Thai Bank Interest- USA Taxpayers-Foreign Tax Credit

[Pib]

You cannot take a credit for the following foreign taxes.

1. Taxes paid to a foreign country that you do not legally owe, including

amounts eligible for refund by the foreign country. If you do not exercise

your available remedies to reduce the amount of foreign tax to what you legally

owe, a credit for the excess amount is not allowed.

But here's the conundrum. Thai banks, withholding at the source, a flat 15% of interest -- are completely in accord with the income tax treaty with the US (and no doubt with most other countries that march to OECD guidlines). They're allowed to tax US citizens 15% of interest earnings, per the treaty -- so, yes, you can take a credit for this 15%. Only if they withheld more than the treaty allowed -- say 25% -- would you not be allowed a credit for that extra 10% withheld. But the 15% withholding, which per treaty you do "legally owe", qualifies, then, for a tax credit. The fact that the Thai tax folks offer to refund the whole enchilada is the mystery to all of this -- why are they not collecting what they legally can? And, is this for all farangs, including those who won't pay taxes to anyone -- Thailand or home country? (Pib, what does the application ask for re bonafides?)

That you don't have to file a Thai income tax statement should be irrelevant for withholding at the source taxes (but I wonder if Thai tax authorities use this as their critieria for refunding farang withholdings......?).

Thai citizens, with no US person identity, earning dividends from US sources -- get 15% withheld at the US source (30% without filing a w8BEN). They are not required to file a US tax return -- it's just 15% off the top, and go. And Thai citizens, say in the Thai tax bracket of 37%, can opt not to include the interest withheld at the source, thus not obliged to now pay 37% on this interest, vice the flat fee 15% at the source tax. Again, withheld at the source is divorced from any income tax filing requirement.

And what about the Yank, who only visits Thailand one week per year -- but who has a fixed Thai bank account with 15% withholding at the source? Is he supposed to spend vacation time hiking around a Thai tax office, filing for a refund? Not likely. And, again, it IS a legal tax being applied -- so it is eligible for a tax credit, regardless that Thailand wants to give it back. (But, that would be an interesting discussion with the IRS -- legal tax vs. I wanna give it back. Doubtful the IRS looks at tax credits from Thai income as anything other than what's said in the tax treaty.)

And, Pib -- your effective tax rate of 6% isn't what your tax credit would be worth. Certainly you're well into the 15% US marginal tax rate -- and this is what that Thai interest would be taxed at, Thus, the 15% tax credit would exactly compensate. But, yeah, if it's so easy to get those taxes back from the Thais, why not avoid a potential weird conversation with the IRS.

From Page 6 of IRS Pub 54, Foreign Tax Credit for Individuals. Notice what the first sentence says about "...reasonably certain the amount would be funded...if you make a claim."

Foreign tax refund. You cannot take a foreign tax credit for income taxes paid to a foreign country if it is reasonably certain the amount would be refunded, credited, rebated, abated, or forgiven if you made a claim. For example, the United States has tax treaties with many countries allowing U.S. citizens and residents reductions in the rates of tax of those foreign countries. However, some treaty countries require U.S. citizens and residents to pay the tax figured without regard to the lower treaty rates and then claim a refund for the amount by which the tax actually paid is more than the amount of tax figured using the lower treaty rate. The qualified foreign tax is the amount figured using the lower treaty rate and not the amount actually paid, because the excess tax is refundable.

And one might think what proof the IRS may ask for to prove a person's claim he attempted the refund and it was disapproved. One time a couple years ago from some googling on the IRS web site I found a document which said you would need to provide a copy of the refund request and disapproval document. Can't find it now...too lazy to spend much time in looking for it again, but when looking at various IRS guidance documents/instructions regarding credits, how to conduct exams/audits, etc., you will run across below statement repeatedly like below which was from an IRS audit guidance document.

However, proof must be presented upon request by the IRS to substantiate the credit.

Not so about the "Thus, the 15% would exactly compensate..." as it depends on your overall tax situation. For gee-whizzes I pulled up my 2013 federal return in my TaxAct software and lowered the amount of interest reported from my Thai bank fixed accounts by 15%...like I was not reporting the 15% tax withholding the Thai govt took so Uncle Sam would only tax me on 85% of the interest I earned. I had $789 in total fixed account interest, I reduced that by 15% which was $118 and it reduced my taxes by $15. I got a fed tax refund of $58 in 2013...it would have increased to $78 by excluding that $118 in 15% tax withheld which I instead got refunded...a $118 refund.

So, I would have saved $15 in U.S. taxes, but lost the $118 in taxes withheld by the Thai govt by not doing the refund request, which equates to me losing out out on $103 because I didn't file for a Thai tax refund that is easy to do since I live in Thailand, tax office only a couple kilometers away, and it's a simple process. Now maybe filing a Form 1116 Foreign Tax Credit would have given me dollar for dollar credit...I'm too lazy to see how that might calculate out plus since I can get a refund it's not a player anyway. From other Thai Visa posts apparently some folks have done the refund online....online works from anywhere in the world...but you need a tax number first which usually requires a visit to the tax office or filing that first refund request in person. Expect a person could also mail-in a refund request....but don't ask me the process if there is a mail in process because I don't know....I just visit my local tax office.

