Thai tax authorities.
- Explore Tax Optimization: Given the evolving landscape, engage with a tax expert to discuss potential avenues for tax optimization. Whether it involves tax-efficient investments or leveraging specific incentives, there are likely strategies to help you retain more of your earnings.
- Double Taxation Treaty Consideration: Thailand has a Double Taxation Treaty in place. If you find yourself paying taxes in both countries, this treaty may provide relief. Due to the complexity of tax treaties, it’s advisable to consult with an expatriate tax advisor with extensive experience in analyzing and advising on such treaties to obtain the guidance you need.
- Stay Informed: Knowledge is empowering. Stay abreast of these changes and understand how they directly affect you sooner rather than later.
- Consult an Expatriate Tax Expert: Tax matters are intricate, especially when dealing with two countries. Given these changes, consulting with a highly skilled and experienced expatriate tax firm can assist you in navigating the complexities effectively.
- Ensure Compliance: With Revenue Order 161/2023 set to take effect from January 1, 2024, and the Common Reporting Standard in operation, it’s more crucial than ever to be aware of the rules. Ensure your finances are well-organized to avoid costly mistakes, as errors in compliance can have significant financial implications.
Note: None of this is considered tax advice and should consult with a tax expert first.
Resources
- Comprehensive Guide to Taxes for Expats in Thailand
- Guide to Moving to Thailand for Expats
- 3 Residency Programs – High Net Worths
