Thailand payroll and tax overview.

One of the largest nations in Southeast Asia, Thailand is part of the Indochinese Peninsula, and lies between Myanmar, Laos, Vietnam, Cambodia, and Malaysia. Although considered an emerging economy, Thailand is the second largest in Asia (behind Indonesia), with a GDP of around $543 billion. As a newly-industrialised country, Thailand is heavily export-focused: exported goods and services make up two-thirds of the country’s GDP, amount to $105 billion of revenue each year, and include electrical and computer components, cars and automotive parts, agricultural products, and textiles. With the manufacturing, tourism and energy industries growing in importance over the 20th century, Thailand’s economy is diversifying, and the country now boasts one of the lowest unemployment rates in Asia. Thailand is a member of ASEAN, the UN, and the WTO, and was ranked 21st in the World Bank’s Ease of Doing Business Survey 2019.

Why invest in Thailand?

Thailand’s economy offers numerous reasons for investment, these include:

• Economic potential: In 2016, Thailand was ranked 14th on Deloitte’s Global Manufacturing Competitiveness Index, and 2nd on the World Bank’s survey of Emerging Economies in East Asia. From 2010 to 2016, Thailand experienced 21% growth in foreign direct investment.
• Association of Southeast Asian Nations: Thailand is part of the ASEAN Economic Community (AEC), which gives its businesses access to markets across the region (around 616 million customers), and allows for the free flow of goods, labour and services between members. Thailand also has numerous FTAs with countries in every corner of the globe, including China, Japan, Canada, Australia and the EU.
• Regional connectivity: The quality of Thailand’s roads has been ranked 12th in Asia by the World Economic Forum - this represents 465,000km of highway, connecting every province in the country. Thailand’s businesses also benefit from 4000 km of railway that connect the country internally, and to neighbouring markets.
• Financial incentives: Thailand’s corporate tax rate is a competitive 30%. The Thai government also recently introduced Special Economic Zones with added financial incentives for certain industries, such as a reduced corporate tax rate (or even tax exemptions), rights to foreign labour, free import duties and low interest rates.
• Workforce advantages: The workforce of Thailand is one of the most skilled and cost-effective in the region. Highly literate and educated, Thai employees also embody a friendly, flexible culture, and a desire to succeed.

Foreign Direct Investment in Thailand

The Thai government welcomes inward investment from foreign investors to help develop the economy. Some incentives are available to encourage investors to support emerging industries within Thailand.

Registering a Company and Establishing an Entity in Thailand

The company is required to have a legal entity established in order to process a payroll.

The timescale for completion of this process is one - two months.

Typically, foreign investors will do business in the form of a limited company, branch or representative office. There are different regulations and different tax issues for each form. The most common choice is a limited company.

Limited Company

Formation of a limited company is regulated by the Civil and Commercial Code. There must be at least three persons to form a company; they must subscribe their names to a memorandum of association (MOA) and then register. Upon receiving the amount of shares, the director must register the company within three months from the date of company’s meeting to establish the company.

Branch Office

In Thai law, the branch and its head office are a single legal entity. This means that the head office is liable for lawsuits brought against its branch in Thailand. The head office will be required to pay tax on transactions in Thailand, even when the Thai branch is not involved.

Representative Office

This form of company can only partake in limited business activities. This office is forbidden from rendering services for anyone other than its head office. It can only receive funds from its head office.

Treaty of Amity

The Treaty of Amity is a treaty between the US and Thailand which creates favourable trade conditions. The treaty allows citizens of the US to establish a business in Thailand with majority ownership, this is usually prohibited under the Foreign Business Act – usually the majority owner must be Thai national(s). A company can register under the Treaty of Amity if at least 51% of the company shares are owned by US citizens. Usually, the directors of the company have to be US citizens. It should be noted that this exception for US citizens does not extend to all types of business activity.

Business Banking in Thailand

It is not mandatory to make employee salary payments from an in-country bank account, however, it is mandatory to make third-party authority payments from an in-country bank account.

What Are the Working Days and Working Hours in Thailand?

The working week in Thailand is Monday to Friday. Generally, the working hours for commercial offices are from 0830 to 1730.

Basic Facts about Thailand

General Information

Thailand lies at the centre of Southeast Asia and is bordered by Myanmar to the northwest, Laos and Cambodia to the east, and Malaysia to the south. Thailand and its neighbours make up a large part of the Indochinese Peninsula, while its southern coast looks out onto the Gulf of Thailand - which provided historic maritime trade access and connections to the rest of the world. Formerly known as Siam, Thailand’s earliest civilisations date back to prehistory and show visible religious and cultural influences from across Asia. Once ruled by an imperial dynasty, Thailand is now a constitutional monarchy with a parliamentary government and separate legislative branch. Thailand’s tropical climate and scenic beauty is known across the world, and attracts millions of tourists each year: a variety of regional environments include thick forests, mountainous highlands and stretches of picturesque coastline - along with numerous island destinations. Temperatures and weather vary dramatically in Thailand - from hot, tourist friendly seasons, to warm, wet monsoons.