Now for someone not living in Thailand do you really think the IRS would approve a foreign tax credit during an audit just because the person says he don't live in Thailand full time, only visits it occasionally, I couldn't go to the Thai revenue office to request a refund, do it online, or mail in a request...basically he just invests in a Thailand, never attempts a tax refund, and instead just takes the U.S. foreign tax credit causing Uncle Sam to lose out on tax dollars while allowing a foreign govt to keep those dollars Uncle Sam should get. I think I know what the IRS Auditor's answer would be.

Edited October 7, 2014 by Pib

[Pib]

No, it's not too late...you can claim 3 years back. You would have normally applied during Jan-Mar for 2013 taxes, but now there will be a late filing fee of only approx Bt200.

So in November of this year I can apply for a refund for 2011, 2012, and 2013.

I guess I'm too late for 2010?

Why do you say November? Maybe a fixed account maturing in Nov? Maybe you will be in Thailand in Nov? Anyway, for the 2014 tax year (i.e., taxes withheld in 2014) you would apply in Jan-Mar 15. The normal tax filing window is Jan-Mar in Thailand, but that don't mean you can't file outside of that window...just like filing in the U.S. in that they have the magic normal filing window of "file from 1 Jan but NLT 15 Apr" each year...anything outside that window is covered by a waiver and/or late filing fee/interest, etc.

Since they say you can apply for 3 years back i think that means 2013, 2012, and 2011 at this point in time...and you could file those now/this year although there would be a small fine for late filing like Bt200 per year or something like that based on posts of folks who filed for back year interest refunds. But wait unit 1 Jan 2015 to apply for back years and I think it would then only include 2014, 2013, and 2012. So if you got back year refunds to apply going back to 2012 do it by 31 Dec 14 otherwise you'll lose out on one previous year which would be 2011 in this case. I "think" this is the way it works...ask your local tax office to be sure.

According to a PWC Tax Services document on the web as quote below:

A claim for a tax year must be submitted to the tax authority within three years from the last day of the year in which the excess amount was withheld.

[Pib]

TallGuy,

I've never got any such year end statements....Thai banks just don't do that to the best of my knowledge. Maybe you can go ask for one...I couldn't say...but it probably wouldn't be anything other than a printout of all your transactions and interests transactions for the year. I just keep track of interest earned in my passbook savings book and/or printout from my ibanking....scan/save that data to my computer tax file. Then I just create a 1099INT entry in my federal return tax software (I use TaxAct) to report the interest earned to Uncle Sam. Been doing this for years. Heck, I even report interest amounts for less than $10 which U.S. banks are not even required to generate a 1099INT for....to this day I don't think adding in those under $10 amounts...usually way less than $10...has increased my taxes by one penny.

Thanks Pib.... Now that Thai banking is getting into the FATCA world, I wonder if they'll start generating anything like a 1099 for their U.S. account holders. I doubt it, but, you never know.

Anything is possible, but if I was a betting man I would be betting they won't. Banks will probably just provide a data retrieval to the IRS under FATCA and they'll be done.

Now excluding the interest tax refund request I do each year I don't file a Thai tax return, but do Thai banks automatically provide any tax documents to customers for income filing purposes? I expect a Thai citizen/farang who needs to file a Thai tax return can go to his bank and get some document showing total interest earned and/or tax withheld during the year kinda like how I go get a letter from the bank each year stating they withheld X-amount interest due to the 15% tax withholding requirement on a traditional fixed savings account. I sure know I never got anything automatically in the mail...I have to go ask for the tax letter from the bank.

[el jefe]

But here's the conundrum. Thai banks, withholding at the source, a flat 15% of interest -- are completely in accord with the income tax treaty with the US (and no doubt with most other countries that march to OECD guidlines). They're allowed to tax US citizens 15% of interest earnings, per the treaty -- so, yes, you can take a credit for this 15%. Only if they withheld more than the treaty allowed -- say 25% -- would you not be allowed a credit for that extra 10% withheld. But the 15% withholding, which per treaty you do "legally owe", qualifies, then, for a tax credit. The fact that the Thai tax folks offer to refund the whole enchilada is the mystery to all of this -- why are they not collecting what they legally can? And, is this for all farangs, including those who won't pay taxes to anyone -- Thailand or home country? (Pib, what does the application ask for re bonafides?)

That you don't have to file a Thai income tax statement should be irrelevant for withholding at the source taxes (but I wonder if Thai tax authorities use this as their critieria for refunding farang withholdings......?).

Thai citizens, with no US person identity, earning dividends from US sources -- get 15% withheld at the US source (30% without filing a w8BEN). They are not required to file a US tax return -- it's just 15% off the top, and go. And Thai citizens, say in the Thai tax bracket of 37%, can opt not to include the interest withheld at the source, thus not obliged to now pay 37% on this interest, vice the flat fee 15% at the source tax. Again, withheld at the source is divorced from any income tax filing requirement.

