Thailand signed its first DTA with Switzerland in 1967. The Thai DTA network is continuously expanding and being updated. As of May 2006, Thailand has signed Double Taxation Agreements with 56 countries.

 

A typical DTA generally includes four main sections:

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A. Scope

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(1) Persons Covered
The DTA applies to persons who are residents of the contracting states. To be classified as a Thai resident and eligible for the benefits of the agreement, a person must be one of the following:

• An individual who stays in Thailand for a period or periods totaling more than 180 days in a tax year.

• A legal entity that is established under Thailand’s Civil and Commercial Code.

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(2) Covered Taxes

The DTA applies only to income taxes, namely personal income tax, corporate tax, and oil income tax. Other indirect taxes such as VAT and specific business taxes are not covered by the DTA.

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B. Types of Income

Generally, the DTA does not specify particular types of income or tax rates. It specifies whether the source country or the residence country is entitled to tax certain types of income. If the source country has taxing rights, the income is taxed according to the domestic laws of that country.

The DTA also sets a tax rate for passive income such as dividends, interest, and royalties. The source country can tax such income at a rate that does not exceed the rate specified in the agreement. In many cases, the tax rates in the DTA are lower than the domestic tax rates to reduce tax barriers to cross-border trade and investment.

Some articles of the DTA explicitly deny taxing rights to the source country, such as income from international air transport and business profits, unless the business operates through a permanent establishment in the source country.

 

C. Elimination of Double Taxation

The focus of a DTA is to eliminate double taxation. Each DTA may prescribe different methods for the elimination of double taxation by the residence country:

(1) Exemption Method
The residence country does not tax income that is taxed in the source country under the DTA.

(2) Credit Method
The residence country retains the right to tax income already taxed in the source country. It calculates its tax on the total income of the taxpayer, including income from the other country that is taxed there according to the DTA. However, it allows a deduction from its own tax for the taxes paid in the other country. If no DTA exists with a particular country, provisions in Royal Decree No. 300 allow unilateral tax relief against Thai taxes for taxes paid in the other country by a Thai legal entity.

 

D. General Provisions

The last section of the Double Taxation Agreement addresses administrative support, such as the exchange of information between tax administrations and dispute resolution procedures.