Business people are likely to find themselves frequently engaged in “receiving money” and “paying money.” But can you believe that a significant obstacle to receiving and paying money is the withholding tax? Many business owners do not understand what it is, why it is important, and what they need to do about it. This article will explain everything you need to know.

If you want to become a top-notch business owner who receives and pays correctly, you can’t miss this article. We will guide you through everything related to withholding tax from start to finish.

What is Withholding Tax in Thailand?

Withholding Tax is a tax that the payer deducts from a payment and then submits to the Revenue Department on behalf of the payee.

Once the tax is deducted, the payer issues a withholding tax certificate to the payee. This certificate can be used as proof of tax paid or as a tax credit when filing an annual tax return.

This system helps ensure that tax is collected in a timely and efficient manner.

Why Withhold Taxes?

Withholding tax is when the “payer” deducts a portion of the tax before paying the “payee,” and then remits the withheld tax to the Revenue Department.

The main objectives of withholding tax are as follows:

1. To pay taxes in advance

For example, Mr. A has an annual income that requires him to pay 100,000 Baht in taxes, but the payer withholds and remits 30,000 Baht in advance. At the end of the year, Mr. A only needs to pay an additional 70,000 Baht (100,000 – 30,000).

This means that Mr. A has had his tax withheld and has been paying it in advance, so he doesn’t have to pay a lump sum at the end of the year.

2. To guarantee tax payments to the government

From the government’s perspective, they also need to generate revenue from tax collection. With withholding taxes applied each time the money is paid, it ensures that the government gradually receives tax payments from individuals and corporations.

3. To verify whether taxpayers report their income correctly

When the payer withholds taxes and remits them to the Revenue Department, this creates a record of the income and taxes for the payee. Therefore, if the income earner does not file their tax at the end of the year, the Revenue Department can easily detect inaccuracy and notify them to correct their annual taxes filing.

Who Must Pay Withholding Tax in Thailand?

If your company is registered in Thailand (such as a company or partnership), you are generally required to withhold tax when making certain types of payments.

This requirement applies to payments made to both Thai and foreign individuals or companies. Although the tax is ultimately borne by the income recipient, the payer is responsible for deducting the tax before making the payment and submitting it to the Thai Revenue Department in the following month.

How to Calculate Withholding Tax in Thailand

Withholding tax is calculated on the net amount before VAT. WHT is not applied to VAT amounts — only the base payment amount is used.

Formula:
WHT = Payment × Tax Rate

Example 1: Employee Salary (Progressive WHT)

In Thailand, employers withhold tax on employee salaries using progressive personal income tax rates.

Suppose an employee earns THB 50,000 per month. The calculation below applies after considering the standard deduction.