When your company receives payments from Thai clients, you should have a full understanding of Thailand’s withholding tax system on foreign payments. This is because many foreign companies unknowingly pay more tax than what is necessary or face unexpected liabilities because they don’t understand how the WHT system of Thailand works.
Withholding tax is the Revenue Department’s primary mechanism for collecting income tax at the source. For foreign companies, this means that your Thai clients must deduct a percentage of your payment and remit it directly to the Thai tax authorities. The rate they deduct and whether this represents your final tax obligation depends entirely on your operational status in Thailand.
Are You “Carrying on Business” in Thailand?
Thailand operates a dual-track WHT system that treats foreign companies very differently based on a single classification: whether you are “carrying on business in Thailand” or not.
This determines not only your WHT rates but also your tax obligations in the country.
Foreign Companies NOT Carrying on Business in Thailand
If you fall into this category, you’ll face higher WHT rates—typically 15% for most service fees, royalties, and interest payments. However, this WHT generally represents your final tax obligation to Thailand.
Once your Thai client withholds and remits this tax, you usually have no further Corporate Income Tax liability in Thailand for that income.
This track is designed for foreign companies that provide services remotely, have no physical presence in Thailand, and maintain their operations entirely outside the country. The higher rates reflect Thailand’s approach to taxing income at source when the recipient has a limited connection to the country.
Foreign Companies Carrying on Business in Thailand
Companies in this category benefit from significantly lower WHT rates—typically 3-5% for services and 1% for interest. However, this lower WHT is not your final tax obligation. Instead, it serves as an advance payment against your Corporate Income Tax liability, which is calculated at 20% on your net profits from Thai operations.
This track applies to foreign companies that have established a sufficient nexus with Thailand to be considered as conducting business within the country.
What Constitutes “Carrying on Business”?
The determination of whether you’re carrying on business centers on the concept of PE or Permanent Establishment. The Thai Revenue Department considers several factors when making this assessment.
- Maintaining a branch office in Thailand
- Having employees permanently stationed in Thailand
- Owning office space or maintaining a fixed place of business
- Using a local representative or “go-between” for business activities
- Establishing employee benefit programs (such as provident funds) in Thailand
Activities That May Trigger PE Status
- Maintaining inventory or stock in Thailand
- Having the authority to conclude contracts on behalf of the company
- Providing services through personnel present in Thailand for extended periods
- Installing equipment or providing technical services that require on-site presence
The PE assessment isn’t always straightforward. Even seemingly innocent activities like having a local sales representative, maintaining a warehouse, or providing extensive on-site training could trigger PE status.
Self-Assessment Checklist
To guide you with your classification, we’ve prepared key questions that you should consider.
| Physical Presence Indicators |
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| Representative Activities |
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| Service Delivery Methods |
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| Business Integration |
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If you answered “Yes” to multiple questions, particularly those involving physical presence or representative activities, you may be at risk of PE classification and should seek professional assessment.
Withholding Tax Rates on Foreign Payments
Standard Rates for Foreign Companies (Not Carrying on Business)
For foreign companies without PE status, Thailand applies the following withholding tax rates on specific foreign payments.
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- Service Fees: 15% on gross payments for consulting, professional services, technical assistance and similar activities
- Royalties: 15% on payments for intellectual property rights, including patents, trademarks, copyrights, and know-how
- Interest: 15% on interest payments from Thai sources
- Dividends: 10% on dividend distributions from Thai companies
- Rental income: 15% on rental payments for both movable and immovable property
These rates apply to the gross amount of payments before any deductions. For example, if your company receives a $100,000 consulting fee from a Thai client, they would withhold $15,000 and remit only $85,000 to you.
Reduced Rates (If Carrying on Business)
Foreign companies with PE status benefit from lower WHT rates.
- Service Fees: 5% (or 3% if you have a permanent branch office)
- Interest: 1% on interest income
- Royalties: 5% generally, or 3% with a permanent branch office
- Dividends: 10% (same rate as non-PE entities)
- Professional services: 3% for legal, medical, engineering, and architectural services
Remember that this WHT serves as a credit against your 20% Corporate Income Tax liability on net profits from Thai operations.
