In March 2018, the Cabinet approved the draft amendment of the Thai Revenue Code (“TRC”) to include the definition of “Digital Assets” and to propose a 15% withholding tax (“WHT”) on income derived from such Digital Assets. Based on the draft legislation, “Digital Assets” means cryptocurrency, digital tokens and assets in the form of other electronic data assets specified by the Minister of Finance. The TRC classifies income into eight categories under Section 40 (1) to 40 (8). The draft legislation proposes to add two sub-categories of income under Section 40 (4) of the TRC. These two new sub-categories are income derived from Digital Assets which are (1) the share of profits or other benefits derived from holding Digital Assets; and (2) benefits derived from the transfer of Digital Assets which exceeds the cost of the investment.
In the context of an individual, the draft law proposes that a 15% WHT should be imposed on these two new sub-categories of income. The individual will also be required to include such income as assessable income upon filing his/her annual personal income tax (“PIT”) return, however the 15% WHT suffered should be creditable against the final tax payable. Currently under the TRC, a Thai resident individual who derives income under Section 40 (4) of TRC shall be subject to WHT at the progressive tax rates of 5% - 35% whereas the flat rate of 15% WHT is imposed if the recipient is a non-Thai resident individual. Without the option to exclude such income from the individual’s annual PIT return, this could result in an individual paying more than 15% tax on income from Digital Assets where his/her marginal tax rate exceeds 15%.
The draft law is silent on whether WHT will apply if the recipient is a local juristic company and there is currently no provision under the TRC that requires WHT on the payment of income under Section 40 (4) to a local juristic company, except for interest and dividend income. This (no WHT) is in line with the current practice for the benefits or gains from transfer of securities or other similar instruments. If WHT is introduced for recipients that are local juristic companies, WHT may be cost of business if the companies make loss or have overpaid tax due to the difficulty in claiming tax refund.
Although the draft law does not expressly mention the application of WHT on payments made to a non-resident entity, a 15% WHT should in any event be imposed under the current provisions of Section 70 of the TRC. This is because Section 70 requires the payer of income to deduct 15% WHT on income under Section 40 (2) – (6) paid to non-resident entity not carrying on business in Thailand (10% WHT in case of dividends). It is unclear whether such income would be considered as a “Capital gain“ or “Other income“ in the context of a tax treaty which may eliminate the WHT imposed. This issue should be further analyzed.
The draft law is currently under review by the Office of the Council of State. It is not clear yet when the law will be effective.