Introduction
Due to the nature of modern business, individuals and companies often find themselves operating in multiple countries, which can lead to potential issues of double taxation. Double taxation occurs when two or more jurisdictions tax the same declared income. To help remove this burden, countries enter into Double Tax Agreements (DTAs) to ensure that income is taxed only once and to promote cross-border trade and investment.
Thailand has concluded DTAs with 61 countries, including France, Singapore, Australia, China, Japan, the United States, and many others. These agreements aim to provide clarity and guidelines on tax obligations for residents of both countries involved.
Key Points
- Double taxation occurs when two or more countries or jurisdictions impose tax on declared income.
- Double tax aim to avoid double taxation
- The provisions of DTAS signed by Thailand are only applicable to Thai residents
- Thailand has entered into double tax agreements with 61 countries.
What is the Scope of Double Tax Agreements?
Double Taxation Agreements (DTAs), also known as tax treaties, are agreements signed between two countries with the aim of avoiding double taxation of the same income by both countries. DTAs establish rules for the collection of taxes from citizens and residents of both countries, and define tax rates for income tax, capital tax, estate, wealth, and other tax types.
Who is Covered by a DTA?
The DTA applies to individuals and juristic persons who are residents of the contracting states. To be considered a Thai resident and be entitled to treaty benefits, individuals must spend a cumulative total of 180 days or more in Thailand in a tax year. Juristic persons must be incorporated under the Civil and Commercial Code of Thailand.
Which Taxes Covered by DTAs?
The DTA covers only income taxes, including personal income tax, corporate income tax, and petroleum income tax. Indirect taxes such as value-added tax and specific business tax are not covered by the DTA.
What Types of Income are there under Double Tax Agreements?
DTAs do not stipulate specific items of income or tax rates. Instead, they determine which country has the right to tax certain types of income. If the source country has taxing rights, the income will be subject to tax according to its domestic laws. However, DTAs often promote lower tax rates for certain types of income to encourage cross-border trade and investment.
Investment income, such as dividends, interest, and royalties, are typically covered by DTAs. The source country can tax this income at a rate not exceeding the rate prescribed within the agreement. Some DTAs also explicitly exclude certain types of income from being taxed by the source country, such as income from international air transport and business profits not derived from a permanent establishment in the source country.
How do DTAs Eliminate Double Taxation?
The primary objective of DTAs is to eliminate double taxation by providing mechanisms for relief. Each DTA may prescribe different methods of elimination of double taxation:
Tax Exemption Method
Under the exemption method, the country of residence does not tax the income that is already taxed in the source country according to the DTA. This method ensures that the income is taxed only once, preventing double taxation.
Credit Method
The credit method allows the country of residence to tax the income that has already been taxed in the source country. However, it provides a credit or deduction from the resident country’s tax liability for the tax paid in the source country. This method ensures that the taxpayer is not subjected to excessive taxation on the same income.
In cases where a DTA does not exist with a particular country, Thailand provides unilateral credit relief against Thai tax for tax paid in the other country by a Thai juristic person, as specified in Royal Decree No. 300.
What are the General Provisions of Double Tax Agreements?
Apart from the specific provisions regarding taxation, DTAs also include general provisions that facilitate administrative cooperation between the tax administrations of the contracting states. These provisions aim to ensure the proper implementation and enforcement of the DTA:
Exchange of Information
DTAs often include provisions for the exchange of information between tax administrations. This enables the sharing of relevant tax-related information to ensure compliance with the provisions of the agreement and prevent tax evasion.
Mutual Agreement Procedure
The mutual agreement procedure (MAP) is a dispute resolution mechanism specified in DTAs. It allows taxpayers to seek resolution for issues arising from the interpretation or application of the DTA. Taxpayers can initiate a MAP by submitting a request to the relevant tax authority, providing detailed information about the case and supporting reasons for the alleged taxation not in accordance with the DTA.
Who has Thailand Signed Double Tax Agreements with?
Thailand has been working hard to expand its DTA network to help promote international trade and investment. The country concluded its first DTA with Sweden in 1963, and since then, it has signed agreements with a further 60 additional countries. These agreements cover a wide range of countries from various regions, including Europe, Asia, the Americas, and the Middle East.
Notable countries with which Thailand has DTAs include France, Singapore, Australia, China, Japan, the United States, Germany, and the United Kingdom.
Our Thoughts
Due to the new Regulations regarding income earned abroad and repatriated into Thailand, Double Tax Treaties have become even more important. Prior to January 1st 2024, income earned abroad and remitted into Thailand during the next tax year after the income was earned would be exempt from Personal Income Tax in Thailand. However, this is no longer the case. Therefore, leveraging Double Tax Treaties where possible has become vital for international tax planning, offering relief by crediting taxes paid abroad.
As Thailand continues to expand and update its DTAs, individuals and businesses can benefit from the clear rules and regulations outlined in these agreements.
