Some thoughts on the taxation of income brought into Thailand starting in 2024 (US citizen perspective only)

[DineshR]

Hello,

 

( A long read.)

 

I am a resident of Thailand since I am in Thailand exceeding 180 days per year and hence subject to taxation on income earned abroad that is brought into Thailand. 

 

For my specific situation, I am fully retired and have no income from any type of employment either in Thailand or anywhere else in the world. But I do have income from investments such as interest and dividends. That said, my primary source of funds brought into Thailand is a combination of social security and annuities. I thought I would read up on the actual text of the US-Thai dual taxation treaty and see if I would be subject to tax as per that agreement for the type of funds that I bring into the country.

 

So here's a summary of what that agreement states in so far as it relates to my particular situation. Here's a link to the text of the full treaty - https://www.irs.gov/pub/irs-trty/thailand.pdf

 

Would appreciate your thoughts on this.

 

A. This Convention shall apply to persons who are residents of one or both of the Contracting States, except as otherwise provided in the Convention.

 

B. definition - the terms "a Contracting State" and "the other Contracting State" mean the United States or Thailand, as the context requires;

 

C. Residence definition

 

1. For the purposes of this Convention, the term "resident of a Contracting State" means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, citizenship, place of management, place of incorporation, or any other criterion of a similar nature. The term also includes that State and any political subdivision or local authority thereof. The term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State. For purposes of this paragraph, an individual who is not a resident of Thailand under this paragraph, and who is a United States citizen or an alien admitted to the United States for permanent residence (a "green card" holder) is a resident of the United States only if the individual has a substantial presence, permanent home or habitual abode in the United States. If such individual is a resident of Thailand under this paragraph, he shall be considered a resident of both Contracting States and his residence for purposes of the Convention shall be determined under paragraph 2.

 

2. Where by reason of the provisions of paragraph 1, an individual is a resident of both Contracting States, then his status shall be determined as follows: a) he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (center of vital interests); b) if the State in which he has his center of vital interests cannot be determined, or if he does not have a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode; c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national; d) if he is a national of both States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement.

 

Per the definition above - someone like me is considered a resident of both contracting parties (last line of para 1) but it is modified by para 2 as my permanent home is in Thailand and hence I am deemed a resident of Thailand per this treaty.

 

D. What's taxable -

 

1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

 

2. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

 

3. Pensions and Social Security Payments

 

a. Subject to the provisions of paragraph 2 of Article 21 (Government Service), pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment shall be taxable only in that State.

 

The reference to Government service states that a US Government/State/Locality pension is not taxable in Thailand, unless the US citizen is also a Thai citizen - then, it's only taxable in Thailand - my read. See the full text in my link.

 

b. Notwithstanding the provisions of paragraph (a) above, social security benefits and other similar public pensions paid by a Contracting State to a resident of the other Contracting State or a citizen of the United States shall be taxable only in the first-mentioned State.

 

c. Annuities derived and beneficially owned by a resident of a Contracting State shall be taxable only in that State. The term “annuities” as used in this paragraph means a stated sum paid periodically at stated times during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered).

 

My read - Dividends and interest are taxable in Thailand but pensions (with the exception of government pensions paid to a Thai citizen), social security and annuities are NOT taxable in Thailand. 

 

Would appreciate your thoughts on this. I think the issue of where one is a resident, in so far as the treaty is concerned, is critical in terms of defining tax liability but the text is somewhat ambiguous.

 

TIA.

 

 

 

 

 

 

 

 

 

 

[bamnutsak]

54 minutes ago, DineshR said:

Dividends and interest are taxable in Thailand

But only if/when they are remitted from the U.S. to Thailand. I think.

 

 

55 minutes ago, DineshR said:

but pensions (with the exception of government pensions paid to a Thai citizen), social security and annuities are NOT taxable in Thailand. 

This is the understanding I am working under right now.

 

 

I'm in the same boat: SocSec, one annuity paid in one lump each year on 1/1/nn. I transfer money each month, but am considering switching to the 800,000 method.

