The Double Taxation Agreement or DTA is a tax treaty between 2 countries. Currently Thailand has double taxation treaties with 61 foreign countries which cover taxes on income and capital of individuals and juristic entities.
In order to be considered a Thai tax resident and be entitled to treaty benefits, a tax payer must be one of the following:
- An individual who stays in Thailand for a consecutive 180 days or more in a tax year;
- A juristic person who is registered under the Civil and Commercial Code of Thailand
A Double Taxation Agreement applies to only income taxes such as personal income tax, corporate income tax and petroleum income tax. Other indirect taxes such as the Value Added Tax (VAT) and Specific Business Tax (SBT) are not covered by the DTA. Although the DTA does not specify any specific amount of income and tax rate in general, it prescribes whether the source or resident country is entitled to tax on certain income. If the source country has taxing rights, the income will be taxable according to the domestic laws of that country.
A Double Taxation Agreement also stipulates a tax rate level on investment income such as dividends, interests and royalties. Therefore, the source country can tax such income at a rate not exceeding the rate prescribed within the treaty. Normally, the tax rates within the DTA are lower compared to the domestic tax rates in order to decrease tax impediments to cross border trade and investment. However, some articles of the DTA clearly do not accept the source country to exercise taxing rights on income such as income from international air transport and business profits provided that the business is not carried through a permanent entity in the source country.
In general, Thai double taxation treaties place a resident of the foreign country in a more favorable position for Thai tax purposes than under the domestic law, for example, the Thai Revenue Code of the Revenue Department. It provides income tax exemption on business profits (industrial and commercial profits) earned in Thailand by a resident of a foreign country if it does not have a permanent establishment in Thailand. In addition, the withholding taxes on payments of income to foreign juristic entities not carrying on business in Thailand may be reduced or exempted under the double taxation treaties.