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Philippines-Thailand

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New Tax treaty between the Philippines and Thailand has Entered into Force

The new income tax treaty between the Philippines and Thailand entered into force on 5 March 2018. The treaty, signed 21 June 2013, replaces the 1982 tax treaty between the two countries.

Taxes Covered

The treaty covers Philippine tax on individuals, tax on corporations, tax on estates and trusts, withholding taxes, and stock transaction tax. It covers Thai income tax and petroleum income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged personnel for the same or connected project for a period or periods aggregating more than 6 months within any 12-month period.

Limited Force of Attraction Provision

Article 7 (Business Profits) includes a limited force of attraction provision whereby taxing rights are granted to a Contracting State on profits attributable to the sale of goods or merchandise or other business activities carried on in that Contracting State by a resident of the other State if the same or similar goods or merchandise or business activities are also sold or carried out by a PE maintained by that resident in the first-mentioned Contracting State.

Withholding Tax Rates

  • Dividends - 10% if the beneficial owner is a company (excluding partnerships) directly holding at least 25% of the paying company's capital; otherwise 15%
  • Interest – 10% for interest received by any financial institution (including an insurance company); otherwise 15%
  • Royalties - 15%

Note - Article 10 (Dividends) includes the provision that a tax may be imposed on remittances of profits by a branch to its head office, but the tax may not exceed 10%.

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

  • Gains from the alienation of immovable property situated in the other State;
  • Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
  • Gains from the alienation of shares of a company or of an interest in a partnership or trust where the property of the company, partnership, or trust consists principally of immovable property situated in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation. A provision is also included for a sparing credit for tax that is otherwise payable in a Contracting State but has been reduced or waived in accordance with the special incentive laws designed to promote economic development in that State.

Effective Date

The treaty applies from 1 January 2019. The 1982 tax treaty will terminate and cease to have effect from the date the new treaty is effective.

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