Our Tax lawyers and tax advisers in Thailand at H&P have prepared a brief summary of the most relevant aspects of the Royal Decree on Top-Up Tax (2024). On December 25, 2024, the Royal Gazette of Thailand published the Royal Decree on the Top-Up Tax for multinational enterprises (MNEs) operating in Thailand. This new tax measure, effective from January 1, 2025, aims to align Thailand’s tax system with global standards set by the Organization for Economic Co-operation and Development (OECD), ensuring that large multinational companies pay a minimum level of tax. The Royal Decree was presented by the Ministry of Finance, with approval from the Cabinet on December 11, 2024, and marks a significant milestone for the country in enhancing its tax revenue and maintaining its tax sovereignty.
What Is the Top-Up Tax?
The Top-Up Tax is designed to ensure that large MNEs pay a minimum corporate tax rate of 15%, in line with the OECD’s Global Minimum Tax (GMT) initiative. If an MNE pays less than 15% in tax in a given country, the corporation must pay the difference, either in the country where the corporation is headquartered or in the jurisdiction where the company operates, if that country has implemented a top-up tax law.
In Thailand’s case, the top-up tax will apply to MNEs with consolidated annual revenue of at least 750 million euros (approximately 30 billion baht) for two out of the last four accounting years, starting from the accounting year beginning on or after January 1, 2025.
This move is in response to the OECD’s Global Anti-Base Erosion (GloBE) rules, which aim to prevent tax base erosion and profit shifting (BEPS) by setting a minimum level of taxation globally. Thailand’s implementation of this tax ensures that it does not lose potential tax revenue to other jurisdictions that already have similar laws in place.
Why Is This Decree Important for Thailand?
The introduction of the Top-Up Tax is vital for maintaining Thailand’s tax competitiveness and sovereignty. Without this law, the country would risk losing out on tax revenues from large multinational corporations that are subject to lower taxes in other countries that have already adopted the global minimum tax regime. As of 2024, 28 countries, including major economies like the United States, Japan, Germany, the United Kingdom, and Australia, have already implemented the GloBE rules. Countries like Malaysia, Singapore, and Indonesia are expected to follow suit by 2025.
By introducing the Top-Up Tax, Thailand is ensuring that MNEs doing business within its borders contribute fairly to the national tax revenue, thereby helping to preserve the country’s economic stability and public financial resources. The Royal Decree will also contribute to the promotion of sustainable investment in Thailand, as businesses will be incentivized to operate in a fair and competitive tax environment.
Key Features of the Royal Decree
The Top-Up Tax will be applicable to MNEs, both domestic and foreign, operating in Thailand. The key criteria for eligibility are as follows:
1. Revenue Threshold: The tax applies to MNEs whose parent companies generate a consolidated revenue of at least 750 million euros, as recorded in their consolidated financial statements, for two out of the last four accounting periods prior to the assessment period.
2. Global Minimum Tax Rate: Companies must pay at least 15% corporate income tax on their global income. If the tax paid in Thailand is below this threshold, the difference must be paid either in Thailand or in the country of the parent company’s headquarters.
3. Compliance with OECD Standards: Thailand’s implementation of the Top-Up Tax is fully in line with the OECD’s GloBE rules. This ensures that multinational enterprises are subject to a consistent and fair tax regime across jurisdictions, making it easier for businesses to comply with international tax regulations and reducing the burden of double taxation.
The Role of the Thai Revenue Department
To ensure smooth implementation, the Thai Revenue Department, under the Ministry of Finance, will provide further guidance through secondary legislation, detailing procedures for tax filing, tax payments, and the submission of GloBE Information Returns. The department plans to facilitate the process through an electronic system, making it easier for businesses to comply with the new tax laws. Additionally, the Revenue Department will organize seminars and e-learning programs to educate taxpayers and related parties, including tax consultants and auditors, about the new regulations.
The Royal Decree’s emphasis on electronic filing and compliance with international standards reflects Thailand’s ongoing commitment to improving its tax administration systems and reducing the administrative burden on businesses. This approach aligns with the global trend towards digitalization and transparency in tax reporting.
Impact on Investment and Business Operations in Thailand
While the new tax measure may initially seem burdensome for large multinational corporations, it is ultimately a step toward creating a more transparent and equitable tax environment in Thailand. By adopting the Top-Up Tax in line with OECD guidelines, Thailand is ensuring that it remains an attractive destination for foreign investment while upholding global tax fairness principles.
In fact, the introduction of the Top-Up Tax may enhance Thailand’s appeal as an investment hub for companies looking to operate within a consistent, rules-based tax environment. As multinational enterprises face increasing pressure to comply with global tax standards, Thailand’s proactive stance in implementing these rules could position it as a more reliable and stable market for international businesses.
Moreover, the additional revenue generated from the Top-Up Tax is expected to benefit the Thai government’s fiscal health, ensuring that the country can continue to invest in critical infrastructure, public services, and sustainable economic development.
Looking Ahead in 2025
As Thailand prepares for the enforcement of the Top-Up Tax in January 2025, the Revenue Department will continue to refine and communicate the regulations surrounding the new tax regime. It is crucial for businesses operating in Thailand to stay informed about the developments, as non-compliance could result in penalties and reputational damage.
For multinational corporations, the implementation of the Top-Up Tax presents an opportunity to review and streamline their tax strategies to ensure full compliance with the new regulations. Tax advisors and corporate tax managers will play a key role in helping companies navigate the complexities of this new tax landscape.
In conclusion, the Royal Decree on the Top-Up Tax is a forward-thinking policy that aligns Thailand with international tax standards while safeguarding the country’s economic interests. It is an important step toward fairer taxation of multinational enterprises and a more sustainable financial future for Thailand.
If you need to discuss your corporate tax planning in Thailand, please contact with our tax lawyers at [email protected]
