Avoiding double taxation on foreign work assignments

HAVE YOU worked on an overseas project for a Thai employer where you’ve had to stay in an overseas assignment for 183 days or more in a year or over two consecutive years? If so, how should you handle any double taxation?

While it’s important to pay tax correctly, you also want to avoid overpaying tax. Paying unnecessary taxes will cut into your company’s profits. The tax refund process is often tedious and time-consuming, for both the employer and the employee. So it’s better to pay the correct tax in the correct jurisdiction initially to avoid double taxation in the first place.

If you’ve incurred double taxation, you should speak to an international tax specialist to find out whether you can claim a refund for any double taxation. To claim a refund, you’ll need to establish which country the refund should be claimed in.

You should ask yourself:

1 Is there a double-tax treaty (DTA) between Thailand and the country where you are working? If there isn’t, Thai law doesn’t allow unilateral tax relief.

2 Are there proper documents in place (eg, passport copies, tax residence and payment certificates, personal income tax returns for both countries and assignment letters)? It’s important that you have documents to prove your claim for tax relief.

3 Will the employer continue to deduct Thai withholding tax? If you meet the conditions of the DTA to be exempt from tax, technically, you should not be required to deduct Thai withholding tax. But if the circumstances change and you no longer meet the conditions of the DTA, any tax shortfall may be subject to a 1.5 per cent surcharge per month, capped at the tax shortfall amount.

Tax issues to consider

1 Personal income tax

Issues can arise when both the home country and the host country believe they are the source of the employee’s income. This leads to a double taxation issue.

Any DTA should be viewed in conjunction with domestic tax laws. Based on the DTA, if the employee works in the receiving country for more than 183 days, the receiving country has the right to tax the employee. So, in this case, the sending country should give up its taxing right.

DTAs have effectively set out a consistent set of source rules that should be applied by both countries to resolve any conflicts between the domestic rules and mitigate double taxation.

2 Personal withholding tax

If Thailand is the source of the income (the income is from a Thai employer), the employer should deduct withholding tax.

If, under a DTA, the employee isn’t required to pay personal income tax in Thailand on the remuneration received from the overseas assignment, the Thai company doesn’t need to withhold tax. However, it may be difficult to know in advance if all the conditions will be met.

3 Corporate income tax

Does the fact that the remuneration is exempt from Thai personal income tax mean that it can’t be deducted by the employer for corporate tax purposes? Not necessarily. The remuneration can still be deducted from corporate tax calculation if the employee is paid by the Thai company and is working abroad for the benefit of the Thai company.

Although claiming a refund from the Revenue Department is difficult and time-consuming, it can be done if you have good reasons for the claim and you’ve kept sufficient supporting documents to back your case. Often, knowledge of both the Thai and foreign tax regimes is needed to be able to successfully present your case. If the Revenue Department doesn’t grant the tax refund, the taxpayer may appeal to the Tax Court. But it’s critical that any appeal is lodged within the deadline. Professional advice should be sought to protect your rights.

Natchanond Charoenmechaikul, PwC Manager, contributed this article.