Income tax for expat employees

[SingaporeSteve]

I was in the lucky (for me) position that when I was moved to Thailand, my boss asked me to handle the discussions with Deloitte's about how my renumeration was structured. Talk about hitting the jackpot.

 

The comment about split payments is flawed. Countless Japan MNC's have been back taxed for their employees and had to paid large fines due to non disclosure of income. Source: Deloittes who represented these Japanese MNC's in sorting out the mess with Thailands tax authorities. Its a no brainer for the tax authorities now that many MNC's have been under declaring salaries for certain expat staff and they have had great success in catching up with these companies. Basically, if you are working full time in Thailand, your salary needs to reflect the position you hold. Forget the minimums for work permits. Basically if your the CEO of Mitsubishi, Toyota etc in Thailand, the tax authorities will be expecting a salary that reflects the position you hold. i.e for these types of roles, at least 10,000 US$ per month and often very much more. Tax would be payable based on these kind of salaries. Forget any notion that MNC;s can pay 50,000 baht a month for a director, VP position to an expat. The tax authorities dont believe it and will pursue relentlessly.

 

You can legally, have two contracts - for example, if you travel outside Thailand a lot - be prepared to back this up with proof of being outside Thailand. An example of this would be your total renumeration is split say 40/60 - 40% being related to what you do in Thailand and 60% related to what you do outside of Thailand. Your travel patterns would need to reflect that 60% approx of your time is outside Thailand in any investigation. The 60% payment would need to be made outsideof Thailand and in accordance with local (for that country tax laws). You would need two clearly defined contracts, each written on country headed notepaper and signed by relevant people authorised to sign for the company in those countries. The two roles MUST be different and not easily linked. As an example in my case, in Thailand I was employed as an integration manager (integrating a company acquired by parent company) and for outside Thailand as head of multinational sales. As a result, you also need two sets of business cards made up reflecting these different roles.

 

All allowances are strictly speaking taxable as cash - however a lot of that depends upon whether the company have any desire to actually include them as an expense in the company. If for example a housing agreement is made between a individual employee and a landlord, even if the company make the payment, they cannot include this expense in their annual accounts - basically it falls into a black hole as the receipt and contract are in the name of an individual not the juristic person (company).

 

The example of someone working in Thailand and getting 50,000 baht allowance is totally illegal - tax has to be paid on that amount of salary and if your working full time or as good as full time in Thailand, you have a big exposure.

 

As I say, I had lucky insights from Deloittes on this - they charged our company about 6,000 US$ for all the work I had them do including checking exposures for being paid from Australia, Hong Kong, Singapore and Thailand. It is a minefield but the strong recomendation is dont think you can pull the wool over their eyes and get away with it for too long. Its easy enough to determine your accomodation expense, car options etc without digging too deeply and that seems to have been the downfall of in particular the Japanese MNC's - i.e they had senior staff living in 90,000 baht month apartments, car & driver and kids at international schools and they were often declaring monthly salary around 70,000 baht. do the maths and something does not add up.

 

Be creative by all means, but you must keep it plausible.

 

Cheers

[BaronTT]

Good post.

 

The advice /info you received is 100% consistent with all of the info I received from out outside tax consultants (PWC), other tax lawyers, and all of the internal research we've done.

 

Our company is heavily regulated and under close scrutiny because we're a financial institution. We can't 'afford' doing something improper so we don't take the risk.

[RayRay]

longwoodguy74 said:

I'm considering a potential expat position in thailand and was wondering if someone could clue me into the thai situation re: income tax for expats?

 

I am a US expat and have lived here for 2.5 years. When it comes tax time back in the States, I get my W2 form and another form called "Benefits in Kind". The BIK statement has car / driver, apartment, company paid plane tickets, etc. on it.

 

Basically you add up your W2 and the BIK numbers to come up with your overall compensation. If under the magic number $85K (give or take a bit) you pay nothing. If over you pay a certain percentage on the amount over the cutoff. My company pays foreign income tax so some way that gets thrown in to my benefit.

 

Although I am usually over the magic number because of this foreign income credit I have not been required to pay U.S. taxes since moving overseas. I am not an accountant, but so far my accountant guy says I don't have anything to worry about. As long as the IRS isn't waiting for me with handcuffs when I get off the plane I'm pretty happy.

[samak]

agree with Singapore Steve and BaronTT! Many japanese MNC have been under heavy investigation by the tax authorities as with their usually significant number of expats, tax authorities get a phantastic return.

a bit different looks the situation at smaller MNC or other western companies with branches in Thailand with few expats. often the income tax situation of the expats is in a grey zone or illegal. It is very common that companies just pay a small amount in Thailand and the majority offshore.

many do this for years. the tax authorities simply do not have the capacities to track all those cases so those expats get away with it but still live in a risky situation.

risk takers on this board include Nervous Dog, who does not pay any income tax on his housing allowance as well as Mekong (but chances are good he gets away with it if his Singapore Company does not have any branch in Thailand).

no risk no fun!?!

