Significant savings on personal income tax
Every loyal reader of Thailandblog knows by now that both the Netherlands and Thailand are allowed to levy income tax on social security benefits obtained from the Netherlands, such as an AOW, WAO or WIA benefit.
Last March I came across, more or less by accident, a very special subordinate clause in the Double Taxation Treaty concluded between the Netherlands and Thailand, hidden in Article 23, paragraph 6.
Pursuant to this provision, Thailand must grant a reduction in respect of the Personal Income Tax (hereinafter: PIT) calculated on a social security benefit. The amount of this reduction is the lower of the following amounts:
- the amount equal to the relevant tax levied in the Netherlands;
- the amount of that portion of the Thai tax attributable to this item of income.
In other words: the reduction to be granted by Thailand will never exceed the PIT attributable to these benefits. And that seems quite logical to me. But as a result, you never pay double tax on, for example, your state pension.
Last March I paid ample attention to this reduction provision in two articles in Thailandblog, with a detailed example calculation in the second part ('the sequel'). See:
en
I now add the following advice to these articles.
Bringing in the state pension in Thailand
I regularly read in Thailand blog that people contribute their pension in Thailand but not the state pension. This payment is then saved up in the Netherlands and immediately transferred to Thailand as savings in January of the new year. The underlying idea is that people then think they can avoid double taxation on the state pension.
This idea is now outdated. Be the first to enter your full AOW benefit in Thailand. The argument of paying double tax on your AOW benefit no longer plays a role in connection with the reduction provision, while your company pension is immediately and fully taxed in Thailand. Saving up your AOW benefit in the Netherlands means that you do not benefit from this reduction provision.
Then top up your AOW benefit as needed with your company pension. The remainder of your company pension saved up in the Netherlands as a result can then be brought into Thailand tax-free at the beginning of January of the new year as savings (what you used to do with your state pension). This can save you considerable tax savings!
Example calculations of the tax benefit to be achieved
Assumptions:
- a single person aged 65 or older;
- only the exemption of THB 190.000 and the reductions of 50% of the annual income with a maximum of THB 100.000 and THB 60.000 if single;
- an annual income of € 40.000, consisting of € 15.000 in net AOW benefit and € 25.000 in company pension;
- in example 1, the AOW is saved in the Netherlands, while in example 2, the full AOW is contributed in Thailand and supplemented with a pension;
- average rate THB Euro for 2020 of 35,135139.
| THB | € | |
| Example 1: | ||
| AOW benefit (net) | 0,00 | 0 |
| Retirement | 878.378,48 | 25.000 |
| Annual income | 878.378,48 | 25.000 |
| Taxable income | 528.378,48 | 15.038 |
| PIT due on this | 31.756,77 | 904 |
| Share in connection with the AOW benefit | 0,00 | 0 |
| Share in connection with the company pension | 31.756,77 | 904 |
| Income tax on the state pension | 56.613,10 | 1.611 |
| Reduction ex Article 23(6). | 0,00 | 0 |
| PIT due after reduction | 31.756,77 | 904 |
| THB | € | |
| Example 2: | ||
| AOW benefit (net) | 527.027,09 | 15.000 |
| Retirement | 351.351,39 | 10.000 |
| Annual income | 878.378,48 | 25.000 |
| Taxable income | 528.378,48 | 15.038 |
| PIT due on this | 31.756,77 | 904 |
| Share in connection with the AOW benefit | 19.054,06 | 542 |
| Share in connection with the company pension | 12.702,71 | 362 |
| Income tax on the state pension | 56.613,10 | 1.611 |
| Reduction ex Article 23(6). | 19.054,06 | 542 |
| PIT due after reduction | 12.702,71 | 362 |
| THB | € | |
| Tax benefit to be achieved: | ||
| Due PIT example 1 | 31.756,77 | 904 |
| Due PIT example 2 | 12.702,71 | 362 |
| Tax benefit/reduction pursuant to art. 23(6) of the Treaty |
19.054.06 |
542 |
CONCLUSION: initially transferring the AOW benefit to Thailand and supplementing it with your company pension as needed, yields a substantial tax saving (60% in the example calculations given).
