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The Thailand–Japan double tax treaty currently in force is the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, signed in Tokyo on 7 April 1990 together with a Protocol. It entered into force on 30 August 1990, replacing the 1963 Convention, and since 2023 it must be read together with the Multilateral Instrument (MLI), which modifies certain articles. The Convention limits the tax that the source State may levy: dividends at 15 or 20 percent, only for a company holding at least 25 percent of the voting shares; interest at 10 percent where the recipient is a financial institution and 25 percent in other cases; and royalties at 15 percent. Service fees earned by a Japanese company without a permanent establishment in Thailand are business profits that Thailand cannot tax, and furnishing services in Thailand constitutes a permanent establishment once it exceeds six months within any twelve-month period. This article reads the Convention article by article from the English original and the Revenue Department's Thai translation, and compares it with Sections 40, 41, 50 and 70 of the Revenue Code.
Legal status as of 23 October 2026: The Thailand–Japan Convention signed on 7 April 1990 and the Protocol annexed to it are in force. The Revenue Department's list of tax treaties states that this Convention has been modified by the MLI and that the MLI entered into force on 1 July 2022.1 The original was done in English only.2 The wording quoted in the notes is therefore taken from the English text published by the Ministry of Finance of Japan in its synthesised text with the MLI, checked against the Revenue Department's Thai translation. The Thai statutory rates are taken from Sections 50 and 70 and the current Income Tax Rate Schedule on the Revenue Department's website. This page is an English translation of the Thai original; the Thai text prevails.
Key points
- The Convention in force was signed on 7 April 1990 and took effect on 30 August 1990; the MLI applies to withholding taxes where the event giving rise to the tax occurs on or after 1 January 2023.
- Dividends paid by a Thai company to Japan are taxed at 10 percent under Section 70, because the Article 10 rates of 15 or 20 percent are higher than Thai law; the Convention gives no relief here.
- Interest paid to a Japanese financial institution or insurance company is reduced to 10 percent, while interest on intra-group loans remains at 15 percent under Section 70.
- Royalties are capped at 15 percent, the same as the Section 70 rate, and the royalty definition in Article 12 does not include equipment rental, unlike the Thailand–Singapore agreement.
- Service fees and commissions of a Japanese company with no permanent establishment in Thailand are business profits under Article 7, paragraph 1, which Thailand cannot tax; furnishing services through employees in Thailand for more than six months within any twelve-month period constitutes a permanent establishment.
- A Japanese employee working in Thailand is exempt from Thai tax under Article 14 only if present for no more than 180 days in the calendar year, paid by a Japanese employer, and the remuneration is not borne by an enterprise taxable in Thailand.
- Under Article 21, paragraph 4, Japan credits Thai tax exempted under certain sections of the Investment Promotion Act B.E. 2520 (1977), with the credit for dividends and royalties capped at 25 percent of the gross amount.
Contents
- The Thailand–Japan double tax treaty in force and its legal status
- Residents and taxes covered under Articles 1 to 4
- Permanent establishment under Article 5 and the MLI modifications
- Business profits under Article 7: service fees and commissions paid to Japan
- Withholding tax rates under the Thailand–Japan Convention compared with Sections 70 and 50
- Dividends under Article 10 and the tax on the disposal of profits under Article 5 of the Protocol
- Interest under Article 11: 10 percent for financial institutions and 25 percent in other cases
- Royalties under Article 12 and the line with service fees and equipment rent
- Income from employment, directors' fees and pensions under Articles 14 to 17
- Capital gains, teachers, students and other income under Articles 13 and 18 to 20
- Elimination of double taxation under Article 21 and the tax sparing credit for exemptions under the investment promotion law
- Thai Supreme Court case law applied to the Thailand–Japan Convention
- Claiming benefits under the Thailand–Japan Convention in practice
- Comparative law: Japanese income tax law, the Thailand–Singapore agreement and the Supreme Court of Japan
- The Thailand–Japan Convention through law and economics, legal philosophy and other disciplines
- Frequently asked questions on the Thailand–Japan double tax treaty
The Thailand–Japan double tax treaty in force and its legal status
The Thailand–Japan double tax treaty is an agreement between the Governments of Thailand and Japan that allocates the right to tax income between the two countries. The Convention in force was signed on 7 April 1990 and took effect on 30 August 1990, replacing the Convention signed on 1 March 1963 under Article 26, paragraph 3, and it has effect in Thai law through Section 3 of Royal Decree (No. 18) B.E. 2505 (1962).
Thailand and Japan concluded their first double tax convention in Bangkok on 1 March 1963. The present Convention was signed in Tokyo on 7 April 1990, and Article 26, paragraph 3 provides that the 1963 Convention terminates and ceases to have effect in respect of income to which the new Convention applies.3 The Revenue Department records the date of entry into force as 30 August 1990 and publishes two files side by side: the Convention and the Protocol. The Protocol has eight articles and forms an integral part of the Convention. Its content is not incidental. Article 2 prohibits the deduction of certain payments made by a branch to its head office, Article 3 allows Thailand to compute the profits of a permanent establishment as a percentage of receipts, and Article 5 preserves Thailand's power to levy the tax on the disposal of profits under Section 70 bis. A reader who reads the Convention without the Protocol therefore has an incomplete picture.
The date the Convention entered into force and the date from which its rates apply are not the same. Article 26, paragraph 2 (b) provides that in Thailand the Convention applies to taxes withheld at source on amounts paid or remitted to non-residents on or after 1 January of the calendar year following the year in which it enters into force, and to other taxes on income for taxable years or accounting periods beginning on or after that date. A Convention that entered into force in 1990 therefore applied to income from 1991. For present-day disputes, the commencement date that carries more weight is the date from which the MLI applies.
The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the Multilateral Instrument, or MLI) does not create a new treaty. It modifies certain provisions of existing treaties to the extent chosen by both States. The Ministry of Finance of Japan publishes a synthesised text which states that Japan signed the MLI on 7 June 2017 and Thailand on 9 February 2022, that the MLI entered into force for Thailand on 1 July 2022, and that it has effect for the Thailand–Japan Convention with respect to taxes withheld at source where the event giving rise to the tax occurs on or after 1 January 2023, and with respect to other taxes for periods beginning on or after that date.4 That document itself states that it is not a source of law and that the binding texts are the authentic texts of the Convention and the MLI. This article therefore uses the synthesised text to locate where the MLI applies and relies on the wording of the authentic texts.