 

 

Right now I'm more concerned with the possibility that banks start to withhold some percentage (20%? say for the 65,000 monthly qualifying transfers) tax, forwarding that to the RD, and then we have to file a return, hopefully claiming the bulk of that as a refund. And that Immigration will want to some piece of paper from the RD stating that we are in compliance with taxes owed/paid, before processing an extension of stay.

 

 

 

 

[bamboozled]

I haven't been following much because I thought with dual taxation law US and many countries were exempt. Has the law passed or is it still a proposal?

[biervoormij]

19 minutes ago, bamnutsak said:

But only if/when they are remitted from the U.S. to Thailand. I think.

 

 

This is the understanding I am working under right now.

 

 

I'm in the same boat: SocSec, one annuity paid in one lump each year on 1/1/nn. I transfer money each month, but am considering switching to the 800,000 method.

 

 

Right now I'm more concerned with the possibility that banks start to withhold some percentage (20%? say for the 65,000 monthly qualifying transfers) tax, forwarding that to the RD, and then we have to file a return, hopefully claiming the bulk of that as a refund. And that Immigration will want to some piece of paper from the RD stating that we are in compliance with taxes owed/paid, before processing an extension of stay.

 

 

 

 

I find the problem is that there is no information on how it will be implemented. I do not currently have a Thai Tax ID and still not sure if I will need one.

 

I hope this will be a lot clearer by the time I do my next extension. I have enough money in the country to live on until I extend my stay. After that I will have to decide if I want to bring more money into the country or start spending my 800K.

[DineshR]

The US Thailand dual taxation treaty was set up in 1996 and according to the terms of the treaty, if it was not nullified in 5 years from the date of the treaty, then it will continue indefinitely until such time as one of the parties decides to terminate it - which has not happened. So, it is still in force as far as I know. Yes, the issue of needed RD sign off on extensions could be a possible issue down the road though it is not one now. And yes, dividends/interest are taxed only if/when they are brought into Thailand. Switching to the 800K method does not solve the problem as you will still need funds to live on which will need to be transferred in.

[MJCM]

29 minutes ago, bamnutsak said:

And that Immigration will want to some piece of paper from the RD stating that we are in compliance with taxes owed/paid, before processing an extension of stay.

I think that is what worries most of the Expats, because it's now clear as mud.

 

I for one, will only, for the foreseeable future (at least 2024), stay in Thailand (less then) 180 Days in a year and the rest in Europe and travelling with the Thai Wife. Extension of Stay here will keep it alive for now.

[bamnutsak]

7 minutes ago, DineshR said:

Switching to the 800K method does not solve the problem as you will still need funds to live on which will need to be transferred in.

Understood.

 

Assuming any/all remittances were subject to tax I would minimize those, and utilize ATM withdrawals and counter withdrawals for the bulk of my monthly expenses. Those would come at the daily Visa rate, and my bank reimburses for ATM fees (usually 150 THB at an AEON ATM). I would also go a bit heavy when the dollar is strong 

[deejai33]

37 minutes ago, bamnutsak said:

I would ... utilize ATM withdrawals and counter withdrawals for the bulk of my monthly expenses.

 

Those would come at the daily Visa rate, and my bank reimburses for ATM fees (usually 150 THB at an AEON ATM). 

My guess is that withdrawing thai baht in thailand from a foreign account will be regarded as remitting foreign income to thailand.

 

The net effect is the same.  The resident, for tax purposes, has just got 20,000 baht in his hands in thailand from a thai bank machine.  All monitorable by thai banks.

 

Worse, you could be accused of trying to evade thai tax.  Which is true !

 

Edited October 8, 2023 by deejai33

[TallGuyJohninBKK]

I haven't read the whole U.S. treaty -- every time I've tried, my eyes glaze over and I fall asleep... So I'm relying on the OP's summary above....

 

Interesting complexity for Americans -- dividends and interest may be taxable if remitted into Thailand under the OP's reading....

 

But what if the source of those divs and interest is from a Roth IRA retirement account in the U.S., which by U.S. law has tax-free distributions in the U.S.?

 

Would  Thailand here be trying to make tax-free U.S. distributions from a U.S. Roth IRA account suddenly taxable in Thailand if remitted there???

