Thai Law Insights

Sponsor Companies and Their Foreign Employees: Overcoming Challenges with Work Permits and Tax Collection in Thailand

Rachaneekorn Wangsuekul

Thailand is one of the world's fastest rising foreign investment destinations due to a number of factors. The country's abundance of natural resources and affordable labor, the improving economy, and its impending membership in the ASEAN Economic Community in 2015 (entailing the free flow of skilled labor, investment, services and goods and freer flow of capital) have made Thailand the most attractive country in Southeast Asia for foreigners to invest in.

The forms of foreign investment vary from 100% foreign-owned start-up businesses, to Thailand branches of existing foreign businesses, to businesses co-owned by foreign investors and Thai nationals. Such investments, consequently, attract foreign employees to Thailand for the purpose of knowledge development and technology transfer. Usually, foreign employees' wages are paid by sponsoring employers residing in Thailand. In some cases however, foreign employees are paid by resources outside the country, under agreements between employers and their parent or joint companies, such as joint ventures or consortiums.

Usually, Thai work permits may be requested by employees or, employers residing in Thailand on the behalf of their foreign employees. However, under some circumstances, out-of-country employers may obtain Thai work permits for their foreign employees as well, on the condition that the employee's actual purpose in Thailand is work (regardless of the employer's place of residence). The authorities will consider each applicant on the basis of the relationship between the employee and the out-of-country employer, and evidence demonstrating the existence of the employer and the necessity of employing that employee in Thailand. The authorities will also consider:

1. National security in terms of political, religious, economic, and social concerns
2. Priority for Thai nationals to obtain similar employment and the necessity of foreign employees in the further development of the country
3. Benefits arising from permitting foreigners to work in such positions in increasing the flow of foreign capital into Thailand, leading to the improvement of the Thai economy and the need for more Thai labor, as well as the transfer of technology and skills

Under Thai law, employers must withhold tax from their employees and remit the tax withheld to the Thai Revenue Department, within the prescribed time. Accordingly, one of the main concerns of out-of-country employers paying foreign employees in Thailand is how those employers would collect taxes from the foreign employees. Subsequent to the Foreign Employment Act of 2008, out-of-country employers paying foreign employees in Thailand can acquire and sponsor a Thai work permit for their non-Thai employees who are seconded to perform service in Thailand for customers. Before 2008, some foreign employers arranged for their foreign employees to be on their customers' payroll so that work permits could be obtained. This was a legal risk for the Thai customers who were not the actual employers as well as the foreigners who were not actually employees.

In any case, a foreign employee must pay his or her personal income taxes on wages earned in Thailand, unless the employee qualified for an exemption, such as working in Thailand for only a short period, which may be allowed under a double taxation treaty or other regulations.

The Foreign Employment Act of 2008 has alleviated many tax and employment concerns of foreign employers, foreign employees and, Thai customers.