On 17 Jul 2024, Thailand Tax Ministerial Regulation No.394 (2567) was gazetted, increasing the exemption from personal income tax for lump-sums received on involuntary terminations of employment.

This Insight has been updated for the prescription in Ministerial Reg No.394.

Taxation of Employee Termination Income

The Revenue Code Section 40(1) prescribes that the hire-of-labor (employment) category of assessable income includes:

• Any other money, property or other benefit received from hire-of-labor.

Accordingly, employee termination income, being income received from hire of labor (employment), is assessable income subject to personal income tax.

But whilst employee termination income is assessable income that is subject to personal income tax, there are two specific provisions entitling taxpayers to:

1. An exemption from personal income tax for income that's received on an involuntary termination, and
2. A personal income tax concession for income that is received on either a voluntary or involuntary termination.

Exemption from Personal Income Tax

For taxpayers receiving a lump-sum on a termination of employment under the labor law or state enterprise workers law but not for retirement or cessation of employment (i.e. for involuntary terminations only), Clause 2 (51) of Ministerial Regulation No.126 entitles the taxpayer to the following:

• An exemption from personal income tax for the portion of the lump-sum received that does not exceed the total of the wages or salary for the last 400 days of employment and not exceeding 600,000 Baht in total.*

* As amended by Ministerial Regulation No 394 (2567) gazetted on 17 July 2024 and applying from and including the 2023 tax year.

Personal Income Tax Concession

For taxpayers receiving a lump-sum on a termination of employment (either for voluntary termination or involuntary termination) Section 48 (5) of the Revenue Code entitles the taxpayer to concessional personal income tax, as follows:

• A taxpayer may choose to exclude from a normal computation of income tax, a lump-sum received on a termination of employment that is paid on the basis of the number of years employed and other rules prescribed by the Director-General, and pay income tax on the lump-sum received after firstly deducting expenses of 7,000 Baht for each year employed and then further deducting expenses of 50% of the remainder. 

The number of years employed and the other rules prescribed by the Director-General for the personal income tax concession are as follows:

1. The lump-sum amount on termination of employment shall be paid on a basis for 5 or more years of employment,
2. If the lump-sum amount is received in parts over two or more years, the concessional tax right under Section 48(5) applies only to the part that is received in the first year*, and
3. The concessional tax right under Section 48(5) applies only for a taxpayer choosing not to include any of the lump-sum amount received in a usual computation of personal income tax, and exercising the concessional tax right for the whole lump-sum amount received as a separate stand-alone amount of assessable income.

* As amended by the Director-General's Notification on Income Tax (No. 303), gazetted on 10 August 2017 and applying from and including the 2017 tax year.

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