 

[Sheryl]

3 minutes ago, deejai33 said:

My guess is that withdrawing thai baht in thailand from a foreign account will be regarded as remitting foreign income to thailand.

 

The net effect is the same.  The resident, for tax purposes, has just got 20,000 baht in his hands in thailand from a thai bank machine.  All monitorable by thai banks.

 

Worse, you could be accused of trying to evade thai tax.  Which is true !

 

Nobody is going to monitor ATM withdrawals, that is absurd, with millions of tourists each year making them.

 

However IF (still far from sure) you are required to make a tax filing in Thailand, not declaring any income coming in at all would surely raise questions since obviously you must be living on something.

[TallGuyJohninBKK]

10 minutes ago, deejai33 said:

The net effect is the same.  The resident, for tax purposes, has just got 20,000 baht in his hands in thailand from a thai bank machine.  All monitorable by thai banks.

 

Regarding foreign card ATM withdrawals from a Thai bank ATM, clearly the Thai bank could know the transaction involved a foreign card and foreign account.... And they might even be able to know the source bank if they really dug in to what clearly is gonna be massive numbers of foreign card ATM withdrawals that occur every day in Thailand.

 

But how would they be able to separate out the tourist ones from the expat ones? As Sheryl notes above.

 

And beyond that, I'm not sure the Thai bank on its end automatically knows the owner of the foreign ATM card involved in the transaction.

 

Yes, the person's name is on the card, but dunno if that info gets captured by the Thai bank as part of the transaction, especially because foreign card withdrawals actually are processed by the VISA or MC card networks, and not the ATM owning Thai bank itself.

 

 

Edited October 8, 2023 by TallGuyJohninBKK

[Sheryl]

@DineshR

 

My reading of the US tax treaty with Thailand is substantially the same as yours except that to my read it is only government pensions that cannot be taxed in Thailand.  Private pensions can be.

 

Of course, any tax you have to pay in Thailand on private pension and the various other taxable incomes can be claimed as a tax credit on your US return. In fact, it could be argued from the terms of  the Tax treaty that any income taxable in Thailand under the DTA should be fully exempt from US taxes. (You'll need an accountant versed in expat issues)

 

To simplify life, you might like to limit your remittances to Thailand to direct deposit of your Social Security (and government pension if that is what you have). If currently using income method and these sources not enough, switch to the 800K method and bring that money in before end of the year. Like that you should be home free since it is only assessable income remitted to Thailand after 1 January that is at issue.

 

If you can't live on just SS, make up the difference through use of a US credit card paid from a US bank account and perhaps occasional ATM withdrawal from US bank account.

 

 

[deejai33]

1 minute ago, Sheryl said:

Nobody is going to monitor ATM withdrawals, that is absurd, with millions of tourists each year making them.

 

However IF (still far from sure) you are required to make a tax filing in Thailand, not declaring any income coming in at all would surely raise questions since obviously you must be living on something.

OK, I see your point about trying to match the cardholders name on foreign bank card to the list of tax residents.  Not easy as few unique ids to match on.  But might work for people with less common surnames+first name.

 

But do you agree that an ATM withdrawl is remitting income to thailand ?   

 

If so you would be put in position of having to choose to lie to RD or tell them about your ATM withdrawls.   Lying is the biggest issue.

[TallGuyJohninBKK]

15 minutes ago, Sheryl said:

To simplify life, you might like to limit your remittances to Thailand to direct deposit of your Social Security (and government pension if that is what you have). If currently using income method and these sources not enough, switch to the 800K method and bring that money in before end of the year. Like that you should be home free since it is only assessable income remitted to Thailand after 1 January that is at issue.

My thinking exactly!  ????

 

[HappyExpat57]

Without reading the initial novelette, I'm basing my reply on title of post.

 

Bottom line - they start taxing any money I bring in to LOS, I will start using an agent for my annual extension and start living off the 800k. From my understanding of immigration's attitude, this is a win-win.

[TallGuyJohninBKK]

This whole thing would seem to be headed toward getting very messy...