[Nervous_Dog]

I just got my tax bill, I have to pay 2800 baht - oh - the pain!

 

DOG

[samak]

for one year? you are kidding!

every backpacker teacher has to pay more tax alone on his subsidized Khao Saan accommodation!

Cave, Cane!

you are lucky that the athai authorities are 30 years behind the practises of tax investigation in USA.

[Nervous_Dog]

No - all legal and above board, I own my own company, so my package is ok, not great, but I also get to do the Thai thing, which is use the company to avoid taxation.

 

DOG

[Mekong]

Samak,

 

My parent office is in the States with a major subsiduary in the UK. Stateside looks after US Territory whereas the UK looks after EU, Middle East, Sub Continent, South Africa Asia and Australasia, with branch offices in many countries.

 

As for a company Branch in Thailand, well they were one of the first western engineering firms to open a Branch here back in 1969 and currently with in excess of 650 employees (90% Thai 10% Expat)and expanding are by far the largest Engineering / Design house in the region and are also BOI accredited, so I think we are pretty well known to the powers that be.

 

I'd say that 60% of the expats here are on secondment from UK head office whilst the rest who have either been head hunted or went knocking at the door begging for a job (like I did) are employed by the Singapore branch office and seconded to Thailand. I dont even know where the Singapore office is let alone step foot in there.

 

My timesheets are signed by Thai managment sent through to Singapore and Singapore then invoices Thailand for my manhours, my contract is with Singapore and they in turn have a service agreement with Thailand. As far as the Thai authorities are concerned my Tax liabilities are in Singapore and not Thailand, as far as Singapore are concerned my tax liabilities are with the UK and as far as UK is concerned I dont pay tax since I have been registered non uk resident since 1988 for tax purposes. And just for good measure my salary is paid into an offshore bank account in the Isle of Man which is a Tax free territory.

 

As previously mentioned, I get a monthly allowance in Thailand to cover the costs of Expenses, and since I am away from my place of permanent employment these are tax free. These expenses are paid by Thai Branch and I suppose that they may have to pay a little it of tax on that, but that is invisible to me, personaly I am totaly out of the Thai taxation system.

 

Far from being a Risk Taker, I would say I am in a very safe position as far as tax is concerned. Lucky Bastard that I am

[ThaiHome]

Mekong said:

Samak,

 

My parent office is in the States with a major subsiduary in the UK. Stateside looks after US Territory whereas the UK looks after EU, Middle East, Sub Continent, South Africa Asia and Australasia, with branch offices in many countries.

 

As for a company Branch in Thailand, well they were one of the first western engineering firms to open a Branch here back in 1969 and currently with in excess of 650 employees (90% Thai 10% Expat)and expanding are by far the largest Engineering / Design house in the region and are also BOI accredited, so I think we are pretty well known to the powers that be.

 

I'd say that 60% of the expats here are on secondment from UK head office whilst the rest who have either been head hunted or went knocking at the door begging for a job (like I did) are employed by the Singapore branch office and seconded to Thailand. I dont even know where the Singapore office is let alone step foot in there.

 

My timesheets are signed by Thai managment sent through to Singapore and Singapore then invoices Thailand for my manhours, my contract is with Singapore and they in turn have a service agreement with Thailand. As far as the Thai authorities are concerned my Tax liabilities are in Singapore and not Thailand, as far as Singapore are concerned my tax liabilities are with the UK and as far as UK is concerned I dont pay tax since I have been registered non uk resident since 1988 for tax purposes. And just for good measure my salary is paid into an offshore bank account in the Isle of Man which is a Tax free territory.

 

As previously mentioned, I get a monthly allowance in Thailand to cover the costs of Expenses, and since I am away from my place of permanent employment these are tax free. These expenses are paid by Thai Branch and I suppose that they may have to pay a little it of tax on that, but that is invisible to me, personaly I am totaly out of the Thai taxation system.

 

Far from being a Risk Taker, I would say I am in a very safe position as far as tax is concerned. Lucky Bastard that I am

 

This is classic transfer pricing. As long as your company (FW?) has the contracts and paperwork in order, they may be ok. Just because this has been going on since 1969, does not mean Thai Revenue Dept is going to continue to accept it. We are being audited right now for our transfer pricing practices. We don't try to shift near as much as your company appears to be doing and we are worried if our 40%/60% deal is going to stand up, considering the current environment on this issue.

Good luck

TH

[samak]

unfortunately you can not feel completely safe, Mekong! These are certainly clever arrangements but from tax point of view questionable and it depends completely on the tax authorities, wether they target your company or not.

and for your own tax liabilities, it does not matter wether you have a contract with a company outside thailand and your salary is paid offshore (purpose of this is to make it more difficult for tax authorities to track you and your income, but not exempt you from taxes!); it matters how many days you stay per year in Thailand and wether your work is Thailand related or not.