Current E-filing Incentives (Valid until December 31, 2025)
The Revenue Department offers temporary reduced rates for payments processed through their e-withholding tax system:
- Hire of Work/Services: Reduced from 3% to 1%
- Professional Fees: Reduced from 3% to 1%
- Goodwill/Copyright Fees: Reduced from 3% to 1%
- Asset Rental: Reduced from 5% to 1%
- Advertising Fees: Reduced from 2% to 1%
Double Tax Agreements
Common DTA Benefits by Income Type
1. Service Fees
This is where DTAs often provide the most significant benefits. Many agreements completely exempt service fees from Thai WHT, provided that:
a. The foreign company has no PE in Thailand
b. Services are performed outside Thailand
c. The Thai payer is not a related entity (in some treaties)
2. Royalties
DTAs typically reduce royalty WHT rates to 5-15%, depending on the type of intellectual property.
a. Copyright royalties: Often 5-10%
b. Patent and trademark royalties: Usually 8-15%
c. Know-how and technical fees: Typically 10-15%
3. Interest
Most DTAs reduce interest WHT to 10%, with some providing complete exemptions for:
a. Government-to-government loans
b. Loans from financial institutions
c. Bonds traded on recognized stock exchanges
4. Dividends
DTA rates typically range from 5-15%, often depending on the shareholding percentage:
a. 5% for substantial shareholdings (usually 25% or more)
b. 10-15% for smaller shareholdings
How to Claim DTA Benefits
You must obtain a Certificate of Residence from your home country’s tax authority to confirm your tax residency status. This process can take several weeks or months, so plan accordingly.
Modern DTAs include anti-abuse provisions requiring that obtaining treaty benefits was not the primary purpose of your business structure or transaction. Ensure your commercial arrangements have genuine business substance.
Some DTA benefits require advance approval from the Thai Revenue Department. Submit applications well before your first payment to avoid delays.
Requirements:
- Valid Certificate of Residence
- Completed DTA relief application forms
- Business registration documents
- Evidence of commercial substance
- Bank account details and financial statements
Examples by Country
| United States-Thailand DTA | Singapore-Thailand DTA | Japan-Thailand DTA | |
| Service Fees | Generally exempt if no PE in Thailand | Exempt if no PE in Thailand | Exempt if no PE in Thailand |
| Royalties | 5-15% depending on type | 5-10% depending on type | 15% |
| Interest | 10-15% with exemptions | 10-15% with exemptions | 0-15% depending on source |
| Dividends | 10% | 10% | 10% |
What Thai Companies Must Do
WHT is calculated on the gross payment amount before any other deductions. When VAT is involved, the calculation becomes more complicated.
- Calculate WHT on gross amount
- Calculate VAT on gross amount
- Net payment = Gross amount – WHT + VAT
For a THB 100,000 service fee with 5% WHT and 7% VAT,
- WHT: THB 5,000 (100,000 × 5%)
- VAT: THB 7,000 (100,000 × 7%)
- Net payment to you: THB 102,000 (100,000 – 5,000 + 7,000)
When payments are made in foreign currency, Thai companies must convert amounts to Thai Baht using Bank of Thailand exchange rates.
- WHT calculations use the buying rate
- VAT calculations use the selling rate
- Different rates apply for checks versus bank transfers
When to Engage Local Tax Advisors
Regarding Thailand’s withholding tax on foreign payments, consider professional assistance when:
- Establishing new business relationships in Thailand
- Facing questions about PE status or classification
- Applying for DTA benefits for the first time
- Dealing with complex multi-jurisdictional issues
- Experiencing compliance problems or audit inquiries
Conclusion
Take action now to assess your current WHT situation and so that you could implement proper compliance procedures. The Thai market is offering big opportunities for foreign companies, but you must be able to navigate the tax system correctly from the outset to guarantee success.
Contact Reliance Consulting today for a comprehensive assessment of your withholding tax accounting needs in Thailand.