Full Name: Kingdom of Thailand

Population: 69.63 million (World Bank, 2019)

Capital: Bangkok

Primary Language: Thai

Main Religion: Buddhism

Monetary Unit: 1 baht = 1 santangs

Main Exports: Machinery including computers, vehicles, rubber, plastics, meat/seafood

GNI per Capita: US $18,570 (World Bank, 2019)

Internet Domain: .th

International Dialing Code: +66

Individual Income Tax (Taxes on Employment Income)

The tax year runs from 1 January to 31 December.

For employment income, a withholding system is in operation, whereby the employer deducts income tax from the employee’s salary or wage before paying it. Employers are responsible for submitting a monthly withholding tax return to the Revenue Department by the 7th day of following the month. The tax due must be paid at the time of filing the return.

Tax is calculated under the assumption that the payments of employment income are made throughout the entire length of the year. The annual amount of tax is calculated at the progressive tax rates prevailing. This tax is then divided by the number of payments; the result shall be the tax to be deducted.

The penalty for late submission of WHT is as follows:

• 100 baht within first 7 days
• 200 baht from day 8 onwards
• An additional penalty of 1.5% of due amount added. This is calculated monthly – the penalty will never exceed the actual tax due on that occasion.

Social Security in Thailand

There are two mandatory statutory contributions:

Social Security Fund (SSF) - Both the employee and employer have to contribute on a monthly basis. The contribution rate is usually 5% with basic salary caped at THB15,000.00. With the minimum wage being increased recently, it has been decided to extend the reduction in Social Security contribution rate.

Monthly social security payments must be submitted by the 15th of the following month to the Social Security Department (www.sso.go.th). For instance, contributions for October must be paid by November 15th, after which they will be charged an extra 2% of the overdue amount each month until the payment is made.

Provident Fund / Welfare Fund - Employers have the option of registering for a “provident fund” (offered by Thai financial institutions) instead of participating in the government’s “employee welfare fund” (overseen by the Department of Labour Protection and Welfare).

Depending on the fund’s prospectus, employees may contribute between 2% and 15% of their salary, and the employer matches this amount. Under the new rules, no matter what amount their employer is contributing, employees can contribute and deduct the maximum amount allowable—15% of annual wages or THB 500,000, whichever is lower. An employee can make higher contributions than the employer. Employee contributions are tax-exempt up to a certain limit, which means that yearly contributions up to that sum directly reduce the tax liability.

The payment for the provident fund must be submitted three days after payday and may vary depending on PF trustee.

Workmen Compensation (WCF) - In addition to social security contributions, the Workmen’s Compensation Act requires employers to pay annual contribution, at the rates of 0.2% - 1% of its employees’ annual wage depending on risk levels of the business. This contribution is to be used for paying workmen’s compensation in respect of work-related injury, or sickness, or loss of organs, or invalidity, or death, or lost to employees who are insured persons.

The annual wage per person for calculating the contribution amount is limited to Baht 240,000 per employee per year. The term “wages” means money of all kinds paid by an employer to an employee in return for work performed on a normal working day excluding overtime pay, holiday pay and bonus pay.

Reporting Tax in Thailand

Monthly

Employers are responsible for submitting Monthly Withholding Tax (WHT) on a monthly basis. The deadline is by 7th (manual submission) or 15th (online submission) of the following month. The amount can be calculated using the tax table supplied by the government.

Provident Fund (monthly)

The format of this is determined by the vendor.

Yearly

Form 26 Workmen’s Compensation Fund submission - 28th February every year

Form of Kor Thor 20 A Workmen’s Compensation Fund submission - 28th February every year

PND.1 K Form Tax form if the company had withheld the tax for acquisition of salary of the staff - 31st January every year

PND 91 Taxpayer receiving income from employment during the period January to December, must pay personal income tax before the last day of March every year - 31st March every year

New Starts in Thailand

It is required for all new starts to be registered with the following departments within the first month of employment:

• Provident Fund registration is required with the appointed Provident Fund vendor.
• SS registration required with the Social Security Fund.
• Revenue Department (this is not required if the new starter is a citizen of Thailand. If the new starter is an expat and never had TAXID then the company should apply TAXID for the expat employee)

Registration is usually submitted together with monthly PF and SS forms.

To set up a new start the following information is required:

• PF – New hire form containing all the personal & employment information
• SS – Standardized termination form

The following documents are also required when setting up a new start:

• Passport
• Signed contract
• Work permit
• Working visa

Leavers in Thailand

All leavers must notify the local authorities if they are leaving their job by completing the following:

• PF – Termination form containing all the personal & employment information
• SS – Standardized termination form

Payroll in Thailand

Employers in Thailand have withholding obligations to their employees, and must make income tax and social security contributions on their behalf:

• Income tax rates in Thailand range from 0% for the lowest-earning employees, to 35% for those earning over 4,000,001 Baht. Tax must be reported to the Thailand Revenue Department.
• Social security contributions for employer and employee amount to 5% of salaries - up to a maximum of 750 Baht per month.

Employees in Thailand must be issued with payslips for each pay period (payslips may be issued online), and payroll records must be kept for at least 7 years. Thai payroll may be handled in-house by a dedicated payroll officer or payroll team, or outsourced to a third party to take advantage of regional expertise. It may be advisable for foreign businesses setting up in Thailand to take advantage of global service providers in order to acquire valuable compliance expertise - and ensure their international employee populations are paid accurately and efficiently.