Other BriefingsThailand Cross-Border Service Payments: When Does Withholding Tax Apply?
A Thai company may need to withhold tax when it pays certain types of Thai-source income to a foreign service provider. However, withholding tax does not apply automatically to every overseas service payment. The result depends on the nature of the payment and, where relevant, Thailand’s tax treaty with the foreign provider’s country.
When does Thailand tax payments to foreign service providers?
Under Section 70 of the Thai Revenue Code, certain types of income paid from or in Thailand to a foreign company that does not carry on business in Thailand can be subject to withholding tax.
Ordinary service income may be treated differently from royalties, interest, rental income, or payments for intellectual property and know-how. Thai Revenue Department rulings have also treated some services performed overseas as falling outside the types of income covered by Section 70.
For technical and consulting arrangements, general advisory services may be treated as business profits. Services involving the transfer of industrial or commercial experience or know-how may instead be treated as royalties. In one Revenue Department ruling involving a Japanese service provider, payments classified in this way were subject to 15 percent withholding tax under Section 70.
How tax treaties can change the withholding tax treatment
Where service income is treated as business profits under an applicable double tax agreement (DTA), Thailand may not have the right to tax the income if the foreign provider does not have a permanent establishment (PE) in Thailand.
For instance, a Thai subsidiary may pay its overseas parent for general management support performed outside Thailand. If the payment is treated as business profits and the parent has no PE in Thailand, Thailand may not have the right to tax that income. The treatment can differ if the arrangement includes intellectual property or know-how classified as a royalty.
Sending employees or other personnel to perform services in Thailand can affect whether the foreign company has a PE. There is no single PE threshold because the requirements and time limits differ between treaties.
What documents should support the tax treatment?
The Thai company should keep the service agreement, invoices, descriptions of the work performed, evidence of where the services were carried out, and documents supporting DTA eligibility. These records may be needed to support the withholding tax treatment if the Thai Revenue Department reviews the payment.
Can Thai VAT still apply when withholding tax does not?
A service performed outside Thailand but used in Thailand can fall within Thailand’s VAT rules. Thailand currently applies VAT at 7 percent, and the Thai recipient may be required to remit the VAT through Form P.P.36.
A payment can have no Thai withholding tax under the applicable income tax or treaty rules but still create a Thai VAT obligation.
Manage cross-border service payments with Dezan Shira & Associates
Dezan Shira & Associates can assist foreign investors with Thai withholding tax, DTA analysis, permanent establishment exposure, and cross-border service arrangements.
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