How do you get this done with your Revenue Office?
For a number of my Thai clients I also take care of the declaration for the PIT (form PND91). This declaration contains a field for declaring tax already charged and to be credited (question 15 – Withholding Tax) and then based on a calculation of the reduction to be granted by Thailand under Article 23(6) of the Treaty. This has not caused any problems. In fact, such a calculation is generally very much appreciated by the Thai tax official and accepted without further ado!
You can download the declaration form PND91 with the following web link:
https://www.rd.go.th/fileadmin/download/english_form/220364PIT91.pdf
Declaration for the PIT next year
As already noted, the second given web link to the previously posted articles in Thailandblog contains a fully worked out example calculation of the reduction to be granted by Thailand.
If you save this file on your computer, you can later make a calculation for yourself based on the system of this calculation. Keep in mind that the wage tax percentage has been reduced from 9,7% for 2020 to 9,45% for 2021.
Offer
Aren't you such a great math whiz? Well, then we can shake hands. I therefore enlisted the help of a spreadsheet (Excel) to do the calculations for me.
If there are readers who would like me to make the calculation for them, that is no problem at all. Many have already preceded you. To do so, please contact me at: [email protected].
You will then receive a list from me stating the information I need to make this calculation. For me, it's a matter of entering just a few details and then Excel does the rest (happy automation!). I will then send you the result of this calculation by email in the form of a PDF document. If you print this document you can show it to the Thai tax official. It is written entirely in English and also contains the official English text of Article 23(6) of the Convention.
And what about the costs associated with this charging? They are nil. Consider this a service to Thailandblog readers: with 275.000 visits per month, it is by far the largest Thailand community in the Netherlands and Belgium!
Which Revenue Office is most suitable for you?
If there is no tax official within your Revenue Office who also speaks (reasonably) English, while no one in your area is fluent in both Thai and English (or perhaps even Dutch), don't worry. Then look for a larger (regional) office. You can quickly find out via the following web link:
https://webinter.rd.go.th/publish/38156.0.html
Via this web link you will soon find the Revenue Office on the corner of the street or the regional office that applies to you.
Export of Social Security benefits to Thailand 2020
In addition to the AOW benefit, the Netherlands exports various other social security benefits to Thailand. This includes the WAO, IVA, WGA, WAZ and Wajong benefits. The reduction provision is also of the utmost importance for these benefits.
The following overview can be given of the number of persons and amounts paid out in 2020:
| Export Social Security Benefits to Thailand 2020: | |||
| Type of social security benefit | Number of Persons | amount paid | Intermediate |
| € | € | ||
| state pension | 1.662 | 18.880.000 | 11.360 |
| WAO/IVA/WGA/WAZ/Wajong | 196 | 3.714.366 | 18.951 |
More information
Lammert de Haan, tax specialist (specialized in international tax law and social insurance).
Again a good handle to get the 'annual job' done in Thailand. Thanks Lambert.
Lammert,
As a Belgian, this does not apply to me, and I cannot yet enjoy my pension and/or benefits myself.
But I would like to express my sincere thanks for this contribution. It may also be said, people like you provide super good contribution / information, thank you for putting time and effort into it and making this forum a valuable information channel.
Again, thank you very much.