And what about the Yank, who only visits Thailand one week per year -- but who has a fixed Thai bank account with 15% withholding at the source? Is he supposed to spend vacation time hiking around a Thai tax office, filing for a refund? Not likely. And, again, it IS a legal tax being applied -- so it is eligible for a tax credit, regardless that Thailand wants to give it back. (But, that would be an interesting discussion with the IRS -- legal tax vs. I wanna give it back. Doubtful the IRS looks at tax credits from Thai income as anything other than what's said in the tax treaty.)

And, Pib -- your effective tax rate of 6% isn't what your tax credit would be worth. Certainly you're well into the 15% US marginal tax rate -- and this is what that Thai interest would be taxed at, Thus, the 15% tax credit would exactly compensate. But, yeah, if it's so easy to get those taxes back from the Thais, why not avoid a potential weird conversation with the IRS.

From Page 6 of IRS Pub 54, Foreign Tax Credit for Individuals. Notice what the first sentence says about "...reasonably certain the amount would be funded...if you make a claim."

And one might think what proof the IRS may ask for to prove a person's claim he attempted the refund and it was disapproved. One time a couple years ago from some googling on the IRS web site I found a document which said you would need to provide a copy of the refund request and disapproval document. Can't find it now...too lazy to spend much time in looking for it again, but when looking at various IRS guidance documents/instructions regarding credits, how to conduct exams/audits, etc., you will run across below statement repeatedly like below which was from an IRS audit guidance document.

Not so about the "Thus, the 15% would exactly compensate..." as it depends on your overall tax situation. For gee-whizzes I pulled up my 2013 federal return in my TaxAct software and lowered the amount of interest reported from my Thai bank fixed accounts by 15%...like I was not reporting the 15% tax withholding the Thai govt took so Uncle Sam would only tax me on 85% of the interest I earned. I had $789 in total fixed account interest, I reduced that by 15% which was $118 and it reduced my taxes by $15. I got a fed tax refund of $58 in 2013...it would have increased to $78 by excluding that $118 in 15% tax withheld which I instead got refunded...a $118 refund.

So, I would have saved $15 in U.S. taxes, but lost the $118 in taxes withheld by the Thai govt by not doing the refund request, which equates to me losing out out on $103 because I didn't file for a Thai tax refund that is easy to do since I live in Thailand, tax office only a couple kilometers away, and it's a simple process. Now maybe filing a Form 1116 Foreign Tax Credit would have given me dollar for dollar credit...I'm too lazy to see how that might calculate out plus since I can get a refund it's not a player anyway. From other Thai Visa posts apparently some folks have done the refund online....online works from anywhere in the world...but you need a tax number first which usually requires a visit to the tax office or filing that first refund request in person. Expect a person could also mail-in a refund request....but don't ask me the process if there is a mail in process because I don't know....I just visit my local tax office.

Now for someone not living in Thailand do you really think the IRS would approve a foreign tax credit during an audit just because the person says he don't live in Thailand full time, only visits it occasionally, I couldn't go to the Thai revenue office to request a refund, do it online, or mail in a request...basically he just invests in a Thailand, never attempts a tax refund, and instead just takes the U.S. foreign tax credit causing Uncle Sam to lose out on tax dollars while allowing a foreign govt to keep those dollars Uncle Sam should get. I think I know what the IRS Auditor's answer would be.

If the total foreign tax withheld from all sources is under $600 then you don't have to bother with all the calculations on Form 1116 and you can elect to claim the refund without Form 1116. Therefore JimGant's math is correct and you would get a dollar for dollar refund of the exact amount withheld.

However, I too disagree with his concept that because they are sort of voluntarily giving it back that you can claim the credit on your US tax return. I agree with Pib. The IRS regs seem pretty clear. A refundable tax in Thailand would not be eligible for the US credit.

As Pib stated in an earlier post, only 1% of US taxpayers making under $200k get audited. But even that 1% is not random. If you have no other reason to be audited, it is extremely unlikely that claiming a FTC for Thai taxes w/h on interest would trigger that audit. Even under the new FATCA rules, as long as you've reported the income, there's no reason the IRS would look at your return. It's still wrong. But it's no different than exaggerating any of your deductions, like claiming a charitable contribution for money given to a Thai charity, not registered in the US. So you shouldn't lose sleep if you erroneously claimed the credit in prior years.

[Pib]

And, Pib -- your effective tax rate of 6% isn't what your tax credit would be worth. Certainly you're well into the 15% US marginal tax rate -- and this is what that Thai interest would be taxed at, Thus, the 15% tax credit would exactly compensate. But, yeah, if it's so easy to get those taxes back from the Thais, why not avoid a potential weird conversation with the IRS.

Jim,

When the dust settles on a federal return it's basically the total taxable amount (i.e., your adjusted gross income minus your deductions/credits) that determine a person's tax...and yea, I know it's really not that simple but it's still pretty close to the end result. If a person's total taxable income say increases by $100, does that mean his tax will increase by 15%...no. For example, say a couple filing a joint return had a taxable income of $51,000...well, per the 2013 tax tables their tax would be $6,761 which is a 13.25% effective tax rate if referenced to taxable income...and much less than 13.25% if referenced to their gross income before the deductions/credits are applied. And if the couple's taxable income was $51,050 it would still be $6,761 in taxes...no increase at all since the tax tables are generally in $50 taxable income increments. Preaching to the choir I know. See a cut and paste from the 2013 tax tables below.

