Tax Basics for US Expats in Thailand

The Kingdom of Thailand is famous for its warm climate, colorful culture, cuisine, beaches and mountains. For many reasons, Thailand is one of the most visited Asian countries.

If you are planning to become a U.S. expat in Thailand, or have been one for a while, it’s important to know the tax laws of Thailand and the potential impact on your U.S. tax return. Expat taxes can be complicated. Fortunately, we have prepared the key points (outlined below).

Photo by: Mikhail Koninin

Taxation in Thailand

Let’s start by understanding who is required to pay taxes in Thailand. Residents are subject to taxes on worldwide income (if remitted to Thailand in the year earned). Foreigners who have been in the country for 180 days or more during a calendar year are considered residents for tax purposes. Non-residents are taxed only on Thailand-source income.

The applicable income tax rates are:

• Employment Income: Progressive up to 35%
• Taxation on Interests: Same as employment income
• Taxation on Dividends: Same as employment income
• Taxation on Capital Gains: Generally the same as employment income (certain tax exemptions do exist).

Thailand and the U.S. have an income tax treaty in-place. International tax treaties clarify tax jurisdiction. These treaties can provide U.S. citizens and residents with reductions in foreign income taxes. However, a reduction in U.S. taxes is generally not available under these treaties as a result of “tax saving” clauses that allow the U.S. government to impose taxes on U.S. expats as if there were no treaty.

Thailand and the U.S. do not have a social security tax agreement in-place. Therefore, certain U.S. expats will be required to pay into both social security programs.

How Living in Thailand Impacts US Taxes

As a U.S. citizen or permanent resident (Greencard), you are required to file U.S. taxes even if you live in Thailand. Plus, if you have assets in foreign financial accounts (e.g., foreign banks), there are informational reports you may be required to file. For example, U.S. Expats Living in Thailand with $10,000 or more in foreign banks must file the FBAR (now known as FinCen 114).

Fortunately, the U.S. government provides various forms of tax relief that can lower or eliminate U.S. tax obligations

• The Foreign Earned Income Exclusion – It allows you to exclude a certain amount of income earned outside the U.S.
• The Foreign Housing Exclusion/Deduction – This one relates to additional income that can be excluded for household-related expenses tied to living abroad.
• The Foreign Tax Credit – It allows you to offset foreign taxes paid against U.S. tax obligations.

In most cases, the foreign earned income exclusion is preferable to the foreign tax credit if you live in a country with a lower tax rate than the U.S. (assuming your income is not above the applicable threshold). However, it’s a good idea to speak with an expat tax specialist to discuss the best application of these tax reliefs.

FATCA and Thailand

The U.S. government is increasingly interested in knowing about the foreign assets held by its citizens and residents. As a result, it has been busy inking deals with other countries whereby foreign financial institutions (FFIs) will be required to:

• Identify accounts of U.S. persons;
• Report certain information to the IRS regarding those accounts;
• Withhold a 30% tax on certain payments to non-participating FFIs and account holders unwilling to provide the required information

As of the publication of this article, roughly 100 countries have either signed intergovernmental agreements with the United States or are in discussions. It is important to know that Thailand has a FATCA agreement in-effect (as of June 24, 2014).

If you have any questions regarding your U.S. expat taxes, contact us today. We are here to help.