Ronny
Lord DeHaan,
Certainly an interesting calculation exercise, but in my opinion with consequences for the Dutch tax return:
Example 1:
AOW benefit gross 16.611
Is this income fully taxed in the Netherlands? ===> Yes
Pension benefit gross 25.000
Is this income fully taxed in the Netherlands? ===> No
Part of the income that is not taxed in the Netherlands: 25.000
Total income from work or home 16.611 + 25000 = 41.611
Exemption Box 1 25.000
Total Box 1 / Collective income 41.611 – 25.000 = 16.611
Income tax box-1 9.7% of 16.611 = 1.611
Example 2:
AOW benefit gross 16.611
Is this income fully taxed in the Netherlands? ===> Yes
Pension benefit gross 25.000
Is this income fully taxed in the Netherlands? ===> No
Part of the income that is not taxed in the Netherlands: 10.000
Total income from work or home 16.611 + 25.000 = 41.611
Exemption Box 1 10.000
Total Box 1 / Collective income 41.611 – 10.000 = 31.611
Income tax box-1 9.7% of 31.611 = 3.066
But if you want to collect the benefit of € 542 from Mr. De Haan and you are prepared to answer the question "Part of the income that is not taxed in the Netherlands?" If you enter € 25.000 on your note and return it signed, you will have an advantage. I do not advise you to do this, because in my opinion you are committing tax evasion.
Hi Rembrandt,
Glad you responded and thought about it.
In the second example, however, you make a fallacy. Even if you only contribute € 10.000 of the € 25.000 to private pension in Thailand, the right to levy tax on the remaining € 15.000 does not return to the Netherlands. The income exempted in the Netherlands remains at € 25.000 (article 18 of the Treaty concluded between the Netherlands and Thailand to avoid double taxation).
Even if you leave your entire private pension in the Netherlands because you can live off your savings in Thailand, for example as a result of selling your house in the Netherlands, the exempt income in the Netherlands will remain at € 25.000.
How does the above calculation relate to bringing in ALL your income as savings?
If you can afford it of course.
It seems to me that in the Netherlands you only owe tax on your state pension, and nothing in Thailand.
That's right, Ruud.
And if you can bridge one year with your savings, it will repeat itself for 'eternal', because in the following year you bring in your AOW benefit and private pension saved up in the Netherlands as savings in Thailand.
Because Thailand then does not levy on your AOW benefit, the reduction provision ex art. 23(6) of the Treaty also does not apply.
Dear Lambert,
Thanks again for this explanation, very interesting!
As for the construction outlined above about contributing pension as savings, I wonder how that can be achieved. To arrange this, you must of course first receive your gross occupational pension in the Netherlands. An application for exemption from the Tax Authorities is required for this. And I think they only issue it if you can prove that you are tax resident of Thailand, via your latest Thai tax return or a statement from the Thai tax authorities.
If I understand correctly, can you then more or less ignore the Thai tax authorities and 'just' transfer your gross company pension once a year, in January, as savings? No further declaration (more) in Thailand, despite the fact that you are taxable there?
Dear Jahris,
exemption is normally given for 5 years. When applying again, proof of tax residence in Thailand must be provided. So there is a problem if the Thai tax authorities are further ignored. How to solve this, I have no idea, but it seems to me a point of attention.
Obtaining a Declaration of Taxation of the Country of Residence (RO22) is indeed often a problem at the small(er) tax offices if you are not required to declare the Personal Income Tax.
But that usually works out at the large, regional offices.
Dear Lambert.
I don't live in a really small place, namely Nakhon Ratchasima, but here I received RO 21 and RO 22 based on a declaration. Do not know how without such papers the Thai tax authorities can determine whether you are a tax resident of Thailand. Thai government officials follow the rules according to established protocols.
G'day RNo,
After submitting the declaration, obtaining forms RO21 and RO22 is no problem at all. They are often sent to your home address after a few days or you can pick them up at a (larger) office.
Regarding the tax liability, the website of the Revenue Department contains the following information:
“Taxpayers are classified into “resident” and “non-resident”. “Resident” means any person residing in Thailand for a period or periods aggregating more than 180 days in any tax (calendar) year. A resident of Thailand is liable to pay tax on income from sources in Thailand as well as on the portion of income from foreign sources that is brought into Thailand. A non-resident is, however, subject to tax only on income from sources in Thailand.”