Now let's say the couple's taxable income goes to $51,100...a $100 increase form $51,000...would their tax increase by $15 representing 15%? No, it would increase by only $8 to $6,768 using the tax tables which is only a 8% effective change rate on that $100 dollar taxable income increase. And if it went up $150 from $51,000 to $51,150 the tax increase would only be $15 which is only a 5.3% effective change rate on that $150 amount. The $118 in 15% Thai tax withholding to the Thai govt on my fixed saving account fits within that $150 change range which only results in a $15 tax change with Uncle Sam like I mentioned in my earlier post.

Yeap, better to give Uncle Sam $15 more tax dollars by getting the $118 refund from the Thai govt (easy enough to do for most) versus letting them keep the $118 and then falsely claim a foreign tax credit and possibly worry about an audit down the road. As mentioned earlier I can't speak from personal experience how completion of the Form 1116 works out for an individual money-wise...but a person needs to be able to legally use that form vs just using it because they didn't file for a refund of the tax sent to Thai govt (a.k.a., Uncle Somchai).

Pib

Edited October 7, 2014 by Pib

[JimGant]

Now for someone not living in Thailand do you really think the IRS would approve a foreign tax credit during an audit just because the person says he don't live in Thailand full time, only visits it occasionally, I couldn't go to the Thai revenue office to request a refund, do it online, or mail in a request...basically he just invests in a Thailand, never attempts a tax refund....

Yes, especially fitting for US investors who never have or will go to Thailand, but like to have worldwide investments, to include some in Thailand.

The only publication the auditor would check is the relevant tax treaty, and the percentage allowed to be withheld at the source. Since in this example the amount allowed exactly matches (15%), no further questions (and most likely no audit at all, since that 15% tax credit would fit the data base, and not set off any alarms). And it's doubtful there's an asterisk in the data base saying: "Thailand chooses to refund taxes they're legally entitled to under treaty."

...and instead just takes the U.S. foreign tax credit causing Uncle Sam to lose out on tax dollars while allowing a foreign govt to keep those dollars Uncle Sam should get. I think I know what the IRS Auditor's answer would be.

Ah, but that's the rub. Under the treaty, it's Thailand, not Uncle Sam, who is entitled to those tax dollars.

The IRS regs seem pretty clear. A refundable tax in Thailand would not be eligible for the US credit.

Actually, pretty grey, not clear, as they further go on to define what "refundable" means -- and their definition is tax withheld over and above what is allowed in the tax treaty, what they call a "qualified foreign tax."

However, some treaty countries require U.S. citizens and residents to pay the tax figured without regard to the lower treaty rates and then claim a refund for the amount by which the tax actually paid is more than the amount of tax figured using the lower treaty rate. The qualified foreign tax is the amount figured using the lower treaty rate and not the amount actually paid, because the excess tax is refundable.

Anyway, if it's easier to go to the local tax office for a refund, then that's the way to go. However, if taking a tax credit on your US filing is easier, I wouldn't sweat an audit -- but if audited, I sure would show that only the "qualified foreign tax" (i.e., that allowed by treaty) is involved, and thus by IRS definition/explanation, no "refundable" tax is in evidence.

[JimGant]

Pib,

All the math aside, you'd be in the same position, whether you took the $108 credit on Form 1040, or pocketed the $108 refund from Thai tax authorities. In both situations, on your 1040, your taxable income is the same, and your tax on line 44 would be the same. The only difference is, if you took the tax credit on Form 1040, your taxes owed would be reduced by $108. But if you didn't take the credit, but took the Thai tax refund, you'd have $108 in your pocket. Samo samo.

But, yeah, if it's as easy as you say -- and the Thai tax office has pretty clerks -- why not.

[Pib]

My tax office building is a 4 story building. The great majority of my tax refund submission is completed on the 2nd floor which is full of very helpful ladies in their 50s...well pass their beauty pageant days. After these helpful ladies get done with tax refund form, they hand it to me and I take it downstairs to the 1st floor for some quick final processing and the 1st floor is full of young, pretty clerks. Now I mentioned the tax building also had 3rd and 4th floor. Since the age of the clerks seems to migrate upward in the building I'm figuring the 3rd floor is a tax clerk retirement home and the 4th floor a tax clerk mausoleum. Cradle to grave tax clerk employment support.

But seriously, for the last two years I've filed for the refund, my tax office has been super helpful (knock on wood)...they pretty much fill out the entire one page form for me...tell me to sign here...attach the bank tax letter and copy of passbook, copy of passport main page, and then 4 to 6 weeks later I get the refund. First year they paid the refund in cash at the tax office...2nd year I got a check in the mail....I think the check in the mail is the norm now.

[JMWPACIFIC]

Since I just learned about this world of Thai tax refunds only a few days ago, I went to BBL today and got a copy of the Tax Certificate form they give at maturity of Fixed Accounts. My next trip is to the Revenue Office to learn what they require for annual refunds as well as refunds for past years. I, as well as someone else here on the forum, asked where the RO was for the Pattaya area. In case anyone needs it, it is the Chonburi Area Revenue Office located on Chom Thien (Jomtien) Sai 2 Rd. apparently near the Immigration Office.

