Is every software-related payment to a foreign vendor subject to Thai withholding tax? Do cloud-based services constitute royalties? And what if intellectual property (IP) rights are transferred to the Thai customer?
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As Thai businesses increasingly engage with global IT service providers—whether for cloud infrastructure, software-as-a-service (SaaS), or bespoke software development—the tax treatment of cross-border payments has become a focal point.
In March 2025, the Thai Revenue Department (“TRD”) issued a ruling addressing these questions. The ruling examined whether payments made by a Thai company to non-resident service providers in three foreign jurisdictions were subject to Thai withholding tax under the Thai Revenue Code (“TRC”) and relevant Double Tax Treaties.
Case Summary: ![]()
A Thai company entered into separate service
agreements with three foreign entities:
Company A (Country A): Provided cloud infrastructure and SaaS services via a foreign-hosted platform. The company retained full ownership of the technology and granted the Thai company only a limited, non-exclusive, non-transferable, and revocable right to access the platform.
Company B (Country B): Delivered software development services under a time-based contract. In certain engagements, the developed software’s IP was transferred to the Thai company; in others, it remained with the service provider.
Company C (Country C): Provided custom software development under specific job orders, with full IP rights clearly assigned to the Thai company.
TRD’s Ruling
- Company A – Cloud Services (Country A)
The TRD determined that the payment to Company A was not made in exchange for rights to reproduce, modify, or distribute software. Therefore, the payment did not qualify as a royalty, but rather as business profits. Under the applicable tax treaty, and in the absence of a permanent establishment (PE) in Thailand, the payment was exempt from Thai withholding tax.
- Company B – Software Development (Country B)
Where the Thai company acquired full ownership of the software, the payment constituted other income under Section 40 (8) of the TRC and was again characterised as business profits under the tax treaty. In such cases, no Thai tax applies if the foreign service provider has no PE in Thailand.
However, if the IP remained with Company B and the Thai company was merely granted usage rights, the TRD noted that a royalty may apply—but only where those rights equate to copyright usage. Absent such qualifying rights, the payment remains classified as business profits and is not subject to Thai tax.
- Company C – Custom Software (Country C)
As the software was developed under job-specific terms and ownership was clearly transferred to the Thai company, the payment was again treated as income under Section 40 (8) of the TRC and as business profits under the relevant treaty. Without a PE in Thailand, the payment was not taxable, and no withholding tax was required.
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Expert Commentary
This ruling provides welcome clarity that not all cross-border payments for software or IT services fall within the definition of royalties. Specifically, payments for:
- Standard cloud platform access, or Custom software development where IP is transferred.
- Custom software development where IP is transferred.
A Thai company entered into separate service 