In Thai law, a double tax treaty does not reduce tax by itself. The Revenue Code gives effect to treaties through Section 3 of the Royal Decree issued under the Revenue Code on Exemption of Taxes (No. 18) B.E. 2505 (1962), which exempts taxes under the Revenue Code for persons covered by agreements for the avoidance of double taxation that the Thai Government has concluded or will conclude with foreign governments.5 In practice, where the Convention sets a maximum rate higher than the rate under the Revenue Code, the Convention does not increase the tax; the payer still withholds at the Revenue Code rate. Where the Convention prohibits Thailand from taxing, the payer does not withhold tax under Section 70 on that income. This explains why several of the rates in the Thailand–Japan Convention have no effect on the actual tax burden of a recipient in Japan.
Residents and taxes covered under Articles 1 to 4
A person entitled to the benefits of the Thailand–Japan Convention is a resident of Thailand or Japan under Article 4, paragraph 1, meaning a person liable to tax in that State by reason of domicile, residence, place of incorporation or head office, and not merely because of income from sources in that State. Where a person is a resident of both States, Article 4, paragraph 2 leaves the question to be settled by the competent authorities by mutual agreement.
Article 1 sets the personal scope: the Convention applies to persons who are residents of one or both of the Contracting States. Article 2 sets the taxes covered: in Japan, the income tax and the corporation tax; in Thailand, the income tax and the petroleum income tax.6 Value added tax, specific business tax and stamp duty are therefore outside its scope. A service fee paid by a Thai company to a Japanese company may be exempt from income tax under Article 7, but the payer still has to remit value added tax under Section 83/6 of the Revenue Code for services rendered from abroad and used in Thailand.7 These two obligations are separate.
Article 4, paragraph 1 defines a resident as a person who, under the laws of that State, is liable to tax therein by reason of domicile, residence, place of incorporation, place of head office or any other criterion of a similar nature, and excludes a person liable to tax in that State only in respect of income from sources therein.8 For dual residence, the Thailand–Japan Convention does not set out a sequence of tie-breaker tests in its text. Article 4, paragraph 2 provides that the competent authorities of the two States determine the matter by mutual agreement, for both individuals and companies. A person resident in both States therefore has no provision that answers at once which State they are resident in, and must present the case under Article 23.
On the Thai side, the test of residence for individuals is in Section 41, paragraph three: a person staying in Thailand for an aggregate of 180 days or more in a tax year.9 Section 41, paragraph one taxes income from employment or business carried on in Thailand, whether paid in or outside Thailand, and paragraph two taxes residents of Thailand on foreign-source income when it is brought into Thailand. A Japanese national staying in Thailand for 180 days or more in a tax year may therefore be resident both in Thailand under Section 41 and in Japan under Japanese law in the same year; this is the kind of case to which Article 4, paragraph 2 applies. For companies, a company incorporated under Thai law is resident in Thailand and a company incorporated under Japanese law is resident in Japan. The evidence of residence is a certificate of residence issued by the tax authority of the State in which the recipient is resident.
Permanent establishment under Article 5 and the MLI modifications
A permanent establishment under Article 5 of the Thailand–Japan Convention is a fixed place of business through which an enterprise carries on business. It includes a construction, installation or assembly project lasting more than three months under paragraph 3, and the furnishing of services through employees in the other State for the same or a connected project for more than six months in aggregate within any twelve-month period under paragraph 4.
Article 5, paragraph 1 sets the core definition: a permanent establishment is a fixed place of business through which the business of an enterprise is wholly or partly carried on. Paragraph 2 gives examples: a place of management, a branch, an office, a factory, a workshop, a mine, an oil or gas well, a farm or plantation, and a warehouse of a person providing storage facilities for others. Paragraphs 3 and 4 contain the two time thresholds most often applied in practice.10 The three-month threshold for construction work in the Thailand–Japan Convention is much shorter than the twelve-month threshold in the 2015 Thailand–Singapore agreement. A Japanese contractor installing machinery in a Thai factory for more than three months therefore already has a permanent establishment in Thailand, even without an office or branch.
The service threshold in paragraph 4 is measured in months, not days, and counts only activities for the same project or for two or more connected projects. The six months may be made up of several periods within any twelve-month period, which is a rolling period, not a calendar year. A Japanese consulting firm that sends engineers to Thailand three times, each for just over two months, within twelve months for the same project has therefore exceeded the threshold, even though no single visit lasted more than three months. Services performed from Japan without personnel entering Thailand do not create a permanent establishment under paragraph 4, because the original text uses the words "furnishes in that other Contracting State" through employees or other personnel.
The MLI modifies Article 5 in three respects. First, MLI Article 13, paragraph 2 replaces the former paragraph 5 on activities that do not constitute a permanent establishment (such as a warehouse for storage or display and a purchasing office) by adding the condition that the activity must be of a preparatory or auxiliary character, and MLI Article 13, paragraph 4 prohibits fragmenting the activities of closely related enterprises so that each part falls below the threshold.11 The second and third concern agents. The former Article 5, paragraph 6 deemed a Japanese enterprise to have a permanent establishment in Thailand where a dependent agent habitually had and exercised an authority to conclude contracts, regularly maintained a stock of goods and delivered them on orders, or habitually secured orders wholly or almost wholly for that enterprise. MLI Article 12, paragraph 1 replaces sub-paragraph (a) with a wider test: a person who habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise. MLI Article 12, paragraph 2 replaces paragraph 7 and Article 1 of the Protocol, providing that a person acting exclusively or almost exclusively on behalf of closely related enterprises is not an independent agent.12
The Thai provision that operates alongside Article 5 is Section 76 bis, which deems a foreign company that has an employee, an agent or a go-between for carrying on business in Thailand, and as a result receives income or profits in Thailand, to be carrying on business in Thailand, and deems that person to be its representative with the duty to file returns and pay tax,13 together with Section 66, which taxes a foreign company on net profits from or in consequence of business carried on in Thailand.14 The wording of Section 76 bis is broader than Article 5 of the Convention, because it has no time threshold and does not exclude independent agents. Where the recipient is a resident of Japan, the Convention confines Thailand's taxing power within the limits of Articles 5 and 7 through Section 3 of Royal Decree (No. 18). For persons not entitled to treaty benefits, Section 76 bis applies in full according to its terms.
Business profits under Article 7: service fees and commissions paid to Japan
Service fees and commissions paid to a Japanese company with no permanent establishment in Thailand are business profits under Article 7, paragraph 1 of the Thailand–Japan Convention and are taxable only in Japan. The payer in Thailand therefore does not withhold tax under Section 70 of the Revenue Code, unless the payment is in substance a royalty under Article 12 or the services in Thailand reach the permanent establishment threshold under Article 5.
