Dual Citizen, Work As Thai Or Us ?

[phormio]

This is about a friend of mine, and because of the sensitive nature of the inquiry, I can't get very specific with the details, but hopefully what I give below is enough to get some ideas on the matter.

He is a dual Thai/US citizen having been born in Thailand but educated in the US and having worked in the US for 10 years. He came back to Thailand, worked here for a couple of years and came across a US company which has a regional headquarters in Southeast Asia but no legal entity in Thailand. This company's regional office wants somebody working in Thailand for them and will set up a Thai office a year or two from now(with the possibility of my friend being the company's country manager). This company is flexible and willing to consider different kinds of arrangements, but would prefer avoid violating any legal limitations.

Is it possible(and/or legal) for my friend(who holds a Thai National ID, Thai Passport, and US Passport) to work legally for the US company in Thailand and get paid in the US through direct deposit ? He doesn't need a visa to be here. And the first $80,000 of earned income is tax free(US IRS) if you live overseas.

Should my friend set up a Thai corporate entity and subcontract out to the US corporation, then pay himself a salary?

Should he work as a Thai and declare his income to the Thai government?

Are there other options worth discussing?

Thanks. your suggestions are much appreciated.

[lanny]

I am not an authority on Thai taxes; someone else can tackle that side of the equation.

You don't give enough facts to tell whether your friend will qualify for the full $80,000 exclusion; it appears that he would but there are limits that you don't mention. There is also an exclusion for excessive housing costs that some expats qualify for (many don't pay enough rent but some do.)

If he is a U.S. citizen, working for an American company or affiliate, any compensation, whether salary, commission, or whatever, would be subject to the usual payroll taxes -- primarily Social Security and Medicare. The company would probably have to include him in any employee benefit and retirement savings plans. He couldn't escape that by claiming to be Thai; this is not an optional situation.

If he created his own Thai company and had the company contract with the American company, he could probably pay himself a salary without having to pay the Social Security and Medicare taxes. On the other hand, he would clearly be liable for Thai taxes and both the company and personal level.

As a Thai, he could probably set up the Thai company without having to jump through all the hoops most of the rest of have to deal with. No requirement for a work permit, thus ho requirement for other Thai employees, etc.

[phormio]

He would be making just below the $80K limit, so it would all be excludable(if that is the way the Foreign Earned Income Exclusion works and AMT, Alternate Minimum Tax , doesn't kick in).

The point is, it seems to me, by working as a US citizen paid directly in the US, no taxes need be paid to the Thai govt(Thai income taxes are around 30% I believe for 3 Million Baht salaries), and no US income taxes since its all excluded; this leaves US payroll taxes of around 9% - not too bad.

But if the Thai Revenue dept found out, I think they would attempt to collect Thai income taxes even on a US person paid in the US. Not sure on this, what do you think, lan?

But as you said, my guess is that the company would be legally required to pay pension & other benefits, etc. as per US law. They might be willing to do that.

Edited November 24, 2005 by phormio

[Vit42]

It would be easy to tell your friend to do what’s most advantageous for him. Since he’s legally able to work in both countries and the company seems to be flexible to his desires.

However, there is a longer term business issue your friend and his employer need to consider. After all, isn’t the main purpose of any legal entity to make money and build a successful business? Short term you may be able to minimize tax exposure and the cost of setting up business. Long term, the legal implications of revenue generation will determine the taxable status of your friend and his employer.

I’m not a tax man and tax is certainly something that your friend and his employer should seriously seek professional advise for. The tax treaty between the US and Thailand is not as simple as following exemption guidelines.

I too have US/Thai citizenship having been born in Bangkok and having grown up in the US. I have also worked as a US expat in Thailand for a US/Thai joint-venture. I received salary and allowances beyond the exemption limits but was never double-taxed since my company’s tax advisors E&Y, made sure that the off-sets were correctly reported and accounted for.

In the end, in the short-term, if I were in your friend’s position, I would talk to the company about their long-term plans and plan accordingly. It’s not a bad decision to do what your friend suggests and get paid in the US while working in Thailand just as long as the tax, benefits, healthcare, and other open questions about any new job are taken care of. Eventually though, the switch will have to be made if your friend and the company are serious about making a successful business.

