In Jan and Feb 2008, the Governments of Thailand and Hong Kong exchanged official letters, constituting an agreement between the two Governments that Thailand and Hong Kong shall not impose branch profits withholding tax.

This Insight has been updated for the exchange of the official letters between Thailand and Hong Kong.

Branch Profits WHT under Thailand's Tax Law

Thailand tax law subjects the profits earned by foreign company branches (or permanent establishments) in Thailand to corporate income tax, and also the remittances of the branch's (or the permanent establishment's) profits out of Thailand to the following branch profits withholding tax:

• A corporate entity that disposes out of Thailand an amount of profits or amount set aside out of profits, or an amount regarded as profits, shall withhold tax on the amount so disposed of at the rate of 10%.*

* As prescribed in Section 70 bis of the Revenue Code.

Branch Profits WHT under Thailand's DTAs

All Thailand's Double Tax Agreements, except one (the Double Tax Agreement between Thailand and Hong Kong), prescribe for Thailand's profits remittance withholding tax in one of two ways:

1. By including a specific provision in Double Tax Agreements saying that nothing in the Double Tax Agreement shall prevent Thailand imposing profits remittance withholding tax; or
2. By defining the word "dividend" in Double Tax Agreements to include a distribution of profits and thereby not exempting the profits remittance withholding tax.

Branch Profits WHT under Thailand's DTA with Hong Kong

Thailand's Double Tax Agreement with Hong Kong does not contain the specific provision about Thailand's profits remittance withholding tax, nor does the DTA define the word dividend to include a distribution of profits leaving it open as to whether the DTA exempts branch profits withholding tax or not.

In Jan and Feb 2008, the Governments of the two countries exchanged letters for confirming the understanding that:

“... each Contracting Party shall not impose, in accordance with its domestic laws and regulations, a tax on the profits that are remitted by a permanent establishment of an enterprise of the other Contracting Party in its territory, as defined in Article 5 of the Double Tax Agreement."

and

"... the above shall constitute an agreement between the two Governments that shall form an integral part of the Double Tax Agreement and that shall enter into force as from the date of entry into force thereof."

Accordingly, from the date of 01 January 2006 (the date of entry into force of the DTA between Thailand and Hong Kong), a remittance of profits from a Thailand branch office of a Hong Kong company to a head office in Hong Kong is exempt from Thailand's Section 70 bis branch profits withholding tax.

---