Article 7, paragraph 1 applies the principle that the income or profits of an enterprise of a Contracting State are taxable only in that State unless the enterprise carries on business in the other State through a permanent establishment, and if it does, the other State may tax only so much of the profits as is attributable to that permanent establishment.15 Under Thai law, service fees and commissions are income under Section 40 (2),16 and where a foreign company not carrying on business in Thailand receives income under Section 40 (2) to (6) paid from or in Thailand, Section 70 requires the payer to withhold tax at 15 percent and remit it within seven days from the last day of the month of payment.17 The Convention therefore operates as an exception to Section 70 for recipients who are residents of Japan and have no permanent establishment in Thailand.
The line that most often gives rise to disputes is the line between service fees and royalties. Article 7, paragraph 7 gives priority over Article 7 to the provisions of other articles dealing with particular items of income. If a payment called a service fee in the contract is in fact consideration for information concerning industrial, commercial or scientific experience (know-how), it is a royalty under Article 12, paragraph 3, and Thailand may tax it at up to 15 percent. The test that separates the two is whether the recipient transfers existing knowledge for the payer to use itself, or uses that knowledge to perform work for the payer without handing over the knowledge. The former is a royalty; the latter is a service fee. The Supreme Court has decided this point both in a case under the former Thailand–Japan Convention (Supreme Court Judgment No. 3867/2531) and in a case under the Thailand–Singapore agreement (Supreme Court Judgment No. 813/2565), discussed in the case law section below.
Article 7, paragraph 8 of the Thailand–Japan Convention contains specific wording: the term "income or profits" in Article 7 does not include payments as consideration for the use of property other than immovable property that is not property referred to in the definition of royalties in Article 12, paragraph 3. Rent for machinery or equipment is therefore not business profits under Article 7 and not a royalty under Article 12, because the royalty definition does not include equipment. Such payments fall under Article 20 on other income, paragraph 3 of which allows the State in which the income arises to tax it. Reading Article 7, paragraph 8 with Article 20, paragraph 3, equipment rent paid by a Thai company to a Japanese company is not protected by Article 7, and the payer withholds tax under Section 70 at 15 percent of income under Section 40 (5). This differs from the Thailand–Singapore agreement, which treats equipment rental as a royalty taxable at 8 percent.
Where a Japanese enterprise has a permanent establishment in Thailand, Article 7, paragraphs 2 and 3 require its profits to be computed as if it were a distinct and separate enterprise dealing wholly independently with its head office, and allow the deduction of expenses incurred for the purposes of the permanent establishment, including executive and general administrative expenses, whether incurred there or elsewhere. Article 2 of the Protocol limits paragraph 3: no deduction is allowed for amounts paid by the branch to the head office by way of royalties or fees for the use of patents, commissions for specific services or for management, or interest on money lent by the head office to the branch, except by way of reimbursement of actual expenses, or where the enterprise is a banking institution. Article 3 of the Protocol allows Thailand to determine the profits of a permanent establishment as an appropriate percentage of gross receipts where the resident of Japan does not elect to be taxed on actual net profits.18 Article 3 of the Protocol is consistent with Section 66 and Section 76 bis, paragraph two, which apply the assessment under Section 71 (1) mutatis mutandis where net profits cannot be computed.
Withholding tax rates under the Thailand–Japan Convention compared with Sections 70 and 50
The withholding tax rate actually applied to payments from Thailand to a Japanese company is the lower of the Thailand–Japan Convention rate and the rate under Section 70 of the Revenue Code: dividends 10 percent, interest 10 percent for financial institutions and 15 percent in other cases, royalties 15 percent, and no withholding on service fees where there is no permanent establishment.
Reading the treaty rates must start with Thai law, because the Convention sets ceilings; it does not replace domestic rates. For recipients that are foreign companies, Section 70 together with item (2) of the Income Tax Rate Schedule sets a rate of 15 percent for income under Section 40 (2) to (6) and 10 percent for dividends under Section 40 (4) (b). For recipients that are individuals not resident in Thailand, Section 50 requires the payer to withhold 15 percent on income under Section 40 (2), (3), (4), (5) and (6), and 10 percent on dividends.19 The table below sets the two layers of rates side by side.
| Type of income | Rate under the Revenue Code | Ceiling under the Thailand–Japan Convention | Rate actually applied | Treaty provision |
|---|---|---|---|---|
| Dividends to a company holding at least 25 percent of the voting shares | 10 percent | 15 percent (industrial undertaking) or 20 percent | 10 percent | Article 10, paragraph 2 |
| Dividends in other cases, including individuals | 10 percent | No ceiling | 10 percent | Article 10, paragraphs 1 and 2 |
| Interest received by a financial institution or insurance company | 15 percent | 10 percent | 10 percent | Article 11, paragraph 2 (a) |
| Interest received by other companies | 15 percent | 25 percent | 15 percent | Article 11, paragraph 2 (b) |
| Interest received by the Government, the central bank or a financial institution wholly owned by the Government of Japan | Depends on the status of the recipient | Exempt | Exempt | Article 11, paragraph 3 |
| Royalties | 15 percent | 15 percent | 15 percent | Article 12, paragraph 2 |
| Service fees and commissions without a permanent establishment | 15 percent | Not taxable in Thailand | No withholding | Article 7, paragraph 1 |
| Equipment rent | 15 percent | No ceiling (Article 20, paragraph 3) | 15 percent | Article 7, paragraph 8 |
| Tax on the disposal of profits by a branch | 10 percent (Section 70 bis) | No ceiling (Protocol, Article 5) | 10 percent | Protocol, Article 5 |
The table shows a point that is often overlooked: for payments from Thailand to Japan, the Thailand–Japan Convention actually reduces the withholding tax burden in only two cases, namely interest paid to a Japanese financial institution or insurance company, which falls from 15 to 10 percent, and interest paid to the Government, the central bank or a financial institution wholly owned by the Government of Japan, which is exempt. The effects of greater practical value lie in Article 7, which removes the power to tax service fees and commissions, and in Article 14, which exempts income from short-term employment. The ceilings in the Convention were set in 1990 and have not been adjusted to the domestic rates now in force, so some of them are higher than the rates actually applied.
Dividends under Article 10 and the tax on the disposal of profits under Article 5 of the Protocol
Dividends paid by a Thai company to a Japanese company under Article 10, paragraph 2 of the Thailand–Japan Convention are capped at 15 percent for an industrial undertaking and 20 percent in other cases, only where the recipient is a company that has owned at least 25 percent of the voting shares throughout the six months before the end of the accounting period, but the rate actually applied is 10 percent under Section 70, because it is lower.
