Thailand’s Position on Royalties

Thailand’s Position on Royalties

Thailand’s position on Article 12 (Royalties) of the recent 2025 OECD report reflects a robust commitment to source-based taxation for cross-border payments. Unlike the OECD’s preferred move towards residence-based taxation for royalties, Thailand continues to advocate for the right of the state where the income arises to collect tax. By expanding the definition of royalties and establishing clear source rules, Thailand ensures that a broad spectrum of payments for technology, equipment, and expertise remains subject to local withholding tax.

The core of Thailand’s position on Royalties is the unequivocal reservation of its right to tax royalties at the source. To broaden the tax base, Thailand includes "fees for technical services" (“FTS”) within its definition of royalties. This is a significant departure from the standard model, as it allows Thailand to tax professional and technical consultancy payments under the royalty article rather than as business profits.

Furthermore, Thailand insists on including payments for the "use of, or the right to use, industrial, commercial or scientific equipment" in the definition of royalties. This ensures that the leasing of machinery, tools, and other tangible equipment is taxed at the source. To provide a legal framework for this taxing right, Thailand proposes adding a provision that defines the source of royalties by analogy to the definition of interest (Article 11). This means that royalties are deemed to arise in Thailand if the payer is a Thai resident or a PE situated in Thailand, thereby ensuring that the economic burden of the payment is linked to Thai jurisdiction.

Our View

The impact on foreign taxpayers is substantial, particularly for those providing technical assistance or leasing equipment. Many payments that might be exempt from tax as "business profits" in other countries (due to the lack of a PE) are classified as "royalties" in Thailand, triggering an immediate withholding tax at the source. This increases the total tax cost for foreign providers unless they can claim a credit in their home country. Taxpayers must carefully categorize their service contracts and equipment leases to ensure compliance with Thailand’s expanded royalty definition and account for non-recoverable withholding taxes in their pricing models.

How Grant Thornton Can Help You

At Grant Thornton in Thailand, our team of tax and legal experts is ready to advise on structuring cross-border technology arrangements to ensure alignment with Thai tax laws and international tax treaty obligations.