Paying Foreign Suppliers from Thailand: Withholding Tax Explained
If your Thai company pays fees, royalties, service charges or interest to a supplier based overseas, you may be required to withhold a portion of that payment and remit it to the Thai Revenue Department before the money leaves the country. For business owners who are new to operating in Thailand, this obligation can come as a surprise. Missing it carries real penalties, so understanding the basics early will save you time, money and stress later.
What Is Withholding Tax on Foreign Payments?
Withholding tax is a mechanism where the payer, rather than the recipient, is responsible for deducting tax at source and paying it to the government. In a domestic Thai context you are probably already familiar with this idea, since Thai companies routinely withhold tax on payments to local service providers. The same principle applies when money flows out of Thailand to a foreign company or individual, but the rules that govern the rate and the obligation sit under a different part of the Thai Revenue Code, specifically Section 70.
Under Section 70, when a Thai company makes certain categories of payment to a foreign entity that is not carrying on business in Thailand, it must withhold tax at a flat rate before remitting the balance. The tax withheld is a final tax for the foreign recipient. It does not give the recipient any right to offset against other Thai income or claim a refund in Thailand, which is why understanding the rate upfront matters so much.
Which Payments Actually Trigger the Obligation?
Not every payment to a foreign supplier triggers a withholding obligation. The type of income is what determines whether Section 70 applies. Payments that commonly create a withholding requirement include service fees where the service is deemed to be performed in Thailand, royalties for the use of intellectual property such as software licences, trademarks or patents, interest on loans from foreign lenders, and dividends paid out of a Thai company to a foreign shareholder.
Payments for goods are generally outside the scope of Section 70, which is one reason the distinction between buying a product and buying a service or a licence can matter significantly in how you structure a transaction. If you are paying a foreign company purely for physical merchandise, withholding tax on that payment is typically not required. If you are paying for a software licence, a consultancy report, or a management fee, the position is very different.
What Rate Applies if There Is No Tax Treaty?
When Thailand has no double tax agreement with the supplier's country of residence, the standard domestic rates under the Revenue Code apply. For most service income and royalties the rate is 15 percent of the gross payment. Interest payments are also generally subject to 15 percent. Dividends paid to a foreign company are subject to 10 percent withholding tax at source.
These rates apply to the gross amount you are paying, not a net figure. So if you agree to pay a foreign consultant 100,000 baht, the withholding tax at 15 percent is 15,000 baht, you remit 85,000 baht to the supplier and you pay 15,000 baht directly to the Revenue Department. You must file a specific form, PND 54, and make that payment within seven days of the end of the month in which the payment was made.
How Double Tax Agreements Reduce the Rate
Thailand has signed double tax agreements, often called DTAs or tax treaties, with more than 60 countries. These agreements exist to prevent the same income being taxed twice, once in Thailand and once in the recipient's home country. In practice, many DTAs cap the withholding tax rate at a level lower than Thailand's domestic rate, and some reduce certain categories of payment to zero.
For example, a DTA might cap royalties at 5 or 10 percent instead of the domestic 15 percent. Service fees may be treated differently depending on whether the supplier is considered to have a permanent establishment in Thailand. The exact rates and categories depend entirely on the specific treaty between Thailand and the relevant country, so you need to look at the correct DTA rather than assuming any general rule applies.
To access the reduced DTA rate, the foreign supplier must provide a certificate of residence, sometimes called a tax residency certificate, issued by the tax authority in their home country. This document confirms that the supplier is genuinely a tax resident of the treaty country and is entitled to the treaty benefits. Without this certificate, your Thai company should apply the domestic rate to be safe.
Common Mistakes Thai Companies Make
One of the most frequent errors is simply not knowing the obligation exists. A small business owner who has been paying a foreign web developer or overseas software provider for years may never have withheld a baht, not because there was no obligation but because nobody flagged it at the start. When the Revenue Department audits the company, the unpaid withholding tax, plus a surcharge and penalty, can add up to a material sum.
Another common mistake is applying the DTA rate without holding the residency certificate to support it. The reduced rate is a relief the supplier must claim through proper documentation, not something you can apply at your discretion. Keep the original certificate or a certified copy on file for each year in which you apply the treaty rate, because an auditor will ask for it.
A third error is mis-categorising the payment. Paying for a software subscription versus paying for a custom-built software licence are treated differently under Thai law. Getting the categorisation wrong means applying the wrong rate, which creates either an underpayment or an unnecessary cost.
Practical Steps Before You Make the Next Payment
Before you pay your next foreign invoice, take a few minutes to work through the following questions. First, what type of income is this payment: a service fee, royalty, interest, or goods? Second, does Thailand have a DTA with the supplier's country? Third, do you hold a valid residency certificate from the supplier? Fourth, have you calculated the withholding at the correct rate and prepared the PND 54 form?
If any of those questions are unclear, speaking to a local accountant or tax adviser before the payment goes out is far easier than correcting a misfiled return after the fact. The Revenue Department does audit international transactions, particularly in industries where royalties and management fees to overseas related parties are common. Getting the process right from the beginning is always cheaper than resolving a compliance gap later.