 

So let's say for example, under their proposed regime, an American transfers some money from their U.S. checking account to a Thai bank via wire transfer.... The Thai banking system clearly can identify that to the sender's name, via them being the owner of the receiving Thai account.

 

BUT... how is the Thai RD going to know what the SOURCE of those transferred funds is?  Did they come from a tax exempt Social Security deposit into your U.S. account?  Or from a tax exempt government pension payment into your U.S. account?  Or from taxable dividends and interest earned elsewhere but moved into your checking account.

 

And is the RD really  going  to be asking expats to prove/document at tax time the SOURCE of the funds transferred in for each and every bank transfer that might be made during a year???  Or are they going to basically assume that everything incoming is taxable, and then leave it to the expats to prove to the RD that this or that source was NOT taxable?

 

Messy!!!

 

 

[Trippy]

8 minutes ago, HappyExpat57 said:

Without reading the initial novelette, I'm basing my reply on title of post.

 

Bottom line - they start taxing any money I bring in to LOS, I will start using an agent for my annual extension and start living off the 800k. From my understanding of immigration's attitude, this is a win-win.

Good idea, but what happens when the 800k is spent? How do you bring in more money?

Edited October 8, 2023 by Trippy

[MJCM]

25 minutes ago, Sheryl said:

Nobody is going to monitor ATM withdrawals, that is absurd, with millions of tourists each year making them.

 

 

I tend to  agree, but for computers nowadays it's not that difficult to link name, visa status and amount withdrawn over a year from an ATM (with an overseas ATM card) together that is just linking database together.

 

Also bringing in Cash is not that safe as you need to exchange it and when exchanging it, what do they need? Your Id (passport)

 

 

[connda]

Social Security and US pension income is not taxable based on US/Thai tax treaties.  I'm not worried.

 

 

Edited October 8, 2023 by connda

[HappyExpat57]

3 minutes ago, Trippy said:

Good idea, but what happens when the 800k is spent? How do you bring in more money?

The odds are VERY unlikely I will outlive that number. If I actually last that long then I will be a doddering, incontinent, gelatinous mass ready for a home that I can pay for with a US credit card and STILL avoid the taxes. Hah!

[MJCM]

12 minutes ago, TallGuyJohninBKK said:

Messy!!!

That is a good word for this cluster f.c.u.k.

 

What I am doing is just be out of the country long enough to (for 2024) not be classified as a Tax Resident (less then 180 days in the country in the whole year).

 

And will think again what to do after this all clears up or there is more certainty. (Need to go back to my home country any way ????  )

 

Edited October 8, 2023 by MJCM

[connda]

On the flip side, if they full-monty on foreign funds transfers, the government will simply shoot itself in the foot.
Short term they create a new tax revenue stream; long-term they lose foreign business and foreign-funds injected into the Thai economy.  In the end, the Thai economy suffers and domestic tax revenues take a hit.

Thais are no good at long-term planning.

[MeePeeMai]

39 minutes ago, TallGuyJohninBKK said:

Would  Thailand here be trying to make tax-free U.S. distributions from a U.S. Roth IRA account suddenly taxable in Thailand if remitted there???

Just remember that only the GAINS are tax free in a Roth account (if over 59 1/2 years and you meet the 5 year rules)...

 

Any and all "Roth Conversion"  monies have already been taxed by the IRS (conversion amounts can be withdrawn anytime since the taxes have already been paid) so if remitting money from your Roth account, just keep track of your conversion dollars and take "distributions from your conversion fund balance" first before ever tapping into your "interest or gains" money. 

 

i.e. If the Thai RD department questions your Roth distribution funds which you transferred to Thailand just be ready to show that that money has already been taxed by the IRS during prior Roth Conversions from your IRA

 

Let's hope it never goes this far but being prepared and planning is key. 

[bamnutsak]

48 minutes ago, deejai33 said:

But do you agree that an ATM withdrawl is remitting income to thailand ?   

 

I don't know? While the net result is the same I don't know if the RD will consider this remittable taxable "income", and that it must be declared.

 

Would using a credit card for local expenses be considered "remitting income to Thailand"?