The rep at BBL said there are limits to the amount of refund. Any idea whether this is true? Because the 2012 past year refund I will be seeking is for 116,000 baht, I wonder what I'm up against. Other years are for much smaller amounts.

Thanks again for all the thoughtful comments.

[Pib]

Since I just learned about this world of Thai tax refunds only a few days ago, I went to BBL today and got a copy of the Tax Certificate form they give at maturity of Fixed Accounts. My next trip is to the Revenue Office to learn what they require for annual refunds as well as refunds for past years. I, as well as someone else here on the forum, asked where the RO was for the Pattaya area. In case anyone needs it, it is the Chonburi Area Revenue Office located on Chom Thien (Jomtien) Sai 2 Rd. apparently near the Immigration Office.

The rep at BBL said there are limits to the amount of refund. Any idea whether this is true? Because the 2012 past year refund I will be seeking is for 116,000 baht, I wonder what I'm up against. Other years are for much smaller amounts.

Thanks again for all the thoughtful comments.

I can't really say what the yearly limit may be but I expect once your exceed the Bt150K tax exemption you are probably into the land of a tax return. Each office seems to handle the tax refund differently in the forms they use. Now I do remember last year when I applied for my refund the lady did say if the refund was for over Bt50K I had to go to another office to initiate the process...it was in the same building...just another office I would have to go to and I expect the process/forms would be somewhat different...maybe that was just my local office's policy...I really don't know. Just let the tax revenue folks guide you through the process. Good luck.

[JMWPACIFIC]

Since I just learned about this world of Thai tax refunds only a few days ago, I went to BBL today and got a copy of the Tax Certificate form they give at maturity of Fixed Accounts. My next trip is to the Revenue Office to learn what they require for annual refunds as well as refunds for past years. I, as well as someone else here on the forum, asked where the RO was for the Pattaya area. In case anyone needs it, it is the Chonburi Area Revenue Office located on Chom Thien (Jomtien) Sai 2 Rd. apparently near the Immigration Office.

The rep at BBL said there are limits to the amount of refund. Any idea whether this is true? Because the 2012 past year refund I will be seeking is for 116,000 baht, I wonder what I'm up against. Other years are for much smaller amounts.

Thanks again for all the thoughtful comments.

I can't really say what the yearly limit may be but I expect once your exceed the Bt150K tax exemption you are probably into the land of a tax return. Each office seems to handle the tax refund differently in the forms they use. Now I do remember last year when I applied for my refund the lady did say if the refund was for over Bt50K I had to go to another office to initiate the process...it was in the same building...just another office I would have to go to and I expect the process/forms would be somewhat different...maybe that was just my local office's policy...I really don't know. Just let the tax revenue folks guide you through the process. Good luck.

Thanks for the heads up. The last thing I need is to have to start filing tax returns here---the IRS is enough already!!

[Pib]

Since I just learned about this world of Thai tax refunds only a few days ago, I went to BBL today and got a copy of the Tax Certificate form they give at maturity of Fixed Accounts. My next trip is to the Revenue Office to learn what they require for annual refunds as well as refunds for past years. I, as well as someone else here on the forum, asked where the RO was for the Pattaya area. In case anyone needs it, it is the Chonburi Area Revenue Office located on Chom Thien (Jomtien) Sai 2 Rd. apparently near the Immigration Office.

The rep at BBL said there are limits to the amount of refund. Any idea whether this is true? Because the 2012 past year refund I will be seeking is for 116,000 baht, I wonder what I'm up against. Other years are for much smaller amounts.

Thanks again for all the thoughtful comments.

I can't really say what the yearly limit may be but I expect once your exceed the Bt150K tax exemption you are probably into the land of a tax return. Each office seems to handle the tax refund differently in the forms they use. Now I do remember last year when I applied for my refund the lady did say if the refund was for over Bt50K I had to go to another office to initiate the process...it was in the same building...just another office I would have to go to and I expect the process/forms would be somewhat different...maybe that was just my local office's policy...I really don't know. Just let the tax revenue folks guide you through the process. Good luck.

Thanks for the heads up. The last thing I need is to have to start filing tax returns here---the IRS is enough already!!

Well, from what I read it's not really a tax return like you are thinking about...just more detailed/different form needed. It's not like you are then on the hook to file tax returns in Thailand each year after that or you U.S. income comes under scrutiny in Thailand...no, nothing like that. Hopefully, once you get "one refund" under your belt and of course some miss-communications that could go along with it, you'll feel more comfortable with the process. Good luck.

[JMWPACIFIC]

Since I just learned about this world of Thai tax refunds only a few days ago, I went to BBL today and got a copy of the Tax Certificate form they give at maturity of Fixed Accounts. My next trip is to the Revenue Office to learn what they require for annual refunds as well as refunds for past years. I, as well as someone else here on the forum, asked where the RO was for the Pattaya area. In case anyone needs it, it is the Chonburi Area Revenue Office located on Chom Thien (Jomtien) Sai 2 Rd. apparently near the Immigration Office.

The rep at BBL said there are limits to the amount of refund. Any idea whether this is true? Because the 2012 past year refund I will be seeking is for 116,000 baht, I wonder what I'm up against. Other years are for much smaller amounts.