The term "taxpayers" is an unfortunate expression. Not every taxpayer is immediately a taxpayer. Think of the many and often high exemptions, reductions and the tax-free sum of the first bracket, but that aside.
Based on the above, you are subject to unlimited tax liability in Thailand if you live or stay there for more than 180 days in a tax year (i.e. calendar year). These 180 days do not have to be consecutive. Subsequently, the Treaty for the avoidance of double taxation concluded between the Netherlands and Thailand gives substance to the taxing rights of both the Netherlands and Thailand.
This tax obligation results in a declaration obligation if you have sufficient income to be taxed by Thailand. You have to do that yourself. The degree of automation of the Thai tax authorities is so bad that they cannot remove it from their systems themselves. We have been working for years on a link between Immigration and the Tax and Customs Administration, but I see no progress. For that, Immigration itself must first get its affairs in order.
Incidentally, I expect that progress will be made in the coming years, as the Thai Tax Administration has been instructed by the government to ensure that the number of registered taxpayers increases annually by 200.000. And once you are in the system (eg after a declaration) you will often receive a declaration form in the following years (in most cases PND91). But even in this there is often a lack of uniformity.
I do expect that the checks by the Thai tax authorities will increase, whereby substantial fines can be handed out if you deliberately fail to file a tax return.
With regard to the term "tax resident" (of Thailand) used by you, I would like to point out the following.
In most cases this will be the case, but there are exceptions. Notwithstanding the aforementioned unlimited tax liability when residing or staying in Thailand for more than 180 days (ie a tax liability due to a domestic or foreign source of income), a person may still be a resident for tax purposes under Article 4 of the Convention of the Netherlands and as a result of which the Netherlands is still authorized to tax (and not Thailand).
I explained how that works on October 19th in the article: “Which country are you a tax resident of?”. See:
https://www.thailandblog.nl/expats-en-pensionado/van-welk-land-ben-jij-fiscaal-inwoner/
Dear Lambert,
I myself needed help from Thai to get TIN so that I could file a declaration in 2015 to obtain renewed exemption from 2016. This is because the Dutch tax authorities continued to be difficult and in 2016 without RO 22 exemption was refused. This while in 2007 (with VUT), 2009 (pre-retirement) and 2011 (aged 65) I had simply obtained an exemption based on a Certificate of Residence issued by Thai Immigration. Dutch logic doesn't work here. The Dutch tax authorities are simply unwilling to even understand the logic of living in Thailand. Despite necessary lawsuits. The Dutch Tax and Customs Administration can react strangely, examples enough, right? Got an exemption for 22 years with RO 2021 at the beginning of 5.
Of course your information is appreciated. By the way, if you have a life insurance policy with a Thai insurance company, you can deduct a maximum of Thb 100.000 from your assessment.
Other than that, I'll leave it at that.
If I am not mistaken, you can no more ignore the Thai tax authorities than the Dutch.
As far as I know, you officially have to file a tax return every year, even if the tax return is nil.
I now also receive a declaration form every year at home.
But as with many things in Thailand, enforcement is not enthused.
The Thai tax authorities may not even know that you live here, they should get that information from immigration.
What the future brings, however, remains to be seen.
Hi Jahris,
My advice is to first of all bring in your AOW benefit monthly in Thailand and then supplement this as needed with your company pension. It does not matter whether you receive this pension gross (i.e. with an exemption from payroll tax) or net. The difference lies in the possible amount of pension that can be contributed to Thailand in terms of height, but you were not planning to contribute your entire pension to Thailand anyway.
Without an exemption and therefore with payroll tax deducted from your company pension, you will receive a refund of the withheld payroll tax on assessment after you have filed a tax return.
You then transfer the part of your occupational pension that was not contributed to Thailand directly in January of the new year. Then it is clear that this is not about income that you have already earned, but about savings. But you can also prove this with the balances of your bank statements. This is the simplest way.