[thaihome]

He would be making just below the $80K limit, so it would all be excludable(if that is the way the Foreign Earned Income Exclusion works and AMT, Alternate Minimum Tax , doesn't kick in).

The point is, it seems to me, by working as a US citizen paid directly in the US, no taxes need be paid to the Thai govt(Thai income taxes are around 30% I believe for 3 Million Baht salaries), and no US income taxes since its all excluded; this leaves US payroll taxes of around 9% - not too bad.

But if the Thai Revenue dept found out, I think they would attempt to collect Thai income taxes even on a US person paid in the US. Not sure on this, what do you think, lan?

But as you said, my guess is that the company would be legally required to pay pension & other benefits, etc. as per US law. They might be willing to do that.

<{POST_SNAPBACK}>

He will have to declare some part of the salary to the Thai Revenue dept. What is normally done is some percentage of the salary is paid by the Thai registered company (usually a subsidiary of the US Company) and the rest is paid by the US Company offshore. Only the Thai bit is declared and Thai tax paid. The entire amount is declared to the US IRS, with tax credits for the foreign income tax offsetting any tax due. Depending on how the US Companies are setup, SSN and Medicare would have to be paid on either the Thai or offshore part or both. Depends on if you can make the minimum payment on just one portion.

Should note that the Thai Revenue is not fond of this setup and it must be done carefully to avoid showing the offshore bit.

His dual citizenship has nothing to do with this other then it requires him to file with US IRS every year, even if no tax is due.

TH

[singa-traz]

Personal Income Tax in Thailand: http://www.rd.go.th/publish/6000.0.html

Tax Treaties: http://www.rd.go.th/publish/766.0.html

[lanny]

It would be easy to tell your friend to do what’s most advantageous for him. Since he’s legally able to work in both countries and the company seems to be flexible to his desires.

However, there is a longer term business issue your friend and his employer need to consider. After all, isn’t the main purpose of any legal entity to make money and build a successful business? Short term you may be able to minimize tax exposure and the cost of setting up business. Long term, the legal implications of revenue generation will determine the taxable status of your friend and his employer.

I’m not a tax man and tax is certainly something that your friend and his employer should seriously seek professional advise for. The tax treaty between the US and Thailand is not as simple as following exemption guidelines.

I too have US/Thai citizenship having been born in Bangkok and having grown up in the US. I have also worked as a US expat in Thailand for a US/Thai joint-venture. I received salary and allowances beyond the exemption limits but was never double-taxed since my company’s tax advisors E&Y, made sure that the off-sets were correctly reported and accounted for.

In the end, in the short-term, if I were in your friend’s position, I would talk to the company about their long-term plans and plan accordingly. It’s not a bad decision to do what your friend suggests and get paid in the US while working in Thailand just as long as the tax, benefits, healthcare, and other open questions about any new job are taken care of. Eventually though, the switch will have to be made if your friend and the company are serious about making a successful business.

<{POST_SNAPBACK}>

He may or may not qualify for the full $80,000 exclusion, we don't have enough facts to tell. For example, if he had to travel to the U.S. extensively, his qualifying days could reduce it. He would surely qualify for the bona fide resident exclusion but the exclusion is still based on the number of qualifying days outside the U.S. If he were in the U.S. on business a pro rata share of his earnings would be treated as U.S. sourced and not subject to exclusion. The rules for this are not simple and are not a "do it yourself" project.

The tax treaty probably does nothing for him personally; it might have some benefit for the company. In general, the treaty applies to taxpayers resident in either country and doing business in the other. He does not fit this pattern and the company may not, either.

[LaReina]

I thought Thailand does not accept dual citizenship. I know I heard a TV news caster discussing this. Something to do with the new ID cards, and that people will have to choose.

In which case he would need a work permit..

Edited November 25, 2005 by LaReina

[phormio]

Thanks everyone for your rapid response. We appreciate it greatly and its very useful commentary.

[lanny]

I thought Thailand does not accept dual citizenship.  I know I heard a TV news caster discussing this.  Something to do with the new ID cards, and that people will have to choose.

In which case he would need a work permit..

<{POST_SNAPBACK}>

Well, I don't know about that and maybe there will be some changes. I thought I had heard before that dual status was not accepted. However, the only thing I know is that I have several clients who are dual citizens and they don't seem to have problems. Some are in fairly high paying, prominent positions, too. For obvious reasons, though, I can't name them.