Withholding Tax Certificates in Thailand

Withholding Tax Certificates in Thailand

Table of Contents

Introduction

Withholding Tax Certificate is an essential document in Thailand’s tax system, serving as evidence that tax has been withheld from payments made to suppliers. Withholding Tax Certificates are a mandatory requirement in relation to Thai tax laws and ensures transparency in financial transactions. 

WTH applies to many different situations, however, this article will focus on payments made to the suppliers of services. For suppliers of services in Thailand, the relevant rate of WHT is 3%.

In this guide, we will explore the key requirements of withholding tax certificates in Thailand, including the necessary fields, tasks involved, and the significance of this document.

Key Points

  • Withholding Tax Certificate is a mandatory document that serves as evidence of tax deduction from payments made to suppliers in Thailand.
  • The certificate should include the Withholding Tax Rate, Product Category, and Payment Condition fields.
  • To generate the certificate, businesses need to create a Withholding Tax Sequence Number Rule and print the certificate with all necessary information.
  • Issuing Withholding Tax Certificates ensures compliance with Thai tax laws, provides documentation for suppliers, avoids penalties, and promotes transparency.

What is Withholding Tax in Thailand?

Withholding tax is a tax deducted at the source of income, ensuring that the Thai government collects taxes from non-residents and residents whose income may not be subject to income tax.

In Thailand, various types of income are subject to withholding tax, including employment income, rental income, dividends, interest, royalties, and other income earned by residents and non-residents. The withholding tax rate varies depending on the type of income, the residency status of the recipient, and other factors.

What are the Withholding Tax Obligations for Companies?

Thai companies that make payments to other Thai companies are generally not required to withhold income tax, unless specified by the Revenue Code. However, the following sources of income are subject to WHT:

Type of incomeWHT Rate
Services provided3% of the payment
Interest1% of the payment paid to a Thai Company, 0% of the payment paid to a Thai Bank
Rent 5% of all rental payments made; or 10% of rental payments made to associations and foundations
Income from liberal profession (e.g. laws, arts of healing, engineering, and architecture)3% of the payment
Income from payments to contractors who provide essential materials besides tools:3% of the payment
Royalties3% of the payment
Income paid by Government Agency1% of the payment
Income paid from the sale of goods0% of the payment

What are the Withholding Tax Obligations for Foreign Companies who are “Not Carrying on Business in Thailand”?

A foreign company that does not carry on business in Thailand but derives income in Thailand is subject to withholding tax, as per Section 40 of the Revenue Code. The withholding tax rates for different income categories are as follows:

Type of incomeWHT Rate
Services provided15% of the payment
Interest15% of the payment 
Dividends10% of the payment
Income from liberal profession (e.g. laws, arts of healing, engineering, and architecture)15% of the payment
Royalties15% of the payment

However, the withholding tax rates may be lower if there is a double taxation agreement (DTA) between Thailand and the foreign company’s country of residence. The DTA can reduce the withholding tax rates or exempt certain types of income from withholding tax. For more information about Double Tax Agreements, please see here.

Please note that Dividend payments for companies may be eligible for certain tax breaks and incentives, please see this article for more information.

What are the WHT Rates for Foreign Companies who are “Carrying on Business in Thailand”?

Carrying on Business in Thailand refers to companies who undertake commercial activities or operations within Thailand

Foreign companies that carry on business in Thailand are subject to Thai income tax, and payers to such companies are required to withhold income tax. The withholding tax rates for different income categories are as follows:

Type of incomeWHT Rate
Services provided5% of the payment
Interest1% of the payment 
Dividends10% of the payment
Rent 5% of the payment
Income from liberal profession (e.g. laws, arts of healing, engineering, and architecture)3% of the payment
Royalties5% of the payment. 3% of the payment if the foreign entity has a permanent branch office in Thailand

A foreign entity is deemed to have a permanent office in Thailand if the following criteria is satisfied, per Departmental Instruction No. Paw 8/2528 .

a) Own an office in Thailand, or,

b) Conduct other businesses in Thailand in addition to the contract works, such as buying and selling goods, or

c) Set up a provident fund for the benefit of their employees in Thailand.

What is a Withholding Tax Certificate?

A Withholding Tax Certificate serves as proof that tax has been deducted from payments made to suppliers. These certificates are issued by companies to their suppliers, establishing a transparent record of tax compliance. By providing this document, businesses can demonstrate their adherence to Thai tax laws and avoid potential penalties.

What Should be Included in a Withholding Tax Certificate?