Thanks again for all the thoughtful comments.

I can't really say what the yearly limit may be but I expect once your exceed the Bt150K tax exemption you are probably into the land of a tax return. Each office seems to handle the tax refund differently in the forms they use. Now I do remember last year when I applied for my refund the lady did say if the refund was for over Bt50K I had to go to another office to initiate the process...it was in the same building...just another office I would have to go to and I expect the process/forms would be somewhat different...maybe that was just my local office's policy...I really don't know. Just let the tax revenue folks guide you through the process. Good luck.

Thanks for the heads up. The last thing I need is to have to start filing tax returns here---the IRS is enough already!!

Well, from what I read it's not really a tax return like you are thinking about...just more detailed/different form needed. It's not like you are then on the hook to file tax returns in Thailand each year after that or you U.S. income comes under scrutiny in Thailand...no, nothing like that. Hopefully, once you get "one refund" under your belt and of course some miss-communications that could go along with it, you'll feel more comfortable with the process. Good luck.

Phew!!! Many thanks.

[JimGant]

Because the 2012 past year refund I will be seeking is for 116,000 baht,

....which means you had nearly 775,000 baht in interest earnings...which means, you're subject to Thai taxes, as this income is derived from within Thailand. However, the Thai tax code says you can treat this 15% withholding at source taxation as a separate entity from other income subject to Thai taxation. This is why those in the high 37% Thai tax bracket obviously choose to keep this as a separate entity, thus only paying 15%, not 37%.

If aside from this interest you're not subject to Thai taxes, I don't think you are required to file a Thai tax form, as the 15% withholding at source takes care of matters. But having said that, I would expect the 116,000 you've already contributed to paying rice farmers will not be coming back (or, if some how you'd pay less than 15% by filing, maybe you'll be allowed to file a delinquent tax form......(?)

[Pib]

Gosh, to earn that amount of interest say on a 12 month, 4% interest fixed account a person would need around Bt20M invested. 4% of Bt20M is Bt800K...and 15% tax withholding of that Bt800K is Bt120K which is pretty close to the Bt116K interest withheld.

I want to go live with JMWPACIFIC...but if he turns me away I will settle for JimGant.

[JimGant]

JMW, did you have a tax credit for that Thai taxation in your 2012 US 1040?

Pib, yeah, having $600,000 in a Thai fixed account is kinda gutsy.....(have a feeling that 116,000 is interest earned, not the 15% tax withheld).

[Bababooey]

Why do you say November? Maybe a fixed account maturing in Nov? Maybe you will be in Thailand in Nov? A claim for a tax year must be submitted to the tax authority within three years from the last day of the year in which the excess amount was withheld.

I'll be back in Thailand in November.

So I'll get the tax letter from Krungsri for 2011, 2012,and 2013 and bring them to the tax office though no one seems to know where it is in Pattaya.

Btw, what I had been doing is reporting the net interest minus the tax to the iRS.

This year, I'll do it properly.

Guys like us in a very ow tax bracket generally don't get audited but having foreign bank accounts might increase the odds and a foreign tax credit might increase it further.

Dealing with an audit from Thailand would be a royal PIA so am glad that I asked thi question before taking the credit which TaxAct makes so easy.

Thanks again for the help!

[Bababooey]

. I, as well as someone else here on the forum, asked where the RO was for the Pattaya area. In case anyone needs it, it is the Chonburi Area Revenue Office located on Chom Thien (Jomtien) Sai 2 Rd. apparently near the Immigration Office.

Thanks!

[JMWPACIFIC]

I'm new to this forum and have not had many posts. For some reason, I'm not able to reply to th posts of Jim Gant and PIB. So:

Jim Gant

You are confusing me with the 15% & 37% rates. Aren't we all subject to the 15% Thai taxes as income at the source but through some quirk, the Thai authorities show tremendous largesse in allowing a refund?

Re the rice farmers, why would you expect the amount not to come back? Because it's for a prior year or the size of the claim or some other reason?

Yes, I reported on my 1040 but the actual detail is on Form 1116. The interest earned was 779,800 and tax W/H was 116,970

PIB

I went back to my records and it was actually on my 2013 return. The Time Deposit was for 18 months @ 3.65%.

Yes, you can come to live with me but maybe Jim Gant will want joint custody of you.!!

Thanks very much to you both.

[JimGant]

Aren't we all subject to the 15% Thai taxes as income at the source but through some quirk, the Thai authorities show tremendous largesse in allowing a refund?

Yes, but as best I can figure, we're caught up in this largesse because ALL holders of fixed income accounts, including all Thais, are subject to this 15%, including many (like my gardener) who don't make enough to require filing a tax form. Farangs (most anyways), too, don't make enough to file a Thai tax form -- if the only related Thai income is this interest -- unless that interest is sufficiently large, like yours, to now push you into a taxable bracket. Now, I'm not sure what my gardner had to do to prove a negative (i.e., he didn't earn enought to be taxed, thus he got his 15% withholding refunded). For farangs, Thai tax authorities know that farang income earned abroad is untouchable -- so if the only income they're concerned about is the Thai interest earned, and it doesn't broach the first tax bracket, well, simple enough -- issue a refund. But, your 780,000 in interest has caused you to cross into Thai tax territory.

