Owning and managing a business in Thailand requires compliance in several tax requirements that conforms to the country’s rules and regulations. Our team of accounting specialists can help you navigate the complexity so that you can remain focus on your business and avoid hefty penalties and fines.
What is a Withholding Tax?
Withholding Tax or WHT is a deduction from payments given to the company’s service providers. This also applies to the payment of interests and dividends.
Withholding tax rates are dependent on the income type and tax status of the recipient. Bear in mind that not all outward payments are subjected to WHT.
Payments to service providers amount to 1000 THB and payments less than 1000 THB to long-term contractors, such as telephone and internet companies, are subject to withholding tax. Exceptions include payments to non-taxpayers such as BOI companies and governmental organizations.
Tax Rate for Corporate Taxpayers
A company is required to submit tax returns in the following situations.
- When the company earns a professional fee for services rendered (brokerage, commission, meeting fees, etc.)
- If there is income earned on interest (1% of the payment to another company)
- Dividends (between 0% and 10%)
- Income from rent (between 5% and 10%)
- Royalty income (3%)
- Income from a government agency (1%)
Tax Rate Foreign Company
There are two classifications in computing taxes for a foreign company:
Foreign companies not carrying out a business in Thailand
It covers companies that derive income in Thailand even if they do not have headquarters, employment, or representatives in the country. They are covered by Revenue Code Sec. 40, which means they are still subject to an income tax.
- Income for professional fees, meeting fees, brokerages, and commission, etc. (15%)
- Income on interest and dividend (15% and 10%, respectively)
- Rental income (15%)
- Royalty income (15%)
- Income derived from a liberal profession such as law, architecture, engineering, etc. (15%)
For foreign companies with parent headquarters located in countries where Thailand has a Double Taxation Agreement (DTA), the rate of withholding tax may be lower. For instance, the existing DTA between Thailand and Germany means that the income derived on interest is reduced to zero if the lender is a German bank. In the occasion that the Thai company’s stock is sold by a German firm, the capital gains are not subject to any levy.
Foreign company carrying out business in Thailand
This refers to a company with a branch in Thailand, as well as a representative, employee, or a go-between stationed in the country. The foreign company is covered by Revenue Code Sec. 40.
- Income for professional fees, meeting fees, brokerages, and commission, etc. (5%)
- Income on interest and dividend (1% and 10%, respectively)
- Rental income (5%)
- Income derived from a liberal profession such as law, architecture, engineering, etc. (3%)
- Payment to contractors (5%)
- Payment to a foreign contractor with a permanent office in Thailand (3%)
- Royalty payment (3%)
- Repatriation of earnings (10% of the amount paid by a Thai company to a foreign entity)
Apart from the withholding tax, international companies with businesses in Thailand would have to pay corporate income tax. The rate is 20% of the net profit. However, they can compute the amount of tax withheld and count it as a credit against their income tax.
Calculation of Income Tax
When computing the tax rate, the net of VAT is used.
If the company pays a net rent of 100,000 Baht with a net VAT rate of 7%, the total VAT would be 7,000 Baht. You add that amount to your net rental income, and you get the total amount of 107,000 Baht.
The withholding tax is computed from the gross amount of 107,000 Baht. With the 5% tax rate from rental income, the total tax withheld is 535 Baht.
Table of Income Type and Withholding Tax Rate
|TYPES OF INCOME||WHT|
|Fees for advertising||2%|
|Professional fees/Services||5% if paid to a foreign business with no permanent headquarters in Thailand
3% if paid to a Thai business or a foreign company with permanent headquarters in Thailand
Withholding Tax Submission
All businesses in Thailand are required to submit their income tax returns to The Revenue Department within the seventh day of the succeeding month when the payment was made. For instance, if the payment was made on Sept. 16th, 2019, the withholding tax should be submitted to The Revenue Department by Oct. 7th, 2019.
Businesses that fail to submit tax returns within the deadline will face fine. The penalty is 100 Baht within the first week after the deadline date and 200 Baht after the first week. They will also be charged with an additional penalty each month, calculated as 1.5% of the unpaid amount.
FAQS on Withholding Tax
How do withholding taxes in Thailand work?
The withholding tax or WHT is a deduction given on payments to suppliers for the services provided. Withholding tax also applies to dividend and interest payments. The applicability of withholding tax and its corresponding deduction rate depends on the nature of the services offered.
Withholding tax deduction may also be incurred on remittances made to suppliers abroad. Nations with a double tax treaty with the country have distinct applicable rates.
In Thailand, not every outward payment is subjected to withholding tax. It only applies to expenses more than 1,000 THB and expenses less than THB 1,000 wherein a long-term agreement existed, such as internet or telephone bills.
Who is responsible for withholding tax?
Employers in Thailand will be responsible for withholding taxes from their employees. They need to submit a monthly withholding tax return to the Revenue Department within the first seven days of the next month, at which point the payment was made. They must pay the tax due when filing for the return.
How many percent is the withholding tax?
Withholding tax rates depends on the income category and the recipient’s tax status. The withholding tax rates on certain essential income categories are as follows:
- 10% on dividends paid to foreign and domestic corporations
- 1% by financial institutions to domestic corporations which are not financial institutions
- 10% by financial institutions to foundations and associations
- 15% paid to foreign companies (final tax payment)
- 3% paid to domestic corporations and partnerships
- 10% paid to foundations and associations
- 15% paid to foreign companies (final tax payment)
Other common withholding tax deduction rates according to services are as follows:
- Advertising: 2%
- Rent: 5%
- Rental service fee: 3%
- Parking: 3%
- Telephone: 3%
- Non-life insurance premiums: 1%
- Professional fees: 3%
- Prizes: 5%
- Transportation (not including public transportation’s fare): 1%
The withholding tax rates implemented on foreign companies may be exempted or decreased under tax treaties.
What is withholding tax on invoices?
On invoices, the payer will withhold or deduct tax from the payment and pay the deducted tax to the relevant government bodies. In an invoice of normal taxes, the tax will be added to the subtotal to provide the total amount to pay. In contrast, the withholding tax is deducted from the amount to pay since the customer will pay the tax.
What questions are asked when filing taxes?
When filing for withholding income tax return or P.N.D.1, taxpayers are asked to provide the following:
- Personal identification number
- Taxpayer identification number
- Name of withholding tax agent (organization) and branch number
- Office address
- The month of payment of assessable income
- Summary of withholding tax items under different categories (indicate the number of persons, total amount of income and the total amount of withholding tax)
- Total withholding tax and surcharge (if any)
Does the Internal Revenue Service answer tax questions?
Yes. However, the Thailand Revenue Department answers questions through letters. The letter should detail the tax questions, and the answer obtained from this process is known as “ruling”.
The ruling is a letter written by individuals with tax issues and want to consult with the Revenue Department to obtain official answers. Here is how to get the Department’s ruling:
- The letter must be addressed to the Revenue Department’s Director-general.
- Describe the issue clearly with details and attach supporting documents.
- If possible, ask the question with reference to the Revenue Code by specifying terms or sections in the code since the answer will refer to the code.
- Keep a copy of the Revenue Department’s answer and a copy of the letter for future reference.
Nevertheless, the ruling is not considered the law and only a legal opinion provided by the Revenue Department’s legal team. Therefore, taxpayers are not obligated to abide by it.
In certain cases, people having tax problems could ask an official verbally.