3% Retainer Tax

[Engborg]

I'd like to better understand something referred to as the '3 % retainer tax' in Thailand for companies when employing foreign (read non-WP) freelancers (i.e. performing freelance based work without actual employment).

Anyone out there familiar with this that could bring me up to speed?

Thx!

[edwardandtubs]

Sounds like a paradigm scam to me.

[whybother]

I would take it as being a "We'll keep some of the money because you're working illegally" tax.

But actually, it's Withholding Tax that companies 'withhold' and pay to the government.

[samran]

I pay this from time to time when I hire Thai contractors.

My accountant handles the small stuff, but it certainly is a legit tax. For you it should from memory offset when you do your thai tax return.

[monkeycountry]

It is actually called withholding tax, and it works like this.

There are different rates of withholding tax, but in the case of contracted work it is 3%.

The employer will withhold 3% of the amount due, and pay this amount on behalf of the employee to the evenue department before the 7th of the following month.

The employer will issue a "receipt" to the employee, which the employee has to keep.

At the end of the fiscal year when the employee has to calculate his final income tax, he/she can deduct the withholding tax from the tax due. Ie. If the employee has to pay say 10.000 baht in income tax, but has withholding tax "receipts" worth 3.000 baht, then he will now only have to pay a further 7.000 baht in income tax, as the other 3.000 baht has already been paid on his behalf by the employer.

In other words, the money paid as withholding tax is not lost, it is simply a form of prepaid tax. In the case people cheat and do not declare their income and therefore do not pay income tax, the money is of course lost.

I hope this cleared the issue.

Remark: I am aware that I use the word employee above even though the person is not actually employed. I just don't know the right word to use - sorry :-)

Edited November 17, 2012 by monkeycountry

[monkeycountry]

One last thing. The withholding tax has nothing to do with foreigners or whether someone has a WP or not. Legally withholding tax also has to be deducted when Thais do contractual work for eachother. If a company for any reason decides not to deduct withholding tax when it contracts someone to do a job, the company will not be able to declare the job as an expense when calculating the corporate tax due at the end of the fiscal year. It is therefore very much in the interest of any legally operating company to deduct withholding tax.

[Mitker]

2 more infos I gathered so far.

- withholding tax is due on services, not goods, purchased and its rate varies according to the type of service (there's a table your accountant can provide you)

- in case the service is provided by a foreigner, he will be allowed to use the issued certificate as a tax credit in his own country if there is a bilateral agreement on fiscal matters between Thailand and his country.

[SamGio]

It is actually called withholding tax, and it works like this.

There are different rates of withholding tax, but in the case of contracted work it is 3%.

The employer will withhold 3% of the amount due, and pay this amount on behalf of the employee to the evenue department before the 7th of the following month.

The employer will issue a "receipt" to the employee, which the employee has to keep.

At the end of the fiscal year when the employee has to calculate his final income tax, he/she can deduct the withholding tax from the tax due. Ie. If the employee has to pay say 10.000 baht in income tax, but has withholding tax "receipts" worth 3.000 baht, then he will now only have to pay a further 7.000 baht in income tax, as the other 3.000 baht has already been paid on his behalf by the employer.

In other words, the money paid as withholding tax is not lost, it is simply a form of prepaid tax. In the case people cheat and do not declare their income and therefore do not pay income tax, the money is of course lost.

I hope this cleared the issue.

Remark: I am aware that I use the word employee above even though the person is not actually employed. I just don't know the right word to use - sorry :-)

Very well explained. It's what all legit authors (Thai and otherwise)here face from their publishing company. The company will withhold 3% from their author payments. The author then may claim it back or pay less additional taxes depending on the success of the book. So yes, definitely a legitimate law for IC's, freelancers etc.

[Engborg]

First, Than you all for giving me this better understanding. Excellent!

However, what I suppose I'm further trying to understand is how 'legitimate' this would be for me in the long run, being the service providing freelancer (employee to simplify), staying on a tourist visa (alternatively educational visa)?

Meaning I would obviously keep all the above mentioned 'receipts' give to me by 'employer' but assuming I would be questioned / checked upon by 'any' Thai government instance, how likely is it that these 'receipts' would clear me altogether?

In other words: I'm on tourist visa, obviously performing work on Thai soil, 3% Tax is being paid. How's that equation looking??

Hope I make sense here?

[whybother]

First, Than you all for giving me this better understanding. Excellent!

However, what I suppose I'm further trying to understand is how 'legitimate' this would be for me in the long run, being the service providing freelancer (employee to simplify), staying on a tourist visa (alternatively educational visa)?

Meaning I would obviously keep all the above mentioned 'receipts' give to me by 'employer' but assuming I would be questioned / checked upon by 'any' Thai government instance, how likely is it that these 'receipts' would clear me altogether?

In other words: I'm on tourist visa, obviously performing work on Thai soil, 3% Tax is being paid. How's that equation looking??

Hope I make sense here?

You are working here illegally so nothing to do with this is legitimate. If you were questioned/checked by the government, you would probably also be deported.

[Engborg]

First, Than you all for giving me this better understanding. Excellent!

However, what I suppose I'm further trying to understand is how 'legitimate' this would be for me in the long run, being the service providing freelancer (employee to simplify), staying on a tourist visa (alternatively educational visa)?

Meaning I would obviously keep all the above mentioned 'receipts' give to me by 'employer' but assuming I would be questioned / checked upon by 'any' Thai government instance, how likely is it that these 'receipts' would clear me altogether?

In other words: I'm on tourist visa, obviously performing work on Thai soil, 3% Tax is being paid. How's that equation looking??

Hope I make sense here?

You are working here illegally so nothing to do with this is legitimate. If you were questioned/checked by the government, you would probably also be deported.

