In today’s business environment, companies increasingly rely on global technology services such as cloud infrastructure, SaaS platforms, and overseas software development teams.
However, one common tax trap is withholding tax (WHT).
If the payment is incorrectly classified, the company may face significant tax reassessments later.
This article summarizes Thai Revenue Department ruling No. 0702/1626, which provides guidance on how overseas payments should be treated.
🔍 Key Issue: “Royalty” vs “Business Profits”
The most important factor in international taxation is the classification of income under Double Taxation Agreements (DTA).
Royalty
Payment for the right to use intellectual property such as copyrights, patents, technology, or know-how
→ WHT 5–15%
Business Profits
Payment for general services or business transactions without acquiring IP rights
→ Tax exemption
(If the recipient resides in a DTA country and does not have a Permanent Establishment in Thailand)
| Counterparty | Service | Revenue Department Interpretation | WHT |
| Company A (USA) | Cloud Infrastructure / SaaS | Payment for system access only | Tax exemption |
| Company B (Ireland) | Software development (Man-day basis) | Use of general skills | Tax exemption |
| Company C (Hungary) | Custom software development | Hire-of-work contract | Tax exemption |
💡 Why Are These Payments Exempt?
The ruling clarifies the following principles.
1. Cloud & SaaS services
Payments are made for access to the system, not for acquiring or exploiting the software copyright.
Therefore, the payment is treated as service income, not royalty.
2. Custom software development
If software is developed based on the client’s specifications using general engineering skills, and no confidential know-how is transferred, the payment is considered personal service income, even if ownership of the finished software is transferred.
🚩 Risks to Watch
Even though many cases qualify for exemption, the following risks remain.
1. Risk of being classified as Royalty
Examples include:
- Rights to modify or resell the software
- Licensing terms in the contract
- Use of proprietary technology
2. Certificate of Residency (COR)
Without this document, DTA benefits cannot be applied.
The payer must withhold tax according to Thai domestic law.
3. Permanent Establishment (PE)
If the foreign service provider sends employees to Thailand beyond the period specified in the DTA, the company may be considered to have a PE in Thailand and become fully taxable.
4. VAT obligation (7%)
This is often overlooked.
Even when WHT is not required, VAT 7% must still be remitted (Form PP.36) for imported services.
This VAT can generally be claimed as input VAT in the following month.
✅ Corporate Checklist
Before making overseas payments:
- Ensure the contract clearly states service provision, not licensing
- Obtain the Certificate of Residency (COR)
- Confirm that know-how is not transferred
- Assess PE risk
- File PP.36 for VAT correctly and on time
- Seek professional tax advice for large transactions
Conclusion
Paying overseas service providers does not have to be risky.
By properly classifying income under Double Taxation Agreements (DTA) and referring to rulings such as 0702/1626, companies can manage their tax obligations efficiently and legally.
Reference: Revenue Department Ruling No. 0702/1626 https://www.rd.go.th/67737.html