Article 10, paragraph 2 is structured differently from most of Thailand's treaties. The ceiling applies only where the recipient is the beneficial owner and is a company that owns at least 25 percent of the voting shares of the paying company during the period of six consecutive months immediately before the end of the accounting period for which the distribution of profits takes place. The ceiling is 15 percent where the paying company is engaged in an industrial undertaking and 20 percent in other cases. Article 10, paragraph 3 (b) defines an industrial undertaking as including manufacturing, assembling and processing; construction, civil engineering and shipbuilding; production of electricity, gas or water supply; and agriculture, forestry, fishery and plantation; and Article 4 of the Protocol includes undertakings granted privileges under Thailand's investment promotion law.20 A shareholder holding less than 25 percent, or an individual shareholder, has no treaty ceiling.
Compared with Thai law, both ceilings are higher than the 10 percent rate under Section 70 with item (2) (c) of the Income Tax Rate Schedule, and higher than the 10 percent under Section 50 (2) (e) for individuals not resident in Thailand. The payer therefore withholds 10 percent under Thai law, unless another law specifically exempts that dividend, and proving industrial status or the shareholding percentage does not change the amount of tax Thailand collects. These facts still matter on the Japanese side, because Article 21, paragraph 2 (b) uses the 25 percent threshold as a condition of the indirect tax credit, and Article 21, paragraph 3 treats the tax reduced under Article 10, paragraph 2 as Thai tax payable.
A Japanese company that does business in Thailand through a branch rather than a subsidiary bears a further tax when it repatriates profits. Article 5 of the Protocol states that nothing in the Convention shall prevent Thailand from levying the tax on the disposal of profits out of Thailand by a permanent establishment under Section 70 bis of the Revenue Code.21 The 10 percent tax under Section 70 bis and item (2) (d) of the Income Tax Rate Schedule therefore applies in full to branches of Japanese companies. The 2015 Thailand–Singapore agreement takes a different approach: Article 10A limits the tax under Section 70 bis to 10 percent. At present the result is the same, but the Thailand–Singapore agreement would protect the taxpayer if the Thai rate were raised, whereas the Thailand–Japan Convention has no ceiling to fall back on.
A disposal of profits under Section 70 bis is not limited to transferring money out of the country. Paragraph two includes applying profits to pay a debt, setting them off against a debt, or recording them as an amount owed to a person abroad. A branch of a Japanese company that books expenses allocated by its head office as an amount payable must therefore consider two questions together: whether the expense is deductible under Article 7, paragraph 3 and Article 2 of the Protocol, and whether the entry is a disposal of profits under Section 70 bis. The Supreme Court decided both questions in Judgment No. 7323/2560, discussed in the case law section below.
Interest under Article 11: 10 percent for financial institutions and 25 percent in other cases
Interest paid from Thailand to Japan under Article 11, paragraph 2 of the Thailand–Japan Convention is capped at 10 percent where the recipient is a financial institution, including an insurance company, and 25 percent in other cases. The ceiling applies only where the recipient is a company, so interest on intra-group loans is taxed at 15 percent under Section 70, and interest paid to the Government of Japan is exempt under paragraph 3.
Article 11, paragraph 2 has two layers of conditions. First, the recipient must be the beneficial owner of the interest. Second, the recipient must be a company resident in Japan. Because of this wording, interest paid to a Japanese individual has no treaty ceiling, and the payer withholds 15 percent under Section 50 (2) (a) where the recipient is not resident in Thailand. For corporate recipients, the 10 percent rate applies to interest received by any financial institution, including an insurance company, and the 25 percent rate applies in other cases.22 The 25 percent rate is higher than the 15 percent under Section 70, so interest on a loan from a Japanese parent company to its Thai subsidiary is taxed at 15 percent.
Article 11, paragraph 3 exempts interest paid to the Government of the other State, a local authority, the central bank or a financial institution wholly owned by the Government of the other State. Long-term loans from a Japanese government financial institution for projects in Thailand are therefore not subject to withholding. Paragraph 4 defines interest to include income from debt-claims of every kind, government securities, bonds and debentures, and income assimilated to income from money lent by the tax law of the State in which the income arises, and paragraph 7 restricts the treaty rate to the amount of interest that independent persons would have agreed; any excess due to a special relationship remains taxable under the law of each State.
The 10 percent ceiling for financial institutions affects how borrowing is structured. A Thai company borrowing directly from a Japanese bank bears less withholding tax than one borrowing from its parent. However, MLI Article 7, paragraph 1, which applies to the Thailand–Japan Convention from 2023, denies treaty benefits where it is reasonable to conclude that obtaining the benefit was one of the principal purposes of the arrangement.23 Routing a loan through a Japanese bank backed by a matching deposit from the parent company (a back-to-back loan) in order to change the rate from 15 to 10 percent therefore risks denial of benefits under both the beneficial ownership requirement and the principal purpose test.
Royalties under Article 12 and the line with service fees and equipment rent
Royalties paid from Thailand to Japan under Article 12, paragraph 2 of the Thailand–Japan Convention are capped at 15 percent, the same as the rate under Section 70 of the Revenue Code. The definition of royalties in paragraph 3 includes copyrights, patents, trade marks, secret formulas or processes and information concerning industrial experience, but does not include equipment rent.
Article 12, paragraph 3 defines royalties as payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films and films or tapes for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, and paragraph 5 applies the same ceiling to gains from the alienation of copyrights, patents, trade marks and other rights of the same group.24 Under Thai law, royalties are income under Section 40 (3), and the payer withholds 15 percent under Section 70. The treaty rate therefore does not reduce Thai tax.
What gives Article 12 of the Thailand–Japan Convention practical weight is classification, not the rate. Technical service agreements between a Japanese parent and a Thai subsidiary often combine the transfer of production know-how, the delivery of manuals and the dispatch of engineers to solve problems on site. The part that transfers information concerning industrial experience is a royalty at 15 percent. The part that consists of services performed by Japanese personnel is business profits under Article 7, which Thailand cannot tax unless the six-month threshold in Article 5, paragraph 4 is reached. An agreement that does not price the two parts separately makes it difficult for the payer to decide whether to withhold, and the assessment officer may treat the whole amount as a royalty.
The 2015 Thailand–Singapore agreement treats rent for industrial, commercial or scientific equipment as a royalty at 8 percent. The Thailand–Japan Convention excludes equipment from the royalty definition, and Article 7, paragraph 8 excludes from business profits consideration for the use of property that is not property within the royalty definition.25 Machinery rent from a Japanese lessor therefore falls under Article 20, paragraph 3, and Thailand may withhold 15 percent under Section 70. Supplying machinery from a Japanese group through a Singapore company in order to obtain the 8 percent rate is the kind of structure that MLI Article 7 was designed to deny, where the Singapore company has no genuine business role.