Re the rice farmers, why would you expect the amount not to come back?

Again, because you earned enough in Thailand to now be subject to Thai taxation. At best, as I can figure, what you could get back is -- after filing a Thai tax form, and your tax rate is less than 15%,-- you could get back the difference.

Yes, I reported on my 1040 but the actual detail is on Form 1116. The interest earned was 779,800 and tax W/H was 116,970

Uh, you do realize you'll be double dipping (er, cheating). You've already gotten that Thai 15% tax back, via the Form 1116 Tax Credit route. But, of course, when you read Pub 514, you'll know that you're requred to file an amended Form 1040 when you subsequently receive a refund for taxes you've claimed a credit for.

You are required to notify the IRS about a foreign tax credit redetermination that affects your U.S. tax liability for each tax year affected by the redetermination. In most cases, you must file Form 1040X, Amended U.S. Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient

for the IRS to redetermine your U.S. tax liability for the year or years affected

So, I'd forget trying for the Thai tax refund. You've already gotten that tax back via US tax credit. If, for some reason, you're trying to come clean, thinking that tax credit was not allowable because of the Thai refund policy -- well, re-read all the above, i.e., the very minute chance of being audited. AND, even if you were, the IRS wording gives you solid ground to substantiate your tax credit. But more importantly, because that interest you earned was so much, you probably aren't even eligible for a refund. Thus, full circle to why your US tax credit if fully substantiated.

Suggestion: Leave things as they are, and go have a beer.

[JMWPACIFIC]

More sage insight and thanks. Yes, even without knowing about Pub 514 which I will now read, I know I would be double dipping if I got the refund an did not have my accountant file an amended return. I think I cannot forget about "trying for the Thai tax refund" because I want my record to be clean for the future in this FATCA/big brother world. If I'm denied a refund, so be it and I will have documentation to back up my 1040 credit claim. If I get a refund, I make no 1040 credit claim. This will be a recurring "problem" for me (next time even greater in 2015 tax year) and I may as well get the record straight and have my tax returns totally accurate.

While I can't leave things the way they are, I'll have a beer anyway and toast you.

[Pib]

jmw,

OK, so the gross interest earned was Bt779,800 and tax W/H was Bt116,970. I expect when you file for the refund you won't get back the entire Bt116,970 withheld unless some other tax provision allows it which is quite possible. After whatever exemptions/allowanes are applied which may apply in your case, like maybe you being over 65 which could raise the exempt amount from Bt150K to BT190K...like the Bt30K personal allowance, etc., I expect the interest will be taxed at a sliding scale rate along the lines to below basic Thai tax table where the first Bt150K of net income would be tax free, the Bt150K to Bt300K taxed at 5%, Bt300K to Bt500K taxed at 10%, and Bt500K to Bt750K taxed at 15%. It's kinda like the sliding scale pricing used on your electric bill...lower amounts are less per kilowatt hour used and more for higher amounts....so you final electric bill ends up being a mix of several rates. So when the refund dust settles it may be a sliding scale amount since the net interest is above the Bt150K exempt amount.

Also, take a look at this PWC 2013 Thai Tax Booklet which is in layman's terms and where I cut below tax table from.

And here's the Thailand Revenue Office webpage giving a summary of tax rates, allowances, etc.

Also be to sure to point out your "only" income is the interest you earn on the Thai bank accounts...don't confuse them with other income from outside of Thailand....just let them focus on the interest income you asking to be refunded. And using "a puppy dog eyes look" should also help....it seems to for me at the tax office.

I've decided to come live with you in Pattaya because although JimGant is rich too, unless Jim has moved he lives in Chiang Mai which is too cold for me in the winter at night...plus, due to electricity costs he's don't use shower water heaters...I would die instantly with cold, cold shower water hitting me in the winter in Chiang Mai.

[JMWPACIFIC]

jmw,

OK, so the gross interest earned was Bt779,800 and tax W/H was Bt116,970. I expect when you file for the refund you won't get back the entire Bt116,970 withheld unless some other tax provision allows it which is quite possible. After whatever exemptions/allowanes are applied which may apply in your case, like maybe you being over 65 which could raise the exempt amount from Bt150K to BT190K...like the Bt30K personal allowance, etc., I expect the interest will be taxed at a sliding scale rate along the lines to below basic Thai tax table where the first Bt150K of net income would be tax free, the Bt150K to Bt300K taxed at 5%, Bt300K to Bt500K taxed at 10%, and Bt500K to Bt750K taxed at 15%. It's kinda like the sliding scale pricing used on your electric bill...lower amounts are less per kilowatt hour used and more for higher amounts....so you final electric bill ends up being a mix of several rates. So when the refund dust settles it may be a sliding scale amount since the net interest is above the Bt150K exempt amount.

Also, take a look at this PWC 2013 Thai Tax Booklet which is in layman's terms and where I cut below tax table from.

And here's the Thailand Revenue Office webpage giving a summary of tax rates, allowances, etc.