To create a proper withholding tax certificate, certain fields must be filled in Accounts Payable (AP) invoices and payments. These fields include:

Withholding Tax Rate: The withholding tax rate is connected to the PND Type Tax Reporting Type Code (ORA_TH_PND_TYPE) value and is applied to AP invoice lines.

Product Category: The product category is connected to the Revenue Type Tax Reporting Type Code (ORA_TH_REVENUE_TYPE) value and is applied to AP invoice lines.

Payment Condition: The payment condition in the payment header (Regional Information > Payments for Thailand) should be specified. It is important to note that if the payment condition is already set in the supplier profile, it does not need to be entered again for payment transactions.

What does a WHT Certificate Look Like?

Source: Revenue Department of Thailand

When is WHT Due and Who Issues the WHT Certificate?

The Withholding Tax (WHT) certificate is issued by the payer company after receiving payment from the payee. Typically, the process follows these steps:

  1. The payer issues an invoice to the payee for goods or services rendered.
  2. Upon receiving payment from the payee, the payer company generates a tax invoice.
  3. Subsequently, the payer prepares and issues the WHT certificate to the payee.

While the manual creation of a WHT certificate is possible, many companies in Thailand take advantage of accounting software such as SME Move and FlowAccount to streamline the process of issuing WHT certificates. These platforms take into account Thai regulations and have been designed to facilitate tax compliance tasks, ensuring efficient and accurate generation of the required documentation.

Other Considerations for Withholding Tax Certificates

To generate a withholding tax certificate for Thailand, several tasks need to be completed. These tasks include:

Generating Withholding Tax Sequence Number Rule: A withholding tax sequence number rule should be created against the payment made. This rule ensures that a unique withholding tax certificate number is assigned to each payment.

Printing the Withholding Tax Certificate: Once the withholding tax certificate is generated, it should be printed according to the requirements. The certificate should contain all the necessary information, including the unique certificate number.

By following these tasks, businesses can efficiently generate withholding tax certificates and maintain accurate records of tax compliance.

What are the Benefits of Withholding Tax Certificates?

Withholding tax certificates offer several benefits to both businesses and suppliers. Some of these benefits include:

Compliance with Thai Tax Laws: By issuing withholding tax certificates, businesses demonstrate their compliance with Thai tax laws, fostering trust and transparency in financial transactions.

Avoidance of Penalties: By maintaining accurate withholding tax records and issuing certificates, businesses can avoid potential penalties and legal consequences associated with tax non-compliance.

Transparency and Accountability: Withholding tax certificates contribute to the overall transparency and accountability of financial transactions, ensuring fair and ethical business practices.

How is Withholding Tax Calculated?

To calculate withholding tax in Thailand, the following calculation can be used:

Identify the tax rate: The WHT rate varies depending on the payment type and the tax status of the recipient. Typically, the tax rates range from 0.5% to 15%.

Calculate the Withholding Tax amount: To calculate the withholding tax amount, multiply the payment amount by the applicable tax rate. 

For example, if the payment is 10,000 THB and the tax rate is 5%, the withholding tax amount would be 500 THB (10,000 x 5%). 

Please note that the amount of Withholding Tax to be deducted is calculated before deducting any other taxes, such as VAT.

How to Calculate Withholding Tax with VAT?

To calculate the withholding tax amount with VAT (7%), using the same example as above i.e. a payment of 10,000THB subject to 5% WHT, the following process must be followed. 

Firstly, you calculate the WHT amount. In this case it would be 5% of THB 10,000 = THB 500

Next, you calculate the VAT owned. VAT in Thailand is 7%, therefore the VAT owed on THB 10,000 = THB 700.

Once you have calculated the WHT and VAT, you deduct the WHT from the payment price and you add the VAT amount i.e THB 10,000 – THB 500 + THB 700 = THB 10,200

For an example of how this would look on an invoice, please see below:

Once you have calculated the amount, you then deduct the withholding tax amount from the payment made to the recipient and remit the tax amount to the tax authority within the specified time frame.

Our Thoughts

Adhering to withholding tax obligations is an important requirement for companies in Thailand. Monthly accounting and bookkeeping are necessary to fulfil these obligations effectively. Failure to comply accurately may result in fines being issued and the inability to reduce Corporate Income Tax (CIT) at the end of the year, as obtaining a Withholding Tax (WHT) certificate is necessary for deducting it from the CIT, considering the taxes already paid.

Incorrect issuing of a WHT can be flagged by auditors, creating challenges in selling the company to potential buyers. Additionally, it’s important to note that closing a company is not possible until all outstanding taxes, including withholding tax, have been settled.

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The withholding tax system in Thailand plays a central role in the collection of income tax.