Many Thai companies are subsidiaries of foreign corporations and regularly receive foreign employees from their overseas group companies under employee secondment arrangements. Such arrangements are commonly implemented for business reasons, including knowledge transfer, management support, cost efficiency, and employee development.
While secondment arrangements are common in multinational groups, they can give rise to several important Thai tax considerations for both the Thai company and the foreign employee.
Typical Secondment Arrangement
Consider a Japanese parent company (Company J) that seconds one of its employees to its Thai subsidiary (Company T).
Under the secondment agreement:
- The foreign employee works in Thailand for a specified period.
- The employee performs duties solely for the benefit of Company T.
- Company T is responsible for the employee’s salary, bonus, and benefits.
- Company J may pay part of the salary overseas for administrative convenience and subsequently recharge the exact amount to Company T.
- Company T obtains the necessary work permit and immigration approvals.
Thai Personal Income Tax Obligations
The foreign employee’s remuneration is generally subject to Thai personal income tax because the employment duties are performed in Thailand.
Accordingly, Company T is required to:
- Withhold personal income tax under Section 50(1) of the Revenue Code;
- Remit the tax to the Revenue Department; and
- Include both:
- remuneration paid directly in Thailand, and
- remuneration paid overseas by Company J and reimbursed by Company T
in the employee’s taxable income.
Under the source-of-income principle in Section 41 of the Revenue Code, employment income derived from work performed in Thailand is taxable in Thailand regardless of where the payment is made.
Corporate Income Tax and VAT Considerations
In a genuine secondment arrangement:
- The foreign employee should not be regarded as an agent or representative of the foreign company.
- The salary reimbursement should not, by itself, result in the foreign company being considered as carrying on business in Thailand.
- Salary payments are not subject to VAT.
Therefore, the arrangement should generally not create Thai corporate income tax exposure for the foreign employer under Section 76 bis of the Revenue Code.
Potential Tax Risks
In practice, the Revenue Department may scrutinise whether the arrangement is a genuine employee secondment or, in substance, a service arrangement.
If the Revenue Department views the recharge from Company J to Company T as a service fee rather than a salary reimbursement, it may conclude that:
- Company J is carrying on business in Thailand through its personnel;
- The recharge constitutes service income;
- Company T is required to withhold tax on payments made to Company J; and
- VAT may apply under the reverse-charge mechanism for imported services.
Such recharacterisation could result in additional tax liabilities, surcharges, and penalties.
Importance of Supporting Documentation
To minimise tax risks, companies should maintain robust documentation, including:
1. A Comprehensive Secondment Agreement
The agreement should clearly specify:
- The employee’s duties and responsibilities in Thailand;
- That the employee works exclusively for the benefit of the Thai company;
- Salary and benefit arrangements; and
- That the foreign company does not supervise the employee’s day-to-day work in Thailand.
2. Salary Reimbursement Records
Documents supporting any recharge from the foreign company should clearly demonstrate that:
- The amount relates solely to salary paid on behalf of the Thai company; and
- The foreign company has paid the same amount directly to the employee.
3. Additional Supporting Evidence
Companies should also retain:
- Payroll records;
- Work permits and visa documents;
- Job descriptions;
- Organisation charts; and
- Any other documents demonstrating the employee’s integration into the Thai company.
Key Takeaway
Employee secondment arrangements can generally be implemented without creating a taxable presence in Thailand for the foreign employer. However, the distinction between a salary reimbursement and a service fee is critical.
Companies should ensure that secondment arrangements are properly structured, clearly documented, and supported by sufficient evidence. This will help reduce the risk of challenges from the Revenue Department and potential exposure to withholding tax, VAT, and corporate income tax assessments.
Reference: Revenue Department Ruling No. กค.0702/4899 dated 22 June 1979.
