Thailand Legal and Tax Alert: Section 41, 2nd paragraph, of the Thai Revenue Code, clarified.

On 15 September 2023, the Director-General of the Revenue Department issued Departmental Instruction (DI) No. 161/2023 invalidating previous pronouncements or practices stating that tax residents are exempt from personal income tax on any foreign source income under Section 40 of the Thai Revenue Code (TRC) if the income is remitted to Thailand during the subsequent year of earning/deriving or receiving the income (the ‘remittance rule’).  This new guideline will apply to foreign source income remitted to Thailand on or after 1 January 2024.

Any rules, regulations, instructions, rulings, or practices that contradict DI. No. 161/2023 is hereby revoked.

BDO Insight:

After decades and decades of allowing tax residents of Thailand a tax concession/exemption on foreign source income remitted to Thailand during the subsequent year of deriving an assessable income under Section 40 of the TRC, the Thai Revenue Department (TRD) suddenly realized that this practice is not necessarily sanctioned by the second paragraph of Section 41 of the TRC. Therefore, it needs to be clarified, and all previous pronouncements are hereby revoked.

First, this new guideline applies only to tax residents in Thailand. A tax resident is anyone who has been in Thailand for a period or periods aggregating 180 days or more in any tax year (183 days or 6 months under relevant double tax agreements).  Second, the foreign source income is now taxable (in Thailand in the hands of a tax resident) regardless of the year of remittance.

What does paragraph 2 of Section 41 of the TRC state? It states that “(a) resident of Thailand who, in the course of the preceding tax year, derived assessable income under Section 40 from a post or office held or business carried on abroad or from property situated abroad shall, upon bringing such assessable income into Thailand, pay tax in accordance with the provisions of this Division.”

To us, the above provision is clear: the above-mentioned foreign source income derived in the course of the preceding tax year is taxable in Thailand upon bringing such income into Thailand, regardless of the year of remittance because the law does not distinguish. The phrase, ‘in the course of the preceding tax year’ is relevant because in the absence of a withholding agent, our personal income tax is payable on or before the 31^st of March of the succeeding year.  

In cases of double taxation, a tax credit mechanism is available under the relevant double tax agreement.

Royal Decree (RD) No. 743 (2022), which was specifically issued for Long-Term Visa (LTR) holders under the categories of wealthy global citizens, wealthy pensioners, and work-from-Thailand professional group, is not affected by this clarification for various reasons: A mere guideline (a DI, that is) cannot invalidate a law (Royal Decree). Second, RD No. 743 is issued to provide tax concessions to the above three types of LTR visa holders. Without this clarification, Section 5 of RD No. 743 would have been a mere superfluity because these income are already exempt under previous rulings, interpretations, or pronouncements.   Nevertheless, it does not cure the public announcements (at the time the LTR visas were being introduced) that foreign source income of these three LTR visa holders were not taxable regardless of year of remittance.  Lastly, the legislators’ intention in issuing RD No. 743 was obvious - to consider RD 743 as an exception to the general remittance rule.  

The remittance rule applies only to assessable income under Section 40 of the TRC. It does not apply to other sources of funds, for example, a loan remitted to Thailand.  Substantiation would play an important role in implementing this new guideline.

The Common Reporting Standard (CRS) is now effective in Thailand. We see the important role of financial institutions in taxing these remittences. 

Nevertheless, more and more issues are coming out.  For example, does the DI refer to foreign source income earned/derived/received in 2023 only (and remitted in 2024)? If you have been a tax resident in Thailand for the past 10 years and you remit those revenues on 1 January 2024? Tax exempt?

If you want to discuss about this topic, DM us. Let’s talk tax!