Proposed Changes to Thailand’s Foreign Income Tax: What LTR Visa Holders Need to Know

Introduction

Thailand has long been an attractive destination for expatriates, remote workers, digital nomads, and retirees due to its quality of life and favorable tax policies, particularly for holders of Long-Term Resident (LTR) visas. However, recent reports suggest that significant changes may be on the horizon, potentially affecting how foreign-sourced income is taxed in the Kingdom.

Current Taxation System: Remittance Basis

Presently, Thailand operates on a remittance basis for foreign-sourced income. Under this system, tax residents in Thailand pay Thai tax on foreign income and foreign gains only if and when they are brought (‘remitted’) to Thailand. Income that remains outside of Thailand is not subject to Thai taxation. This system has been particularly attractive to expatriates and digital nomads, allowing them to manage their global income more flexibly.

Anyone who stays in Thailand for 180 days or more in a tax year is considered a tax resident, according to Section 41 of the Thai Revenue Code. The tax year corresponds with the calendar year.

Proposed Changes: Towards an Arising Basis

On June 5, 2024, the Bangkok Post reported that the Revenue Department is considering revising tax laws to include taxation on foreign income, regardless of whether it is brought into Thailand. This proposed change would shift Thailand’s taxation system for Thai tax residents from a remittance basis to an arising basis.

Under an arising basis, Thai tax residents would pay Thai tax on their worldwide income and gains for the tax year in which they arise, regardless of whether the income is brought into Thailand.

This change would align Thailand’s tax system more closely with international standards and potentially increase tax revenue.

Potential Impact

This potential shift represents a significant change in how Thailand approaches the taxation of foreign-sourced income. It would bring Thailand’s tax policies more in line with those of many developed countries (including OECD members, an organization Thailand aspires to join) that use arising-based taxation systems.

However, amending the Revenue Code to implement such a reform is a complex process that will require appropriate legislative procedures. Thai lawmakers are likely to carefully consider all possible consequences of these changes. There is no guarantee that the proposed amendments will ultimately be adopted.

While these changes could potentially increase Thailand’s tax base, they might also impact the country’s attractiveness to expatriates, digital nomads, and retirees who have been drawn to Thailand partly due to its current favorable tax treatment of foreign income. The full implications of such a change, if implemented, would be far-reaching and could affect various sectors of Thailand’s economy, including real estate and tourism, which benefit from long-term foreign residents.

In particular, these changes could potentially impact the tax benefits currently enjoyed by Long-Term Resident (LTR) Visa holders.

Impact on Tax Benefits for LTR Visa Holders

The Long-Term Resident (LTR) visa program, effective since September 1, 2022, offers special tax and other benefits aimed at attracting “high-potential foreigners”. Tax benefits are provided under Royal Decree (RD) No. 743 (2022).

Foreign Income Tax Exemption

LTR visa holders in three categories are exempt from tax on foreign-earned income:

1. Wealthy Global Citizens

2. Wealthy Pensioners

3. Work-from-Thailand Professionals

This exemption applies to taxable income under Section 40 of the Revenue Code for the previous tax year, including income from work, business outside the country, or assets located abroad and transferred to Thailand.

If the Revenue Code is amended to implement a worldwide income tax system as proposed, the Royal Decree providing LTR visa benefits may need to be revised to maintain current tax benefits for foreign-sourced income.

Conclusion

It’s important to note that information about possible changes to the principle of taxing foreign income is based on preliminary reports, and official changes have not yet been announced. The situation remains uncertain, and we will continue to monitor potential changes in tax legislation. Those potentially affected by these changes should stay informed and consider consulting with a tax professional to understand how such changes might impact their personal financial situations.

Related Articles

For more information, you might find these articles on my blog useful:

Personal Income Tax in Thailand
How to Obtain an LTR Visa

If you have any questions about taxes in Thailand, please feel free to email me or use the form below.

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