Income from employment, directors' fees and pensions under Articles 14 to 17
The salary of a Japanese employee working in Thailand is exempt from Thai tax under Article 14, paragraph 1 of the Thailand–Japan Convention when three conditions are all met: presence in Thailand for no more than 180 days in the calendar year, payment by a resident of Japan, and remuneration not borne by an enterprise taxable in Thailand. If any one condition is not met, Thailand may tax under Section 41, paragraph one.
The Thailand–Japan Convention does not separate independent personal services from income from employment into different articles. Article 14 covers remuneration or income derived from personal services, including professional services, except pensions. The rule is that the State in which the services are performed may tax, and the exception applies only when all three conditions are met.26 The first condition counts days in the calendar year, not any twelve-month period, and uses 180 days, not 183. An employee who comes to Thailand for 120 days at the end of one year and another 120 days at the beginning of the next is therefore within the threshold in both years. The third condition uses the words "an enterprise which is liable to tax in the other Contracting State", which is broader than the wording of Article 15, paragraph 2 (c) of the Thailand–Singapore agreement, which refers to a permanent establishment or fixed base of the employer. Where a Thai subsidiary bears the remuneration by reimbursing its parent, the remuneration is borne by an enterprise taxable in Thailand, and the exception cannot apply even if the employee stays fewer than 180 days.
Where the exception does not apply, Thai tax arises under Section 41, paragraph one, which taxes income from employment performed in Thailand whether paid in or outside Thailand. A payer in Thailand must withhold under Section 50 (1), and if the salary is paid from Japan with no payer in Thailand, the employee files and pays tax personally. Article 15 allows Thailand to tax directors' fees paid by a Thai company to a director resident in Japan, whether or not the director attends meetings in Thailand.27 Directors' fees are income under Section 40 (2), and Section 50 (1) requires 15 percent to be withheld when paid to a person not resident in Thailand.
Pensions are a point on which the Thailand–Japan Convention differs from most treaties. Article 14, paragraph 1 excludes pensions and similar remuneration. Article 17, paragraph 2 applies only to pensions paid by a State in respect of services rendered to that State, which are taxable only in the paying State unless the recipient is a resident and national of the other State. The Convention has no separate article on private pensions, so other pensions fall under Article 20, paragraph 1 of which gives the right to tax to the State of residence of the recipient, but paragraph 3 of which also allows the State in which the income arises to tax.28 A recipient of a Japanese pension who is resident in Thailand may therefore bear Japanese tax at source, and Thai tax under Section 41, paragraph two when the money is brought into Thailand, crediting the Japanese tax under Article 21, paragraph 1.
Capital gains, teachers, students and other income under Articles 13 and 18 to 20
Gains of a resident of Japan from selling shares in a Thai company may be taxed in Thailand under Article 13, paragraph 4 of the Thailand–Japan Convention. Invited teachers or researchers are exempt for up to two years under Article 18, students are exempt on income from employment for up to five years under Article 19, and Thailand may tax other income arising in Thailand under Article 20, paragraph 3.
Article 13, paragraph 4 of the Thailand–Japan Convention allows the State in which the gains arise to tax gains from the alienation of property other than immovable property, property of a permanent establishment, ships or aircraft, and rights under Article 12, paragraph 5.29 This wording gives the source State a very wide right. A Japanese company selling shares in a Thai limited company to a buyer in Thailand is therefore not protected by the Convention. The buyer in Thailand withholds tax under Section 70 at 15 percent of the gain, which is income under Section 40 (4), and the Japanese company credits the Thai tax in Japan under Article 21, paragraph 2 (a). The 2015 Thailand–Singapore agreement takes the opposite approach, giving the primary right to tax to the State of residence of the seller, except for shares deriving most of their value from immovable property.
Article 18 exempts from tax in the host State remuneration for teaching or research of a person invited by the Government or a recognised educational institution, for a period not exceeding two years, unless the research is undertaken primarily for the private benefit of a specific person. Article 19 exempts students and trainees on payments from abroad for maintenance and education, grants, and income from employment in the host State for up to five years to the extent necessary for maintenance and education.30 Article 19 sets no fixed monetary limit but uses a test of necessity, so a trainee whose remuneration exceeds normal living costs may not be exempt on the excess.
Article 20 closes the allocation of taxing rights. Paragraph 1 gives the State of residence of the recipient the right to tax items of income not dealt with in other articles, but paragraph 3 also allows the State in which the income arises to tax, notwithstanding paragraphs 1 and 2. The combined effect is that both States may tax income not covered by a specific article, and double taxation is relieved by the credit under Article 21. In practice, the items of income that fall under this article include equipment rent under Article 7, paragraph 8 and pensions other than government service pensions.
Elimination of double taxation under Article 21 and the tax sparing credit for exemptions under the investment promotion law
The method of eliminating double taxation under Article 21 of the Thailand–Japan Convention is the credit method on both sides. Thailand credits Japanese tax, subject to Thai law, up to the Thai tax on that income under paragraph 1. Japan credits Thai tax, including tax exempted by Thailand under certain sections of the Investment Promotion Act B.E. 2520 (1977) under paragraph 4, with the credit for dividends and royalties capped at 25 percent.
Article 21, paragraph 1 allows a resident of Thailand deriving income from Japan that Japan may tax under the Convention to credit the Japanese tax against Thai tax, up to the portion of Thai tax appropriate to that income. The opening words of this paragraph are "subject to the laws of Thailand", so the credit must be computed by the method set by Thai law and may not exceed the Thai tax on the same income.31 The Thailand–Japan Convention has no provision exempting dividends received by a Thai company from a Japanese subsidiary, unlike Article 22 (b) of the Thailand–Singapore agreement, which requires Thailand to exempt them where the Thai company holds at least 25 percent of the voting shares. A Thai company with a subsidiary in Japan therefore relies on the credit under Article 21, paragraph 1 so far as the Convention is concerned.
On the Japanese side, Article 21, paragraph 2 (a) grants residents of Japan a credit for Thai tax, and paragraph 2 (b) allows a Japanese company owning at least 25 percent of the voting shares or of the total shares of a Thai company to include in the credit the tax paid by the Thai company on the profits out of which the dividends are paid. The provisions with the greatest economic effect are paragraphs 3 to 5, which provide a tax sparing credit. Paragraph 3 treats the Thai tax payable as including the tax Thailand could have levied had it not been reduced under Article 10, paragraph 2 or Article 12, paragraph 2 or 5. Paragraph 4 (a) includes the tax Thailand could have levied had it not been reduced or exempted under Section 31, Section 33, Section 34, Section 35 (2), (3) or (4), or Section 36 (4) of the Investment Promotion Act B.E. 2520 (1977). Paragraph 4 (b) removes Section 35 (3) and Section 36 (4) after the thirteenth taxable year from the first exemption or from the entry into force of the Convention, whichever is later, and paragraph 5 caps the credit for dividends and royalties at 25 percent of the gross amount.32
Article 7 of the Protocol clarifies that sections of the Investment Promotion Act amended after the date of signature continue to qualify for the credit under paragraph 4 (a) (1) as long as the amendment does not change the scope of the benefit, while new promotion measures under paragraph 4 (a) (2) require prior agreement between the two Governments, and Article 8 of the Protocol applies paragraph 4 (a) (1) to taxable years ending on or after 1 January 1988. In practice, a corporate income tax exemption from Thailand's Board of Investment has its full value for a Japanese shareholder only if Japanese domestic law allows the credit under Article 21, paragraphs 2 to 5, because paragraph 2 opens with the words "subject to the laws of Japan". A Japanese investor must therefore also check Japanese tax law for the year in which the dividend is received, not only the Convention.
