CHAPTER
16
DOUBLE
TAXATION TREATIES
Tax treaties are concerned with the
avoidance of double taxation and the prevention of fiscal evasion. They usually
provide a means whereby a person who has income that would normally be subject
to taxation in more than one country, is granted relief from paying tax twice
on the same income. In addition to providing benefits to taxpayers, double
taxation treaties also provide for cooperation between governments in
preventing the evasion of taxes.
Taxes not covered The tax treaties to which Thailand is a party usually cover only taxes
on income.
They do not cover value added tax or
specific business tax. Since petroleum income tax is an income tax, it is
generally covered by the tax treaties.
List of countries Thailand has tax treaties with the following countries, which
respectively came into force, or will come into force, on 1 January in the tax
year shown below:
1.
Armenia 2003
2.
Australia - 1990
3.
Austria 1986
4.
Bahrain 2004
5.
Bangladesh - 1999
6.
Belgium 1980
7.
Bulgaria 2002
8.
Canada - 1985
9.
Peoples Republic of China 1987
10.
Cyprus - 2001
11.
Denmark - 2000
12.
Czech Republic - 1996
13.
Finland - 1987
14.
France - 1975
15.
Germany - 1967
16. Hong Kong S.A.R. - 2005
17.
Hungary - 1990
18.
India - 1987
19.
Indonesia 2004
20.
Israel - 1997
21.
Italy - 1978
22. Japan 1991 (revised)
23.
Kuwait - 2007
24.
Laos 1998
25.
Luxembourg - 1999
26.
Malaysia 1983
27.
Mauritius 1999
28.
Nepal - 1999
29.
Netherlands (only that part in Europe) 1976
30.
New Zealand - 1999
31.
Norway 2004 (amendment)
32.
Oman - 2005
33.
Pakistan - 1979
34.
Philippines - 1983
35.
Poland - 1983
36.
Romania 1998
37.
Seychelles - 2007
38.
Singapore - 1976
39.
Slovenia - 2005
40.
South Africa 1997
41.
South Korea 1977
42.
Spain - 1999
43.
Sri Lanka - 1991
44.
Sweden - 1990
45.
Switzerland 1997
46. Turkey - 2006
47.
Ukraine - 2004
48.
United Arab Emirates - 2001
49.
United Kingdom - 1981
50.
United States (only the 50 States and District of
Columbia) 1997
51.
Uzbekistan - 2000
52.
Vietnam - 1993
Avoidance of double taxation The treaties generally provide that persons and companies do not have
to pay tax on the same income in more than one country, or where there is a
duplication of taxation, a credit will be granted in the second country for tax
paid in the first country.
Permanent establishment The concept of a permanent establishment is most important with respect
to taxation under the tax treaties. Generally, a business receiving income from
one country is exempt from tax in that country, unless it has a permanent
establishment there.
If there is no permanent
establishment, then only certain categories of income such as interest,
dividends, and royalties may be taxed in the country in which the income
arises. In most cases, the rate of tax on such income is usually reduced from
the rate imposed on residents of non-tax treaty countries.
A permanent establishment is defined
in part as a place of management, a branch, office, factory, workshop,
warehouse, farm or plantation, mine or quarry, building site, construction,
installation or assembly project, which exists for more than six months.
The following are not permanent
establishments: the use of facilities solely for the purpose of storage,
display or delivery of goods or merchandise belonging to the enterprise; the
maintenance of a stock of goods or merchandise belonging to the enterprise,
solely for the purpose of storage, display or delivery; the maintenance of a
stock of goods or merchandise belonging to the enterprise solely for the
purpose of processing by another, the maintenance of a fixed place of business
solely for the purpose of purchasing goods or merchandise, or for collecting
information for the enterprise; the maintenance of a fixed place of business
solely for the purpose of advertising, for the supply of information, for
scientific research or for similar activities which have a preparatory or
auxiliary character for the enterprise.
Usually a permanent establishment is
not constituted where the enterprise has a person in the country unless that
person regularly negotiates contracts, maintains merchandise from which regular
deliveries are made, secures order wholly or almost wholly for the enterprise
or another enterprise controlled by the first enterprise.
A permanent establishment does not
include an agent or representative, unless that agent or representative acts
wholly or almost wholly for the foreign principal.
The fact that a business in one country
is controlled by a business in another country does not make the first business
a permanent establishment of the second business.
Since Thailand often attempts to
levy tax on foreign companies that have an agent or representative in Thailand,
it is often useful to rely on a tax treaty to gain an exemption from this tax,
on the basis that merely having a representative or agent in Thailand does not
in itself constitute a permanent establishment so as to subject the foreign
company to taxation.
Exempt income Under tax treaties, income from services, and rent from movable
property is generally exempt from taxation in the country from which it is
paid. However, under the Thai‑Japanese tax treaty all rent, including income
from the rental of movable property is subject to taxation. In this particular
treaty, there is no exemption for this type of income.
Qualifications for withholding tax
exemption Generally, in order for payments to
qualify for the withholding tax exemption, the payment must be made to an
entity that is subject to taxation in the receiving country.
For example, payments made to a
United Kingdom company that is not domiciled or subject to taxation in the UK
do not qualify. Similarly, payments to the Singapore bank account of a Hong
Kong company do not qualify for the benefits of the Thai‑Singapore tax treaty
merely because the money is sent to Singapore since this factor alone would not
make the Hong Kong company subject to taxation in Singapore.
Nationality requirements Generally, the nationality of the taxpayer is not important in
determining tax benefits under a tax treaty. Foreigners who have paid tax in a
tax treaty country may usually claim the benefits of the treaty, regardless of
their nationality.
