From the 1970s hippie trail to full moon parties and the influx of travellers following in the footsteps of Alex Garland’s famous novel The Beach, generations of Westerners have sought a life of leisure in Thailand.
All were in search of the exquisite beauty of its temples and palaces, islands, jungles, wildlife, great weather and amazing food – the path to this famous ‘land of smiles’ is well worn.
For those who ditched their backpacks and were tempted to become residents, Thailand’s territorial tax system is an incentive that is just as attractive as that mythical beach. For foreigners, it meant the tax authorities would leave your worldwide income and assets alone.
Splendid and sacred in equal measure, for many decades, Thailand has welcomed foreigners with open arms. Yet, Thailand is changing the way it taxes foreigners, so much so that some within the expat community are rushing to say that this is the end of Thailand as a tax-friendly country.
But we’re here to tell you – not so fast.
Tax Changes in Thailand
Thailand is a territorial tax country, and until recently, if you remitted income in any year other than in the one you earned it in, it would not be taxed in Thailand. So, if you earned income in 2022 and remitted it to Thailand in 2023, you’d pay no tax on that foreign-sourced income.
However, a recent article in the English language newspaper, The Thai Enquirer, discusses new guidelines from Thailand’s Revenue Department. These new guidelines will see all income from abroad taxed as personal income, regardless of whether it is earned income or savings.
A senior Ministry of Finance official confirmed this is the new policy. The article concludes: ‘Those that have earnings from business or occupations aboard, or wealth that is located abroad and brought as wealth into Thailand, must factor this into their personal income for the year.’
So, after the changes, any income that is remitted at any time is taxed there.
That could lead you to believe that Thailand is less favourable than before as a low-tax destination, but at Nomad Capitalist, we believe the situation is manageable.
You can still have offshore companies and offshore income – your worldwide assets will still not be taxed. You’ll pay some taxes on what you remit to Thailand but, as you’ll discover, if you structure it properly, you’ll still be paying a low amount of tax.
Thailand’s Territorial Taxes
Historically, Thailand’s tax system has been territorial. Generally speaking, the money generated is taxed if you have a job or a business there. At the same time, anything generated outside the territory is exempt.
Territorial tax systems exist in a number of Southeast Asian countries, including Malaysia, and there are others, such as Georgia in Eastern Europe or Panama and Costa Rica in Central America.
At Nomad Capitalist, we’ve advised clients for years that it’s not quite as simple as, ‘if the money is made overseas, it’s tax-free.’ Things are a little more complex than that.
Thailand demonstrates this perfectly. If you earned your money in one year and brought it into Thailand the following year, it wouldn’t be taxed. For that reason, many people think Thailand is tax-free – and some have even attempted to live there without paying any tax.
But Thailand isn’t a tax-free country, and pleading ignorance of the rules when the authorities question you isn’t an optimum strategy. People thought there was no tax because their income wasn’t taxable. So it pays to remember that, if you’re looking at countries where you can live and pay no tax, you need to examine them very carefully as there are countless traps you can fall into.
Remittance-Based Taxation
In remittance-based countries, you will pay no tax if you don’t bring money into the country. A handful of European countries work on a remittance basis for certain non-domiciled people, usually foreigners.
But now Thailand will have a remittance system where they will tax it if you bring the money into Thailand. There are exceptions. For instance, if you buy property in Thailand and pay for it by wiring money from overseas, it is not considered a remittance.
When it comes to cryptocurrency, the Thai tax authority determines the source of income by looking at the place of trading or the trading platform. Therefore, if the earner trades cryptocurrency through a platform outside Thailand, the income received is considered foreign-sourced income and not taxed.
Remittances certainly do include bank transfers, but these can be structured so you pay little or no tax. To illustrate, let’s say you have a company in Hong Kong, you’re from any country other than the US, and you live in Thailand. You might send the money from the Hong Kong company as a dividend to yourself as the director. The funds could be remitted to a personal bank account at the beginning of each year.
Credit Card payments are considered remittances for whatever you’ve brought into the country. So that money is taxed at the individual tax rate, which ranges from 5% to 35% in Thailand – making US$140,000 puts you in the top bracket as it’s a progressive tax system.
So, if you have a job and you’re very well paid, your top tax bracket is 35%, whereas the person who has created a tax-friendly foreign structure could live there essentially tax-free, legally. That’s not changing, so if structured properly, you can still pay no tax on income and company profits you make overseas, as long as they’re kept overseas.
What’s changing is that it will not be just money you’ve earned in previous years – from 2024, it will be everything, though you will need to be a tax resident for this to apply.
That means, if you don’t spend 180 days there, the rule change won’t apply to you because you’re not a tax resident. So, if you’re following a trifecta approach and wintering in Asia, but with bases in other countries and you’re spending four months in each in a different part of the world, that’s not going to make you a tax resident. If you’re interested in how we create and implement bespoke, holistic strategies, contact us here.
In short, by engineering the amount of time you spend in Thailand, the change won’t apply to you. Using a credit card on a vacation or even an extended stay will not trigger any kind of remittance tax.
Getting Residence in Thailand
You can apply for a Thai Elite Visa or Thai Investor Visa. There are a number of different ways you can live in Thailand. There is optionality: you can live there all you want, but you don’t have to.
