Key takeaways
- Before going abroad, you must be able to answer three questions: what status the overseas entity has, in what form the money will return to Thailand, and where tax is paid at each step.
- A Thai company is taxed on its worldwide income. Foreign tax credits are allowed, but only up to the Thai tax on that income. Foreign dividends may be exempt if the conditions are met.
- A company in a low-tax jurisdiction does not solve the problem automatically. In the example, profit that bears no foreign tax is still taxed at 20% in Thailand when it is paid back as a dividend, and there are additional substance costs.
A company is about to enter a neighbouring market. Someone advises it to register a company in a low-tax jurisdiction and work out the rest later. The owner sends a salesperson to be based there, signs contracts with customers there, and transfers money between the entities without any agreement. The following year, the tax authority asks whether the Thai company has already been carrying on business in that country.
Cross-border tax is like driving across a border. Each country has its own rules, and a licence valid in one country does not mean you can follow the same rules everywhere. This article is a framework for asking the right questions before investing, not tax advice for any particular country.
PE: do you have a permanent establishment yet?
A permanent establishment (PE) is the point at which the destination country gains the right to tax the profits of a foreign business. Under double taxation agreements (DTAs), it usually covers offices, branches, factories, construction projects exceeding a specified duration, services exceeding a specified duration, and agents who habitually have authority to conclude contracts on the company's behalf. Durations and conditions differ from one treaty to another, so you must read the treaty that actually applies.
Each country's domestic law may be broader than the treaty. On the Thai side, for example, Section 76 bis of the Revenue Code treats a foreign company that has an employee, representative or contact person in Thailand who generates income in Thailand as carrying on business in Thailand. If a Thai company goes abroad, the domestic law of that country must be checked in the same way.
| Format | Points to check | Tax issues to review |
|---|---|---|
| Cross-border sales from Thailand | How often staff travel, and who decides on contracts | PE risk and WHT in the destination country |
| Distributor | Whether it trades in its own name or in the company's name | A non-independent agent may create a PE |
| Representative office | May carry out only the activities that the country permits | Income-generating activities risk changing its status |
| Branch | Same legal entity as the Thai company, with shared liability | Destination-country tax, and tax credits in Thailand |
| Subsidiary | Shareholding rules, capital requirements and local directors | Subsidiary tax, dividend WHT and transfer pricing |
WHT: how much is withheld on cross-border payments?
When a Thai company pays Thai-source income to a foreign company that does not carry on business in Thailand, it must withhold tax under Section 70. The general rates in use are 15% for service fees, interest and royalties, and 10% for dividends. A treaty may reduce or exempt the tax if the recipient is a resident of the treaty country, is the beneficial owner and has the complete documents, such as a tax residence certificate. For details of filing and payment, including PP 36 for service fees, see the article on paying commission abroad.
A common problem is a contract that requires the recipient to receive the full amount (net), so the burden falls back on the payer.
Hypothetical example The contract gives the recipient a net THB 1,000,000, and WHT is 15% with no treaty reduction.
Income amount to be calculated = 1,000,000 ÷ (1 - 15%) = THB 1,176,470.59
WHT to be remitted is THB 176,470.59. The payer's cost therefore rises by 17.65% of the contract amount, before VAT.
Income from abroad: how is it taxed in Thailand?
A Thai company is taxed on its worldwide income. Tax paid abroad on business income or dividends can be used as a credit, but the credit must not exceed the Thai tax on that income. Foreign dividends may be exempt if the Thai company holds voting shares of at least 25% for not less than 6 months before the date of receipt, and the dividends come from profits that were taxed abroad at not less than 15%. Check the current conditions, and any cases where a foreign tax relief applies, before claiming the exemption.
Hypothetical example Foreign profit equivalent to THB 10 million, Thai tax of 20%, excluding dividend WHT in the destination country, and assuming the stated conditions are met. Figures in the table are in THB million. Foreign tax is the tax paid abroad.
| Case | Foreign tax | Thai tax | Total tax | Net |
|---|---|---|---|---|
| A. Dividend exemption applies, foreign tax 17% | 1.70 | 0.00 | 1.70 | 8.30 |
| B. Branch, foreign tax credit 17% | 1.70 | 0.30 | 2.00 | 8.00 |
| C. Branch, foreign tax credit 25% (credit capped at 2.00) | 2.50 | 0.00 | 2.50 | 7.50 |
| D. Company in a 0% tax jurisdiction pays a THB 10 million dividend | 0.00 | 2.00 | 2.00 | 8.00 |
In case C, the excess foreign tax of THB 0.50 million cannot be credited. In case D, the 15% minimum condition is not met, so Thai tax is payable. This also leaves out registration fees, annual maintenance fees, bookkeeping costs and the risk of having no business substance in that country.
The structure must be explainable
A DTA exists to eliminate double taxation. It is not a right that can be bought by setting up a company. A structure with no staff, office or real decision-making may be denied treaty benefits because it is not the beneficial owner or fails the principal purpose test. Choose the structure for business reasons, such as customer location, access to capital markets, joint ventures with partners and legal protection, and then analyse the tax.
Transactions between group companies, such as management fees, royalties, loans and sales of goods, need contracts, evidence that the services were actually provided, and arm's length pricing. A multinational group with consolidated revenue of EUR 750 million or more in at least 2 of the 4 preceding financial years must also check the top-up tax rules, which Thailand has applied since 1 January 2025.
Tax rules and treaties can change, and the answer depends on the facts of each case. Before setting up a structure or making a payment, seek advice from tax advisers in both Thailand and the destination country.
Next steps
- Map out the activities: who sells, who signs contracts, who delivers the goods and who the money flows through
- Count staff travel days and the duration of projects in the destination country
- Read the current treaty for each country concerned, covering PE, WHT and business profits
- Compare a branch, a subsidiary and an agent, calculating tax through to the money returned to Thailand
- Specify in the contract who bears the WHT and when residence documents must be provided
- Keep evidence of foreign tax payments for credit or exemption claims
- Prepare intercompany contracts and pricing documentation before transactions begin
- Obtain advice from tax advisers in both countries before signing