Your company is growing and you want to hire a new Thai employee? The problem is that you don’t understand how you should pay him/her, nor what you should pay as social contributions? We give you all the answers in this article.
1. What are the obligations related to social contributions in Thailand?
In Thailand, all employees are required to contribute to a social security fund for an amount equivalent to 5% of their salary, with a maximum contribution of 750 THB per month. Employers are also required to contribute an equal amount.
Employer Payroll Contributions
In Thailand, the employer contribution is between 5% minimum for social security but all the other contributions are not mandatory
Severance pay is mandatory if applicable and determined by the employee’s length of service. Employees working for less than 120 days for the same employer are not eligible to receive any severance payment.
- Employees with more than 120 days of service but less than one year are entitled to 30 days severance pay.
- Employees with service of 1 year but less than three years are entitled to 90 days of severance pay.
- Employees with three years but less than six years are entitled to 180 days severance pay.
- Employees with six years but less than ten years are entitled to 240 days severance pay.
- Employees with service of 10 years but less than 20 years are entitled to 300 days severance pay.
- Employees with 20 years or more are entitled to 400 days severance pay.
This rule is the same to determine the retirement bonus that any employee is entitled at the end of his working life.
2. Personal Income Tax (taxes on Employment income)
Thailand imposes a personal income tax on Thai-source income of residents and non-residents. Residents are taxed on foreign-source income to the extent that it is paid or remitted in Thailand during the calendar year in which it was received.
A person’s liability to Thai tax is determined by his or her status as a resident for tax purposes and by the source of the income received.
It is also determined by both residence and source rules. A resident of Thailand for tax purposes means a person who is present in Thailand for a total of at least 180 days in a given tax year. The general rule is that a person who is either a resident or non-resident of Thailand is taxable on income from sources in Thailand.
A resident is also subject to Thai tax on foreign-source income, but only if the income is paid into Thailand in the year it is received. Extended business travelers are considered non-residents of Thailand for tax purposes unless they are present in Thailand for more than 180 days during the tax year.
Employment income is generally treated as Thai-sourced remuneration where the person performs the services in Thailand and/or performs the services for the employer’s business in Thailand.
however there may be exceptions regarding certain income and whether the person can benefit from a non-double taxation agreement
The maximum tax rate applies to income earned above 5 million Thai baht (THB). Net taxable income is taxed at progressive rates up to 35%. The maximum tax rate is currently 35% for income above THB 5 million for both residents and non-residents.
3. Social Security in Thailand
Resident and non-resident employees who receive salary from Thai employers are required to make contributions to Thailand’s social security fund. Contributions to the social security fund are made by employees and employers in equal proportions.
The present rate of contribution made by each party is 5% of the employee’s salary, up to a maximum amount of THB 750 per month. The contributions are deducted by the employer at the source.
4. What about the provident fund in Thailand?
The Provident Fund in Thailand is voluntarily established by both, the employer and the employees, consisting of the contributions from both parties called “Employer’s contribution & Employees contribution”.
Provident Fund is on a voluntary basis which is jointly set up by employees and employer.
Thailand’s cabinet has now approved in principle a “National Pension Fund” (NPF) in March 2021, which is expected to take effect in the next few years.
Some principles to consider before setting a salary in Thailand
- Payroll Cycle: The payroll cycle in Thailand is generally monthly and is usually paid on the last working day, as agreed within the employment contract.
- 13th Salary: There is no statutory requirement for a 13th-month salary payment in Thailand.
Employers in Thailand have withholding obligations to their employees, and must make income tax and social security contributions on their behalf:
- Income tax rates in Thailand range from 0% for the lowest-earning employees, to 35% for those earning over 5,000,000 Baht. Tax must be reported to the Thailand Revenue Department.
- Social security contributions for employer and employee amount to 5% of salaries – up to a maximum of 750 Baht per month.
Employees in Thailand must be issued with payslips for each pay period (payslips may be issued online), and payroll records must be kept for at least 7 years.
Thai payroll may be handled in-house by a dedicated payroll officer or payroll team, or outsourced to a third party to take advantage of regional expertise.
It may be advisable for foreign businesses setting up in Thailand to take advantage of global service providers in order to acquire valuable compliance expertise – and ensure their international employee populations are paid accurately and efficiently.
Need help in recruiting staff in Thailand? Contact us for a free consultation : firstname.lastname@example.org