In exchange for a fee, which is really a donation, the Thai Elite Visa grants residence in Thailand for five, ten, or twenty years, depending on the package chosen. These are the options:
Gold Membership: The fee for this package is ฿900,000 (approximately US$25,590 at the time of writing). It’s valid for five years.
Platinum Membership: A good option for applicants with families, at least two people must apply for this package, which is valid for five years. The membership fee is ฿1,500,000 (approx. US$42,650) with an additional fee of ฿1,000,000 (approx. US$28,433) for each family member.
Diamond Membership: Valid for fifteen years, the fee is ฿2,500,000 (approx. US$71,083) with an additional fee of ฿1,500,000 (approx. US$42,650) for each family member.
Reserve Membership: Available by invitation only, this is valid for twenty years. The fee is ฿5,000,000 (approx. US$142,092) with ฿2,000,000 (approx. US$56,836) for each family member.
The Elite Visa is categorised as a Tourist Visa, which does not allow the holder to legally apply for a work permit to work or enrol in a school to study in Thailand. There is no physical presence requirement at all for the Elite visa. Everything can be done remotely, and you don’t have to go there or spend any time there. Having a residence permit secured through the Elite Program doesn’t require you to pay tax.
Thailand’s Investor Visa is a de facto permanent residence. To qualify for the 10-year visa, which includes family members, the Thai government states that ’wealthy global citizens‘ would have to invest at least ฿10,000,0000 (approx. US$284,000) in bonds or real estate and prove they had a minimum income of US$80,000 per year. Retirees must invest at least US$250,000 and earn a minimum of US$40,000 annually.
You can indefinitely extend the visa for another year as long as you maintain the original ฿10,000,000 worth of real estate, bonds, or deposits. However, you still have to ensure your visa is maintained, which means showing up at the immigration office within two weeks of your visa’s expiration date.
What do the 2024 Tax Changes Mean?
As of 2024, if you’re a tax resident and spend most of your time in Thailand, you’ll be subject to the new tax rule.
Holding an Investor Visa and always having a place waiting for you is not a bad thing to have. If you have a couple of different residence permits, you can decide to go now or wait until you need to.
The changes become an issue if you spend half the year in Thailand, as you will be deemed a tax resident. You will then have this remittance issue. However, the more you earn, the less impact it will have on your overall tax base.
If you have a million dollars and put US$900,000 into a company structure or trust and remit US$100,000 to live on in Thailand, you will pay around US$20,000 in taxes. Assuming you’re not paying tax elsewhere, your tax rate will be 2% because you’re not paying any other corporate or personal tax. If the US$100,000 is your entire income, your tax rate is 20%, and it’s not such a good deal.
The crucial issue with the remittance basis is the difference between how much you earn and how much you spend. The more time you spend in Thailand, the more money you will spend there, and you have fewer opportunities to spend elsewhere. If you live frugally and don’t spend too much, this system works for low taxes if, like in the example above, you’re happy to pay 2%.
Many people look at the headline tax rate of 35% and immediately judge it as terrible, then take a look at the recent changes and dismiss Thailand as a good option. Here at Nomad Capitalist, we think that would be a mistake, and it’s our mission to know why. We want to help you understand the actual situation.
There’s a lot of noise in expat circles. It’s usually all good or all bad, like, for example, claims that Thailand is a high-tax location. But, if you only spend a few weeks, or even some months there, and don’t trigger tax residence, you won’t be taxed.
Thailand’s New Low-Tax System for 2024: FAQs
Does Thailand impose property taxes?
Thailand does not impose general property taxes. However, they do impose a rental income tax, which taxes your earnings if you profit from a property.
Does Thailand have sales tax?
Yes. The nation has a sales tax. It imposes a VAT (value-added tax) of 7% on the sale of goods and services.
Does Thailand tax dividends?
Yes. The country charges 10% for residents and non-residents. The 10% is applied to businesses incorporated within its borders and on nonresident shareholders.
What percentage of your income can you exempt in Thailand?
Thailand imposes taxes on income generated from within the nation on a progressive scale. The percentage ranges generally between 5-35 percent.
What language do they speak in Thailand?
Thai is the official language in Thailand. However, English is often spoken in tourist areas, as well as other languages like Chinese and Lao.
Is Thailand a low tax country?
Thailand is not a low tax country but there are ways you can save more of your income earned in your pockets. They are a territorial tax nation meaning if you earn income overseas, you can greatly reduce your tax burden.
Pay Low Taxes in Thailand
Taking advantage of Thailand’s potential is about structuring your affairs based on your particular needs. That might mean spending a year there, a few months, a few weeks, or just a single day to trigger residence – it all depends on your needs and what you want to achieve.
It’s important to understand that the more money you make and the less you stay in Thailand, you’ll still have a favourable tax situation. Starting in 2024, if you’re living there for 180-plus days a year, you will have some liability. In reality, whether you do or don’t, there are still legal routes to structure your affairs, so you pay very little tax in Thailand.
We help seven- and eight-figure entrepreneurs and investors create a bespoke nomad strategy using our unique, tried and true method. You’ll keep more of your own money, create wealth faster, and be protected from whatever happens in just three steps. Discover them here.
Source link : https://nomadcapitalist.com/finance/thailands-new-low-tax-system/
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Publish date : 2024-04-19 12:24:34
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