This is what I thought. So in reality the 3% is rather for the company to stay 'clean' then, not me as a freelancer. Would you agree? Thank you

[whybother]

This is what I thought. So in reality the 3% is rather for the company to stay 'clean' then, not me as a freelancer. Would you agree? Thank you

Correct. The company will retain the withholding tax on most outgoings (except product) and pay that to the government.

[monkeycountry]

.

Edited November 18, 2012 by monkeycountry

[Engborg]

This is what I thought. So in reality the 3% is rather for the company to stay 'clean' then, not me as a freelancer. Would you agree? Thank you

Correct. The company will retain the withholding tax on most outgoings (except product) and pay that to the government.

So in a sense, if I wanted to try to stay under the radar full stop (being on a TR visa) then the fact that company hiring my freelance services (read employer) provides Thai authorities with my details (passport copy) during the process of paying the 3%, could possibly then prove counter active if unlucky...cause if wanting to stay under the radar then one should obviously try to minimize whatever info about oneself is given to authorities..

I'm not so 'worried' about the money (3%!!)' more worried that my details are going in one end (to keep the company clear) but what's coming out the other end is not going to clear / protect me at the end of the day if ever needed.

It's almost like Thai authorities welcomes the 3% coming in but it gives you absolutely nada back...am I right?

Based on this I will try to persuade the 'employer' in this case to not bother with the 3%.

What's you're take on that folks?

AND AGAIN: Thank you incredibly for swift & helpful info back on this. Immensely appreciated!

[whybother]

So in a sense, if I wanted to try to stay under the radar full stop (being on a TR visa) then the fact that company hiring my freelance services (read employer) provides Thai authorities with my details (passport copy) during the process of paying the 3%, could possibly then prove counter active if unlucky...cause if wanting to stay under the radar then one should obviously try to minimize whatever info about oneself is given to authorities..

I'm not so 'worried' about the money (3%!!)' more worried that my details are going in one end (to keep the company clear) but what's coming out the other end is not going to clear / protect me at the end of the day if ever needed.

It's almost like Thai authorities welcomes the 3% coming in but it gives you absolutely nada back...am I right?

Based on this I will try to persuade the 'employer' in this case to not bother with the 3%.

What's you're take on that folks?

AND AGAIN: Thank you incredibly for swift & helpful info back on this. Immensely appreciated!

The Thai authorities welcome the 3% because it is tax. They will give it back when you submit your tax return if you haven't gone over the tax free threshold. Then they will fine you and deport you for working without a work permit. So you get less than "nada". But you're not going to submit any tax return, so that's not an issue.

Theoretically, there is a chance that the authorities would get your details. It would be a very low chance I would think. I'm not sure the company would actually submit your passport number to the tax office. It would only be an issue if the company was audited by the tax office that they might ask about payments to you and track you down.

It would be more likely that you were dobbed in by an ex-gf.

[Engborg]

So in a sense, if I wanted to try to stay under the radar full stop (being on a TR visa) then the fact that company hiring my freelance services (read employer) provides Thai authorities with my details (passport copy) during the process of paying the 3%, could possibly then prove counter active if unlucky...cause if wanting to stay under the radar then one should obviously try to minimize whatever info about oneself is given to authorities..

I'm not so 'worried' about the money (3%!!)' more worried that my details are going in one end (to keep the company clear) but what's coming out the other end is not going to clear / protect me at the end of the day if ever needed.

It's almost like Thai authorities welcomes the 3% coming in but it gives you absolutely nada back...am I right?

Based on this I will try to persuade the 'employer' in this case to not bother with the 3%.

What's you're take on that folks?

AND AGAIN: Thank you incredibly for swift & helpful info back on this. Immensely appreciated!

The Thai authorities welcome the 3% because it is tax. They will give it back when you submit your tax return if you haven't gone over the tax free threshold. Then they will fine you and deport you for working without a work permit. So you get less than "nada". But you're not going to submit any tax return, so that's not an issue.

Theoretically, there is a chance that the authorities would get your details. It would be a very low chance I would think. I'm not sure the company would actually submit your passport number to the tax office. It would only be an issue if the company was audited by the tax office that they might ask about payments to you and track you down.

It would be more likely that you were dobbed in by an ex-gf.

On the other hand, this made me interested to better understand how & when one submits a tax return being a freelancer (& what the tax free threshold means).. From what I understand in earlier replies I shouldn't bother since I'm on TR visa, but still I'd like to gain some knowledge here.. Been searching older threads but can't seem to find anything relevant.

Will you 'save' me again "whybother"? Thx

Sent with the best of intentions!

[whybother]

On the other hand, this made me interested to better understand how & when one submits a tax return being a freelancer (& what the tax free threshold means).. From what I understand in earlier replies I shouldn't bother since I'm on TR visa, but still I'd like to gain some knowledge here.. Been searching older threads but can't seem to find anything relevant.

Will you 'save' me again "whybother"? Thx

First of all, I don't think you can have a work permit and be a freelancer. Having a work permit would mean that you work for a company and get a minimum salary each month which you also pay income tax on each month.

But, besides that, a freelancer and salaried employees submit their tax returns in about March (of the following year).

You get taxed on income based on the following rates:

- 150,000.00 0% 150,000.00 500,000.00 10% 500,000.00 1,000,000.00 20% 1,000,000.00 4,000,000.00 30% 4,000,000.00 9,999,999.00 37%

So the first 150,000 per annum is tax free, then 150K to 500K is taxed at 10% etc.

So a freelancer who earned 400,000 baht for the year, would need to pay 25,000 baht tax. They would deduct the 3% already paid (and then any other deductions that are relevant - completely different topic) and pay the remaining amount.

That's the basics.