Also be to sure to point out your "only" income is the interest you earn on the Thai bank accounts...don't confuse them with other income from outside of Thailand....just let them focus on the interest income you asking to be refunded. And using "a puppy dog eyes look" should also help....it seems to for me at the tax office.

I've decided to come live with you in Pattaya because although JimGant is rich too, unless Jim has moved he lives in Chiang Mai which is too cold for me in the winter at night...plus, due to electricity costs he's don't use shower water heaters...I would die instantly with cold, cold shower water hitting me in the winter in Chiang Mai.

taxtableCapture.JPG

[JMWPACIFIC]

Great!! So now I have a Tax Expert in CM as well as BKK. You can bunk with Jim Gant April to September and myself the rest of the year.

It will be very interesting how this all plays out.

Thanks for the Tax Booklet.

Cheers

[Pib]

Since the possibility of IRS audit has been mentioned several times in this thread, go to this webpage to see the IRS Manual Part 4 Examing Process, Chapter 61 International Guidelines, Section 10 Foreign Tax Credit to see how an IRS Auditor is instructed to scrutinize a foreign tax credit claim.

While a lot of detailed instructions are given, Paragraph 4.61.10.11 provides the "General Audit Guidelines." You will notice the very first guideline is and to partially quote:

1. Forms 1116 for individuals and 1118 for corporations are an excellent guide for the IE...

So, I expect the auditor will use the Form 1116 instructions as a starting point. OK, let's go to the Form 1116 Instructions, Page 1, where it states:

See Foreign Taxes Eligible for a Credit later to determine if the taxes you paid or accrued qualify for the credit.

Ok, when going to "Foreign Taxes Eligible for a Credit" on the Form 116 Instructions, Page 2, and look at the first piece of guidance:

Foreign Taxes Not Eligible for a Credit

You cannot take a credit for the following foreign taxes.

1. Taxes paid to a foreign country that you do not legally owe, including amounts eligible for refund by the foreign country. If you do not exercise your available remedies to reduce the amount of foreign tax to what you legally owe, a credit for the excess amount is not allowed.

The key point above I think is "...eligible for refund by the foreign country." And as already mentioned in an earlier post, a partial quote from IRS Pub 514 Foreign Tax Credit for Individuals, Page 6, follows:

Tax Must Be the Legal and Actual Foreign Tax Liability

The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit.

Foreign tax refund. You cannot take a foreign tax credit for income taxes paid to a foreign country if it is reasonably certain the amount would be refunded, credited, rebated, abated, or forgiven if you made a claim.

Now, with all of above being said or quoted from IRS manuals, instructions, forms, etc., a person stills needs to review all the guidance on the Foreign Tax Credit to determine if they can or can not claim it. Lord knows it's complicated and confusing...at least to me it is. Plenty of additional details/info in the manuals/instructions/forms/tax treaty/etc., which may allow you to claim it. Ultimately, it's the individual signing his federal return that is responsible for its accuracy and not his accountant, tax software, etc.

[JMWPACIFIC]

Gosh, you are good!! Are you a Big 4 Tax Partner? Otherwise, I'm beginning to think this is an IRS sting just waiting for to me take the wrong path, Just kidding!

As I said in an earlier post, "I think I cannot forget about "trying for the Thai tax refund" because I want my record to be clean for the future in this FATCA/big brother world. If I'm denied a refund, so be it and I will have documentation to back up my 1040 credit claim. If I get a refund, I make no 1040 credit claim."

Thanks again Pib.

[Pib]

Oh, my last post was not directed at you. I just wanted to summarize some references regarding the foreign tax credit into one post. Will hopefully come in handy for some folks whether they like what the references say or not.

[JimGant]

Since the possibility of IRS audit has been mentioned several times in this thread, go to this webpage to see the IRS Manual Part 4 Examing Process, Chapter 61 International Guidelines, Section 10 Foreign Tax Credit to see how an IRS Auditor is instructed to scrutinize a foreign tax credit claim.

Going there, you'll find that, as has been previously said, there would be nothing in your tax filing to trigger an audit, since the withholding rate is exactly as stated in the tax treaty between the US and Thailand, i.e., 15%

"Match treaty rate with actual amounts paid..... [be aware that] a tax paid in excess of a treaty rate is not a compulsory payment and would not be creditable."

....and once again, the IRS is only looking for "refundable" amounts as defined by amounts over and above the treaty amounts. Only if the audit agent reads Thaivisa, would he probably know there's a country out there that doesn't wish to add to its coffers from perfectly legal tax treaty income.... (but, yeah, the blanket statement "if it's not refundable, it's not allowable" is pretty intimidating -- until you read the IRS examples about what that means).

But if somehow audited, paying taxes to Thailand and not the US (instead of vice versa), is not ducking taxes. No consequences -- just more paper generated.

I think I cannot forget about "trying for the Thai tax refund" because I want my record to be clean for the future in this FATCA/big brother world.

Well, ok. That should be interesting, If you get it all back, I would hope someone reading this in authority (ha, ha) would realize that taxes are lost by not using criteria to identify treaty allowed taxes. If they wake up: For Yanks -- no difference in tax liability (pay either Thailand, or pay the US). For Europeans, well, maybe now pay a tax for the first time -- and this to Thailand. If a few more potholes get fixed in consequence, well golly.....