Thai Supreme Court case law applied to the Thailand–Japan Convention
The Supreme Court judgments that cite the Thailand–Japan Convention directly are Judgment No. 3867/2531, which held that technical assistance fees of a Japanese company were royalties on which the payer had to withhold tax under Section 70, and Judgment No. 1009/2539, which held that a distributor buying and reselling on its own account was not an agent of the Japanese seller under Section 76 bis. The principles of both cases still apply to the 1990 Convention.
Supreme Court Judgment No. 3867/2531 is the case closest to the question of service fees paid to Japan. A paper manufacturer in Thailand entered into a technical assistance agreement with a company in Japan, which stationed 15 experts at the factory from 1976 to 1979. The Supreme Court held that the assistance was not the carrying on of business in Thailand by the Japanese company under Section 76 bis, but that the money received was a royalty within the meaning of the Thailand–Japan Convention, and the payer was required to withhold and remit tax under Section 70.33 The facts arose between 1976 and 1979, before the 1990 Convention, so the Court relied on Article 8 of the 1963 Convention. The principle that still applies to the 1990 Convention is that consideration for transferring technical knowledge is a royalty even if experts come to work in Thailand. The difference is that the 1990 Convention contains Article 5, paragraph 4: stationing personnel in Thailand for several years would now exceed the six-month threshold, and if the right giving rise to the royalties is effectively connected with that permanent establishment, Article 12, paragraph 6 applies Article 7 instead.
Supreme Court Judgment No. 1009/2539 concerned a Thai distributor of several Japanese manufacturers. The distributor argued that the sellers were entitled to the benefits of the Thailand–Japan Convention and were not liable to tax under Section 76 bis. The Supreme Court found that the distributor concluded sales contracts with customers itself, set its own selling prices, was itself liable to customers for defects, and earned its return as profit rather than as commission for acting as agent or broker, so it was not an agent of the foreign seller.34 Supreme Court Judgment No. 1971/2537 laid down a similar principle that a buyer reselling goods on its own account is not an agent, but for sales without a written contract the Court held that bare oral testimony was insufficient to establish that the plaintiff did not act as an agent.35 These two cases show that the criteria the Court applies are who bears the commercial risk and who sets the price, which matches the concept of an independent agent in Article 5, paragraph 7, and that the contract documents are the principal evidence.
Supreme Court Judgment No. 3935/2548 held, in the case of an agent in Thailand of a Japanese company, that an employee, agent or go-between carrying on business in Thailand is also liable to the tax on the disposal of profits under Section 70 bis when the conditions are met, and the Court cited wording of the Thailand–Japan Convention to the effect that the laws in force in each State continue to govern except as otherwise provided in the Convention.36 The wording cited by the Court does not appear in the 1990 Convention as checked by the author, so the case was probably decided under the former Convention. Its principle on Section 70 bis remains consistent with the current Convention, because Article 5 of the Protocol expressly preserves the power to tax under Section 70 bis.
Judgments decided under other Thai treaties apply to the same provisions of the Thailand–Japan Convention in three further respects. Supreme Court Judgment No. 124/2540 held under the Thailand–Belgium agreement that where the equipment sale contract and the construction and installation contract are separate and separately priced, a permanent establishment arising from construction work lasting more than six months is a permanent establishment only for the business under the contract for work, so profit from the sale of equipment is not attributable to it.37 This principle matches the words "only so much of them as is attributable to that permanent establishment" in Article 7, paragraph 1 of the Thailand–Japan Convention, and it matters all the more because the construction threshold in the Thailand–Japan Convention is only three months. Supreme Court Judgment No. 813/2565 held under the Thailand–Singapore agreement that although the contract called the payment a service fee, it was consideration for information concerning industrial, commercial or scientific experience under Article 12 and income under Section 40 (3),38 and laid down that a payer who fails to withhold is jointly liable with the income earner under Section 54, paragraph one, and must pay a surcharge of 1.5 percent per month or fraction of a month under Section 27.39 Supreme Court Judgment No. 7323/2560 held under the Thailand–Germany agreement that a branch deducting expenses allocated by its head office bears the burden of proving that the allocated amount is appropriate and not excessive.40 Branches of Japanese companies are subject to the same principle, with the further restriction in Article 2 of the Protocol.
Supreme Court Judgment No. 6489/2534 is the reverse of the royalty cases. A Canadian company had a branch in Thailand that performed the licence agreement and audited the payer's sales. The Supreme Court held that the Thai branch carried on the business that caused the company to receive royalties in Thailand, so the company was taxable under Section 66, and the royalties were not income of a foreign juristic person not carrying on business in Thailand under Section 70; the payer therefore had no duty to withhold tax.41 A Japanese company with a branch in Thailand that receives royalties effectively connected with the branch falls within the same structure under Article 12, paragraph 6 of the Thailand–Japan Convention. A payer should check this structure before withholding tax that duplicates the tax the branch pays on its net profits.
Claiming benefits under the Thailand–Japan Convention in practice
On the Thai side, benefits under the Thailand–Japan Convention are applied at the time of payment: the payer withholds at the treaty rate, or does not withhold, when it holds evidence that the recipient is resident in Japan, and then files the return under Section 70 within seven days from the end of the month of payment. Thai individuals or companies claiming benefits in Japan use the Revenue Department's certificate of residence, Form R.O. 22.
For a payer in Thailand, applying the Convention is the payer's own decision at the time of payment. The payer checks three matters before paying. The first is whether the recipient is a resident of Japan under Article 4; the evidence is a certificate of residence issued by the Japanese tax authority. The second is the category of income under Section 40 and under the articles of the Convention, which must be read from the substance of the contract in line with Supreme Court Judgment No. 813/2565. The third is whether the recipient has a permanent establishment in Thailand, counting the days the recipient's personnel are present in Thailand for the same or connected projects. Having withheld at the treaty rate, the payer files the return and remits the tax under Section 70 within seven days from the last day of the month of payment.
