Navigating key tax challenges for expatriates under EOR employment

Keywords: Mazars, Thailand, Personal Income Tax, EOR, Source, Residency, Expatriates

While an Employer of Record (“EOR”) arrangement offers advantages in regard to compliance with local labour law and efficiency in tax administration, it is important to note that it may not always fully mitigate personal income tax risks for expatriates. This article outlines the primary tax challenges commonly faced by expatriates working in Thailand under an EOR arrangement and provides recommendations to ensure compliance and to optimize tax outcomes. 

Personal income tax liabilities of expatriates working in Thailand  

Generally, individuals must pay personal income tax in Thailand under the following two rules:  

1. Source rule:  

A taxpayer who derives income from employment in Thailand, a business conducted in Thailand, an employer’s business in Thailand, or a property situated in Thailand must pay Thai personal income tax on such income.  

2. Residency rule:  

A Thai tax resident who derives income from employment or a business conducted abroad or from a property situated abroad must pay tax in Thailand upon bringing such assessable income into Thailand.  

It is crucial to note that expatriates working in Thailand under an EOR arrangement must pay Thai personal income tax on the income earned from work performed in Thailand, regardless of their residency status or where payment is received. If payments to such expatriates are split, the total value of the salary and benefits related to the work in Thailand must be included in the assessable income subject to tax in Thailand. Failure to do so can lead to severe consequences, underscoring the importance of understanding and meeting your tax obligations.  

Expatriates who spend 180 days or more in Thailand during any tax year are considered Thai tax residents. As such, they must pay tax on income that has its source in both Thailand and overseas. 

Common challenges  
Under-reported assessable income   

When an expatriate is paid employment income in both Thailand and a home country, the most common tax error is tax underpayment. In many cases, expatriates get paid a minimal amount in Thailand or only the required amount to meet the immigration requirements, while the majority of the salary is paid in a home country. Technically, the income for performing work duties in Thailand is subject to Thai tax, regardless of where payment is paid. If an EOR withholds tax only on the income paid in Thailand, this results in the underpayment of tax. If an expatriate fails to report income paid in a home country in their annual personal income tax return in Thailand (Form PND 91), penalties and interest may be imposed. 

Double taxation risk  

Expatriates working in Thailand may also be required to pay taxes in their home country on their Thai employment income, which leads to the risk of double taxation. Expatriates may seek relief under applicable tax treaties, so that their income is taxed in only one jurisdiction. However, some EOR operators do not recognize the relief provided under these treaties, so expatriates may not benefit from tax exemptions that are available to them.  

Deductions and allowances  

Many EOR operators use only the standard deductions and allowances when calculating withholding tax and personal income tax for expatriates. As a result, expatriates may lose the opportunity to claim deductions and allowances that may apply to them. 

How can you cope with these challenges?  

Expatriates encountering complexities related to personal income tax in Thailand, especially when engaged through EOR services, may need help with the tax process. Nonetheless, strategic planning, an understanding of the Thai tax framework, and the expertise of a tax consultant can help expatriates deal with these challenges.  

Mazars assists expatriates with Thai personal income tax management, ensuring compliance with local tax laws and optimizing tax positions. Our team of experts provides comprehensive and personalized services that can guide you through the tax management process for a stress-free experience.