While in most cases residence,
physical presence and the place where one pays tax are more important than
nationality in determining benefits under a tax treaty, most tax treaties
contain general language which provides that the citizens of one tax treaty
country may not be required under similar circumstances from paying more taxes
or taxes in a more burdensome manner than citizens of the other tax treaty
country.
Examples of benefits under certain
tax treaties The following examples concern
benefits that are available under the various tax treaties where the income
arises in one country but is wholly or partially exempt from taxation in the
country in which it arises.
Dividends
Dividends from shares and mutual
funds paid to individuals Since the maximum tax on
dividends to individuals in 10% under domestic law and as no tax treaty
provides for a lower rate, no tax treaty provides any particular benefit to
individuals who receive dividend payments.
Dividends paid to companies Since the maximum tax on dividends to companies abroad is 10% there are
no special tax treaty advantages concerning Thai tax rates.
Interest Since the Thai tax on interest paid to ordinary foreign companies and
individuals does not exceed the tax treaty rates, there is generally no
advantages under the tax treaties for interest paid by one private company to
another private company abroad. For interest paid to banks and financial
institutions, there is generally a 10% tax limit under the tax treaties and so
it is advantageous to claim treaty benefits under such circumstances.
Capital gains
Capital gains paid to individuals Capital gains paid to individuals from share sales on the Securities
Exchange of Thailand and from mutual funds are exempt under domestic law and so
there is no particular benefit under any tax treaty.
Juristic persons Capital gains paid to companies are generally subject to a 15%
withholding tax.
Pensions Generally speaking, pensions are taxable only in the country in which they
arise and not in the country in which the recipient lives. Accordingly, if a
person from a tax treaty country shows the Revenue Department that his pension
is paid from a tax treaty country, he will not be required to pay tax on this
income.
Persons from other countries,
including the United States, are often required to pay taxes on pensions,
including government pensions such as military pensions and social security.
Temporary employment Persons who work in Thailand for a period not exceeding 183 days in a
fiscal year, and the services are rendered for or on behalf of a person or
company in Singapore (or other tax treaty country) where the remuneration is
not borne by a permanent establishment in Thailand, then payment to the
resident of Singapore would be exempt from Thai income tax.
For example, if a Singapore company
sends a person to Thailand to investigate the possibility of opening a factory
in Thailand, his salary would most likely be exempt from Thai income tax,
provided that he spends less than 183 days in Thailand.
Similarly, a person from a non‑tax
treaty country would be subject to taxation on any income earned as a result of
his work in Thailand, even if the income was paid from abroad and kept abroad.
Students and trainees Persons from one tax treaty country who come primarily to study or
train for a temporary period in another tax treaty country, are normally exempt
from taxation in the country in which they are studying and training based on
remittances they receive from their home country. They are also partially
exempt on earnings in the country in which they are studying or training, where
those earnings are in connection with their training or study and are necessary
to maintain themselves.
Teachers Under many tax treaties, a professor or teacher from one tax treaty
country who visits another tax treaty country for the purpose of teaching or
engaging in research at a recognized school or university is exempt for income
earned from his teaching or research in the visited country, for a period not
exceeding two years.
Transport Airlines of one tax treaty country generally do not have to pay income
tax in any other tax treaty country.
Shipping Income from the carriage of goods by sea in international trade where
the ship belongs to a company in one tax treaty country, is usually taxed at
half the normal rate in the other tax treaty country in which it has income.
However, as many ships are registered in tax havens, there is often little
opportunity for shipping companies to claim benefits under this treaty
provision.
Athletes and entertainers supported
by a governmental entity These persons are generally
exempt from taxation in the country in which they perform, if their income is
derived from a governmental entity in their home country. In other cases, the
rules for athletes and entertainers is the opposite of the rule that applies to
other temporary workers. Athletes and entertainers are subject to taxation in
the country in which they work, even temporarily, no matter from where they are
paid, provided that they are paid from private sources.
Directors fees Generally, directors fees are taxed in the country in which they arise.
However, if a director in Singapore actually performs day to day services in
Singapore for a Thai company, then his compensation would be treated as
compensation for personal services performed in Singapore and would be exempt
from taxation in Thailand.
Tax credits The tax treaties generally provide that where taxation is due to more
than one country on the same income, then the second country must usually
provide a tax credit for taxes paid in the first country.
For example, if a Singapore company
owns shares in a Thai company and receives dividends, the Singapore company
would have to pay Singapore income taxes on the dividend but would receive a
credit for the 10% withholding tax paid to Thailand. If the Singapore company
owns not less than 25% of the Thai company then the credit shall include the
income taxes paid by the Thai company on its income in addition to the taxes
paid on the dividend. In any event, the credit may not exceed the Singapore tax
rate, that is, you may not get a credit greater than what you would owe to
Singapore on you Thai income.
Tax credits even where no taxes are paid Singapore and some other countries, but not the United States, also
permit a credit against their taxes for taxes that would have been due and
payable to Thailand but that are exempt from taxation in Thailand under the
Investment Promotion Act.
Associated enterprises Where one company directly or indirectly controls another company, or
where the same persons manage companies in two different tax treaty countries,
and in dealings between the two companies, there are financial conditions which
differ from that which one would expect from unrelated companies, then the
revenue authorities may adjust the income between the two companies to reflect
the usual commercial situation.
For example, if a Thai company sells
its products to a Singapore company at $10.00 a piece, whereas the market price
is $12.00, and the Singapore company controls the Thai company, then the Thai
Revenue Department may assess tax based on the market price of the
products.
Back to back tax treaties In some cases where Thailand does not have a tax treaty with one
country, it is possible to route a payment for a business transaction through
an intermediate tax treaty country, that is with a country that has a tax
treaty with both Thailand, and the third country.
Revised 1 December 2006