But even if you do not immediately transfer the saved company pension in Thailand in January, but during the course of the year, you can still use the balances of your bank statements to demonstrate that this concerns savings. So the periodicity is not a problem at all.
Just with a simple example. Suppose you have a net AOW benefit of € 14.000 and a (net) occupational pension of € 10.000. On January 1, the balance of your Dutch bank account is € 24.000. On December 31, the balance is still € 24.000. You have contributed € 2.000 per month to Thailand (so a total of € 24.000). This does not concern income that you enjoyed in that year, but your savings on 1 January (is not taxed). This repeats from year to year. So you never get around to paying PIT, while you still periodically transfer money to Thailand.
This example can be expanded with all kinds of variations, always paying attention to the balances of your bank account at the start and end of a year. This indicates the importance of your Dutch bank statements.
Ah that's clear now, thanks for the clarification!
In addition to tax matters, there is something else going on in Thailand and not just for long-stayers with Dutch income.
More and more Immigration offices require that monthly or otherwise periodic income or money enters Thailand. For people with a retirement extension, that is 65 k baht per month, say 1.750 euros.
I mean this. If I start living in Thailand, I will do so in the second half of July. I bring in a substantial amount, savings, income, etc, and then I don't get to file a tax return in Thailand because I don't get the 180 days. In that case only income from Thai source is taxed and I don't have that.
Early in the following January, I bring in last year's income. That way I -and completely legally!- never pay income tax in Thailand. But due to the sudden transfer in the first week / half of January, my deposit lacks the periodicity. How does Immigration handle this?
Then the Lammert method is recommended for people with income from NL because then you can show a transfer every month. However, the tax benefit may be different under other treaties….
Question about an ABP Pension.
As far as I know, this is taxed by the Netherlands and should therefore not (also) be taxed by Thailand. The question is whether an ABP Pension is a pension under public law, or whether it is a private/government company pension.
I understand that the Netherlands adheres to the position that although the ABP is a private law institution in 1996, it is still a public law pension.
Interestingly, in a case of a Dutch citizen in Germany, DFuitsland adheres to the proposition that, now that the ABP has been privatized, it is a private-law pension because it is paid by a privatized ABP.
I now intend to emigrate to Thailand in July (understood in this article that this must first be the second half of July) but that a bank balance of 400.000 THB (married in Thailand to Thai) means that the need for monthly income is expire with regard to the granting of visas. It's going to be quite a search for me already.
Does anyone know how the Thai tax authorities view an ABP pension?
Hi Rudolph,
On August 30, I posted an article in Thailand blog with the title: “Where do you have your ABP pension taxed?”.
I would recommend you to read this article at the following link:
https://www.thailandblog.nl/expats-en-pensionado/waar-laat-jij-je-abp-pensioen-belasten/
I know that tax lawyers and tax consultancy firms regularly make mistakes when assessing the taxability of an ABP pension.
You must always ask yourself whether or not this pension has been obtained from a government employment relationship. If so, then it is taxed in the Netherlands under both the Treaty concluded by the Netherlands with Germany and under the Treaty with Thailand. In the Treaty concluded with Germany it falls under Article 18(2) and in the Treaty concluded with Thailand under Article 19(1).
The APB has indeed been privatised, but that is not the key question. It only concerns having held a public-law employment relationship (taxed in the Netherlands) or a private-law employment relationship (taxed in the country of residence). Sometimes you will have to deal with a hybrid pension, namely partly accrued within a public-law organization and transferred to a private-law pension after privatization. The reverse also occurs.
Incidentally, this issue is also adequately regulated in the law, which has led to the privatization of ABP and has been confirmed in subsequent court decisions.
Hey Lambert,
Thank you very much for your extensive information.
I will save both posts to my computer.
And that is exactly the purpose for which Thailandblog was created: providing and exchanging reliable information!