For a resident of Thailand receiving payments from Japan, the payer in Japan withholds tax under Japanese law at 20 percent of Japanese-source income, unless the recipient claims treaty benefits by the procedure prescribed by Japanese law. The evidence of Thai residence is the Certificate of Residence for tax purposes (Form R.O. 22) (Thai), applied for on Form R.O. 01 naming the treaty partner country.42 The certificate confirms residence status only. It does not confirm which article of the Convention a particular payment falls under, or that the recipient is the beneficial owner.
Where either State levies tax not in accordance with the Convention, Article 23, paragraph 1 allows a resident to present the case to the competent authority of its State of residence without waiting for the outcome of domestic appeals. The time limit is three years from the first notification of the action resulting in taxation not in accordance with the Convention, and MLI Article 16, paragraph 2 adds a sentence that any agreement reached shall be implemented notwithstanding any time limits in domestic law.43 The mutual agreement procedure does not remove the right to appeal an assessment under the Revenue Code, which has its own time limits, bars to appeal and extensions, as explained in the article Appealing a tax assessment within 30 days (Thai). The two channels can be used together, and a taxpayer should keep the time limits of both open.
Article 24 requires the competent authorities of the two States to exchange information necessary for carrying out the Convention and preventing tax evasion. Information received must be treated as secret, and there is no obligation to disclose a trade or professional secret.44 A taxpayer who classifies income or counts days of presence in Thailand one way in Thailand and another way in Japan therefore runs the risk that the two sets of data will be compared. Consistent documentation in both countries is the best evidence when the taxpayer is audited.
Comparative law: Japanese income tax law, the Thailand–Singapore agreement and the Supreme Court of Japan
Compared with Article 213 of Japan's Income Tax Act, which imposes 20 percent withholding on non-residents, and with the 2015 Thailand–Singapore agreement, the Thailand–Japan Convention uses shorter permanent establishment thresholds and higher ceilings for dividends and interest, and the Supreme Court of Japan held in 2009 that Article 7 of a tax treaty does not prohibit controlled foreign company legislation.
The first system for comparison is Japan's own domestic law. Article 213, paragraph 1, item 1 of Japan's Income Tax Act (所得税法) sets the tax that the payer must withhold from Japanese-source income paid to a non-resident at 20 percent of the income.45 The author checked only the rate in this Act; any additional tax that Japan levies under other specific legislation must be checked separately. Read with the Convention, the result on the Japanese side mirrors the Thai side. Royalties paid by a Japanese company to a resident of Thailand are reduced from 20 to 15 percent under Article 12, paragraph 2. Interest received by a Thai financial institution is reduced to 10 percent, but interest received by an ordinary Thai company remains at the Japanese statutory rate because the 25 percent ceiling is higher. For many categories, the Convention therefore has more effect on payments flowing from Japan to Thailand than on payments flowing from Thailand to Japan, because Japanese withholding rates are higher than Thai rates.
The second system is Thailand's own treaty network. The 2015 Thailand–Singapore agreement reflects Thailand's newer treaty policy: a service threshold of 183 days in any twelve-month period, a construction threshold of twelve months, dividends at no more than 10 percent, royalties at 5, 8 or 10 percent including equipment rental, and a 10 percent ceiling on the tax under Section 70 bis. The 1990 Thailand–Japan Convention uses a six-month service threshold, a three-month construction threshold, dividends at 15 or 20 percent, a single 15 percent royalty rate, and no limit on the tax under Section 70 bis. Structurally, the 1990 Convention gives the source State wider rights than the 2015 agreement, through shorter time thresholds, higher ceilings and Article 13, paragraph 4, which allows the source State to tax capital gains; this benefits Thailand as a country receiving investment from Japan.
The third system is the MLI, a layer of international law placed over bilateral treaties without renegotiating each one. For the Thailand–Japan Convention, the MLI amends the preamble, adds the principal purpose test, amends the definition of a dependent agent, amends the exception for preparatory activities, and adds the rule that mutual agreements are to be implemented. What the MLI does not change is the withholding rates, the permanent establishment time thresholds and the tax sparing provisions, so Articles 10 to 12 and Article 21 are read as in the 1990 original.
The foreign judgment closest on its facts is the judgment of the Second Petty Bench of the Supreme Court of Japan of 4 December 2009, case No. 平成21(行ヒ)199. The issue was whether Article 40-4, paragraph 1 of Japan's Act on Special Measures Concerning Taxation, which attributes the income of a controlled foreign company to an individual shareholder in Japan, contravened Article 7, paragraph 1 of the Japan–Singapore agreement. The Court held that it did not.46 Article 7, paragraph 1 of the Japan–Singapore agreement has the same structure as Article 7, paragraph 1 of the Thailand–Japan Convention. The lesson for Thai readers is that Article 7 limits the power of the source State to tax the business profits of a foreign enterprise; it does not guarantee that the shareholder's State of residence will refrain from taxing its own shareholders on the profits of a company abroad. Japanese shareholders of low-taxed Thai companies must therefore also check Japan's controlled foreign company rules.
The comparison leads to three conclusions for Thai readers. First, the rates in the Thailand–Japan Convention must always be read against the domestic rates of both countries, because several ceilings are higher than the rates actually applied. Second, the three-month threshold for construction work and the six-month threshold for services mean that projects of Japanese companies in Thailand reach the permanent establishment threshold sooner than projects of Singapore companies. Third, routing through a third country in order to use a treaty with better rates must pass the principal purpose test under the MLI, which applies to both the Thailand–Japan and the Thailand–Singapore treaties.
The Thailand–Japan Convention through law and economics, legal philosophy and other disciplines
The Thailand–Japan Convention divides tax revenue between the two States and reduces uncertainty for investors. Hines found that Japanese firms in countries with tax sparing agreements with Japan pay 23 percent less tax than American firms, so the provision of this Convention with the greatest economic effect is Article 21, paragraph 4 rather than the withholding rates in Articles 10 to 12.
The first economic function of a double tax treaty is to divide the tax base between the source State and the State of residence of the recipient. Withholding ceilings and permanent establishment thresholds are the instruments of that division. The empirical work of Blonigen and Davies on United States foreign direct investment found little evidence that bilateral tax treaties increase foreign direct investment.47 That finding concerns the United States, not Thailand or Japan, but it is consistent with the reading of the rate table in the earlier section: several withholding ceilings in the Thailand–Japan Convention are higher than the Thai statutory rates and so cannot act as an incentive to invest.
