Thailand’s tweak of tax regulation on foreign income sparks confusion, worries
[BANGKOK] On the first day of 2024, a recently tweaked regulation on foreign income remitted to Thailand by Thai citizens and foreign residents will come into effect – much to the consternation of expatriate retirees and investors in foreign assets.
The new “instruction” – announced by the Revenue Department on Sep 15 – is a revised interpretation of a longstanding tax regulation which now states that any income from a foreign source derived by a Thai individual tax resident is subject to personal income tax when brought into Thailand.
For nearly 40 years, Thai tax residents had used a different interpretation of the law that was established back in 1987. That law stated that foreign-sourced income was exempt from personal income tax if it was brought into Thailand in a calendar year following the year in which it was received.
This interpretation was a loophole of sorts for those with offshore businesses or assets, as they would only remit their foreign earnings the year after they were earned, thus avoiding tax payment.
“In my view the new interpretation is consistent with what the law has always said,” said Jonathan Stuart-Smith, a tax partner at Mazars of Thailand, a tax consultancy. “It’s just that Thailand’s always had a lucky break, and there’s been this narrow interpretation on the table for a long time.”
The change to the tax rules was made just weeks after former property tycoon Srettha Thavisin became prime minister as well as finance minister, with his new government ushering in a slew of large stimulus and relief measures that are putting a strain on the national budget.
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In the days leading up to the announcement of the tax change, Thailand implemented the Common Reporting Standard – an internationally agreed standard for the automatic exchange of financial account information among members of the Organisation for Economic Co-operation and Development. Doing so makes it easier for Thailand’s Revenue Department to crack down on tax evasion on foreign assets and earnings and ensure compliance.
The new regulation has proven to be a boon for tax consultants such as Mazars, which have been bombarded with queries from foreign residents, especially retirees in Thailand worried that their social security benefits or pensions will be taxed.
The law, however, is vague on taxation of benefits and pensions, which depend largely on the details in Thailand’s double taxation treaties with some 61 nations.
Social Security benefits for US retirees, for instance, are tax-exempt under the US-Thailand tax treaty. But for pensions, tax treatment depends on the details of each such treaty.
What’s clear for now is that the tweaked tax ruling will go into effect on Jan 1, 2024, which means it applies to foreign income earned after Jan 1, 2023.
Observers said the ruling will be good news for the Thai government’s Long-Term Resident (LTR) visa scheme, which hopes to attract one million wealthy global citizens or highly skilled foreigners over the next five years and generate 800 billion baht (S$30.1 billion) in new investments.
Those who obtain the LTR visa are exempted from paying personal income tax on their foreign assets or earnings.
Since the launch of the scheme in September 2022, over 3,000 LTRs have been granted to foreigners. In the weeks since the Sep 15 announcement of the new tax regulation, there has been a 14 per cent increase in LTR applications, according to sources.
Some analysts agree that the new law was designed primarily to impose taxes on wealthy Thais who have been increasingly investing their savings abroad in foreign stock markets, bonds or property.
The value of Thai investments in foreign capital markets reached US$106 billion in 2022, according to Bank of Thailand statistics.
The central bank relaxed its regulations on money transfers abroad by Thai nationals in 2019, sparking a surge in investments in foreign wealth funds and capital markets by both middle-income Thais and high-net-worth-individuals (HNWIs) seeking better returns on their money.
Srettha has defended the tax tweak as part of his government’s policy to mitigate income inequality, but observers doubt that Thailand’s super-wealthy class will be affected much, if at all.
“This policy will directly affect the financial well-being of the middle-class in Thailand, due to the necessity for this group to bring funds back to Thailand for domestic consumption. The HNWIs are not constrained by such requirements.” said Trawut Luangsomboon, the chief executive of Bangkok-based Jitta Wealth Asset Management.
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