How the Global Taxation Arena is Changing!

Recent change to the tax law in Thailand could arguably have repercussions on the real estate market, but its current implications are still largely misunderstood. This vagueness has certainly created some confusion amongst expatriates.

Some foreigners are encouraged by the fact that these new tax changes should not affect the vast majority of foreigners living or owning property in Thailand.

If a foreigner resides in Thailand for less than 180 days per year, then the new taxes do not apply. If that same individual lives full time in the Kingdom, but does not remit income from overseas, then there is likewise no change to their tax status.

Others may hold monies in offshore centres around the world, monies which have never been taxed. These are typically high net worth foreigners (or even Thai nationals), and they feel these new measures may detrimentally affect them if the money they send into Thailand on a regular basis will now be taxed.

Indeed, there will probably be a greater impact on the wealthiest residents than the every day retiree living in Phuket because most taxes on remittance of pension income will be negated by the 60+ Double Taxation Agreements (DTAs) Thailand has with other countries around the world.

Prior to January 2024, foreign income was only taxable in Thailand if it was remitted into the country in the same year it was earned. The change this year is that all remittance of income is taxable, regardless of the year in which it was earned.

Many prospective buyers have questioned what this will mean for buying a rental property, and the answer is simple: for investors in Thai property it is basically status quo. If you own a second home or rental property in Phuket – and you spend less than 6 months per year in Thailand – you are not impacted at all by the taxation of overseas income. You were not taxed before, and the new law does not change this.

If you are earning rent from a Phuket rental property, however, you are subject to tax on this income in Thailand. This has always been true whether you are a tax resident of Thailand or you live more than 180 days per year overseas.

As with most law changes in Thailand, we know the broad strokes, but the application of the rules starts off a bit vague. As law makers focus on the issue in question, enforcement becomes more streamlined and the policy becomes more coherent.

For example, foreign buyers are still not clear whether these new rules apply to bringing money in to buy Thailand property. Right now, any resident planning to remit money into the country (for example, to buy a property) has also been given a slight reprieve since the law will only apply to income earned after January 1, 2024. This means accumulated savings currently earmarked for a condo or villa purchase will not be impacted.

When this law is clarified, there are likely to be a few exemptions on certain sources of income, or types of transfers foreigners are making into Thailand. For example, state pension income or monies remitted for a property purchase may ultimately fall outside the scope of taxation. Until this law is ‘road tested’, nothing is 100% clear.

The other proposed change announced by the Revenue Department, which is still under consideration, is a shift to a worldwide taxation system. Anyone residing at least 180 days per year in Thailand would be subject to income tax on all sources of income around the world. In other words, all overseas income would be taxable in Thailand whether or not it is remitted to the Kingdom.

But as with the recent change to the law governing taxation on remittance, it would have no impact on anyone who currently owns or purchases a second home or rental property in Phuket. Investors in condominiums or villas on the island can still enjoy a buoyant rental market in Thailand’s most popular vacation destination.

The government is not only looking at issues related to taxing foreign residents. A new NIT (Negative Income Tax) is being discussed, applying to low income Thai nationals earning below a certain threshold. Under the proposal, these individuals will receive monies from the government to help to bring them into the tax system. All of these proposals – overseas remittance, taxation on worldwide income or NIT – are about adding visibility to individuals not currently showing up on the tax rolls.

The Revenue Department has released a new document titled: ‘How Do Foreigners Living in Thailand Pay Tax’, which helps to make things much clearer for the average expatriate.

Since a 180 day threshold triggers tax residency in Thailand, any foreigner living on the island should keep a careful eye on the time they spend in the country. Anyone who believes they could be impacted by these law changes should seek professional advice from a local tax specialist.

While these new statutory reporting obligations may require a little more paperwork, existing DTAs should prevent the average foreigner from paying any more in taxes. We shall have to wait and see how all this plays out. Hopefully the months ahead will bring greater clarity, and the changes then prove to be more benign than some foreigners now think.

by Thai Residential Phuket Property Guide

This article is from the Thai Residential Phuket Property Guide. To download the 2019/2020 Guide visit ThaiResidential.com