 

Purchasing an airline ticket for travel back home (BKK-USA-BKK) means the ticket is issued in Thailand in THB. I guess there's a 20% tax (my potential bracket here) that will have to be paid to the RD?

 

Oof.

 

 

 

Edited October 8, 2023 by bamnutsak

[retiree]

Copying and extending from another thread, here's a checklist:

 

 -- was the (US DTA) payment from something other than Social Security, a public pension, or an annuity?  If so, it is income.*

 -- were you a Thai tax resident when you earned it?  If so, the income is assessable.

 -- were you a Thai tax resident when you brought it in?  If so, the income may be taxable, depending on DTA.

 -- was any answer "no" ?  It is not taxable.

 

* The status of distributions of taxed Roth IRA contributions or their tax-exempt earnings doesn't appear to be directly addressed in Section 40 of the Thai code, so they might have to be reported (but not necessarily taxed) if remitted to Thailand:  https://www.rd.go.th/english/37749.html   

 

However .... one would imagine that either

 -- Roth contributions are treated as pre-existing, taxed savings, or

 -- any withdrawal or RMD could be handled by having the Roth or regular IRA purchase an annuity.   

Ask AmCham, maybe?   Afaik the Thai retirement instruments that parallel Roth IRAs (RMF, SSF) are not taxed.  

 

Happy to extend or correct this if there are other straightforward filter questions.

Edited October 8, 2023 by retiree

[dingdongrb]

1 hour ago, deejai33 said:

My guess is that withdrawing thai baht in thailand from a foreign account will be regarded as remitting foreign income to thailand.

 

The net effect is the same.  The resident, for tax purposes, has just got 20,000 baht in his hands in thailand from a thai bank machine.  All monitorable by thai banks.

 

Worse, you could be accused of trying to evade thai tax.  Which is true !

 

How could they tell my ATM withdrawals were not being made by an ordinary tourist or someone who is not a 'tax resident'?

 

Evade Thai Tax law? If the so-called 'Thai Tax' law isn't clear than how could one know if he/she is avoiding it?

[dingdongrb]

56 minutes ago, deejai33 said:

But do you agree that an ATM withdrawl is remitting income to thailand ?   

Who care, that $$$ from that ATM withdrawal is my government pension $$$ coming from my US Bank account.

 

Will they request to see my US Bank account deposits and origination of those deposits?

[TallGuyJohninBKK]

27 minutes ago, MJCM said:

I tend to  agree, but for computers nowadays it's not that difficult to link name, visa status and amount withdrawn over a year from an ATM (with an overseas ATM card) together that is just linking database together.

Except that the Thai banks that operate the ATMs where expats make withdrawals are NOT the ones who actually process those transactions.... but instead, those transactions and all the details associated with them are processed by the VISA or MC card networks....

 

So I don't think the ATM operating Thai bank has access to all the same kind of transaction details for such things as they do/would if the ATM transaction was pulling from any Thai bank account.

 

[MJCM]

1 minute ago, TallGuyJohninBKK said:

So I don't think the ATM operating Thai bank has access to all the same kind of transaction details for such things as they do/would if the ATM transaction was pulling from any Thai bank account.

Let's hope so ????

[TallGuyJohninBKK]

19 minutes ago, MeePeeMai said:

Just remember that only the GAINS are tax free in a Roth account (if over 59 1/2 years and you meet the 5 year rules)...

 

Any and all "Roth Conversion"  monies have already been taxed by the IRS (conversion amounts can be withdrawn anytime since the taxes have already been paid) so if remitting money from your Roth account, just keep track of your conversion dollars and take "distributions from your conversion fund balance" first before ever tapping into your "interest or gains" money. 

 

i.e. If the Thai RD department questions your Roth distribution funds which you transferred to Thailand just be ready to show that that money has already been taxed by the IRS during prior Roth Conversions from your IRA

 

Let's hope it never goes this far but being prepared and planning is key. 

 

As far as my Roth IRAs are concerned, AFAIK, all the funds that went into them originally (other than as conversions which also were taxed as they occurred) were taxed by the U.S. when earned as income.