The second function is to preserve tax incentives granted by the host country. If the investor's State of residence uses the credit method without counting spared tax, tax exempted by Thailand is recaptured in that State when profits are repatriated, and the benefit of investment promotion flows to the treasury of the investor's State instead of to the investor. Hines compared the investment patterns of Japanese and American firms and found that Japanese firms pay 23 percent less tax than American firms in countries with which Japan has tax sparing agreements, while the United States does not grant credits of this kind.48 Article 21, paragraphs 3 to 5 and Articles 7 and 8 of the Protocol to the Thailand–Japan Convention are the mechanism that study examined. In policy terms, these provisions make the tax exemptions under the Investment Promotion Act effective for Japanese shareholders, and they give Thailand an economic reason to maintain them without having to lower its withholding ceilings.
The third function concerns compliance costs. Section 70 places the duty to withhold on the payer in Thailand, and Supreme Court Judgment No. 813/2565 confirms that the payer is jointly liable when it withholds incorrectly. Slemrod explains that the choice of who remits tax affects compliance and administrative costs, even though the economic burden of the tax falls on the same party.49 Making the payer in Thailand decide whether to apply the Convention therefore moves the risk of misclassification from the recipient in Japan to the payer in Thailand. In practice, the payer has an incentive to withhold when in doubt, and the burden of proving treaty entitlement shifts back to the recipient in the form of the documents the payer requests.
Insights from public finance help explain the limits of the permanent establishment threshold. Devereux and Vella argue that an international corporate tax system that ties taxing rights to physical presence in the source State does not fit businesses that create value across borders without personnel in that country.50 Article 5, paragraph 4 of the Thailand–Japan Convention counts only services performed through employees or personnel in Thailand, so consulting or engineering services performed entirely from Japan give Thailand no right to tax under Article 7, whatever their value. From an accounting perspective, Article 3 of the Protocol, which allows profits to be computed as a percentage of receipts, recognises the cost of allocating costs across borders where a branch has no accounting system capable of separating its own profits from those of the enterprise as a whole.
In terms of legal philosophy, a double tax treaty is a voluntary and reciprocal limitation of fiscal sovereignty. Thailand gives up the power to tax service fees under Article 7 in exchange for Japan giving up the same power over residents of Thailand. The Thai legal system receives treaties on a dualist basis, under which a treaty affects the rights and duties of private persons when domestic law gives it effect. Section 3 of Royal Decree (No. 18) is therefore the bridge that gives Article 7 of the Convention precedence over Section 70. The principal purpose test under MLI Article 7 shifts interpretation from a formal reading of the words towards consideration of the object and purpose of the provision. The exception in MLI Article 7, which still grants the benefit where granting it would be in accordance with the object and purpose of the relevant provisions, reflects the view that the legitimacy of treaty relief lies in eliminating actual double taxation, not in creating double non-taxation.
Frequently asked questions on the Thailand–Japan double tax treaty
These frequently asked questions on the Thailand–Japan double tax treaty are answered from the text of the Convention signed on 7 April 1990, its Protocol, the provisions as modified by the MLI, Sections 40, 41, 50 and 70 of the Revenue Code and judgments of the Supreme Court, with the exceptions to each rule stated in the answer.
- Which Thailand–Japan double tax treaty is currently in force?
- The Convention in force was signed in Tokyo on 7 April 1990 together with a Protocol and took effect on 30 August 1990, replacing the Convention signed on 1 March 1963 under Article 26, paragraph 3. For withholding taxes where the event giving rise to the tax occurs on or after 1 January 2023, it must be read together with the provisions as modified by the MLI. The original was done in English only.
- Must a Thai company withhold tax when paying service fees to a Japanese company?
- If the Japanese company has no permanent establishment in Thailand, the service fee is business profits under Article 7, paragraph 1, which Thailand cannot tax, and the payer does not withhold tax under Section 70. There are two exceptions: where the payment is in substance consideration for information concerning industrial experience, which is a royalty at 15 percent under Article 12; and where Japanese personnel furnish services in Thailand for more than six months in aggregate within any twelve-month period for the same or connected projects, which constitutes a permanent establishment under Article 5, paragraph 4. Value added tax under Section 83/6 must still be remitted separately.
- At what rate is Thai tax levied on dividends paid to Japanese shareholders?
- 10 percent under Section 70 with item (2) (c) of the Income Tax Rate Schedule for corporate recipients, and under Section 50 (2) (e) for individuals not resident in Thailand. The ceilings under Article 10, paragraph 2 are 15 percent for an industrial undertaking and 20 percent in other cases, apply only to a company holding at least 25 percent of the voting shares, and are higher than the Thai statutory rate, so they do not reduce the tax.
- At what rate is tax withheld on interest paid to Japan?
- 10 percent where the recipient is a Japanese financial institution or insurance company under Article 11, paragraph 2 (a); 15 percent under Section 70 where the recipient is another company, because the 25 percent ceiling in Article 11, paragraph 2 (b) is higher; and 15 percent under Section 50 (2) (a) where the recipient is an individual. Interest paid to the Government, the central bank or a financial institution wholly owned by the Government of Japan is exempt under Article 11, paragraph 3, and interest exceeding the market rate because of a special relationship does not receive the treaty rate on the excess under Article 11, paragraph 7.
- How much tax applies to royalties and copyright fees paid to Japan?
- 15 percent under Article 12, paragraph 2, the same as the rate under Section 70. The definition in Article 12, paragraph 3 includes copyrights, cinematograph films, patents, trade marks, designs, secret formulas or processes and information concerning industrial, commercial or scientific experience, but not equipment rent. Equipment rent falls under Article 20, paragraph 3, and 15 percent may be withheld under Section 70.
- Must a Japanese employee working in Thailand pay Thai tax?
- The employee is exempt under Article 14, paragraph 1 when three conditions are all met: presence in Thailand for no more than 180 days in the calendar year, payment by a resident of Japan, and remuneration not borne by an enterprise taxable in Thailand. If the Thai subsidiary reimburses the remuneration to the parent company, or the employee stays more than 180 days, Thailand may tax under Section 41, paragraph one, whether the remuneration is paid in or outside Thailand. Directors' fees of a Thai company are always taxable in Thailand under Article 15.
- How long must services be furnished in Thailand to create a permanent establishment under the Thailand–Japan Convention?
- Furnishing services, including consultancy services, through employees or other personnel in Thailand constitutes a permanent establishment when activities for the same or connected projects exceed six months in aggregate within any twelve-month period under Article 5, paragraph 4. A building site, a construction, installation or assembly project, or supervisory activities constitute a permanent establishment when they last more than three months under Article 5, paragraph 3, and an agent who plays the principal role leading to the conclusion of contracts may create a permanent establishment without any time test under Article 5, paragraph 6 as modified by MLI Article 12.