ภาษีค่าซอฟต์แวร์ต่างประเทศ: ข้อถกเถียงที่เจ้าของธุรกิจต้องรู้

Foreign Software Tax: Controversies Business Owners Must Know

One of the tax issues that frequently creates confusion and financial burden for entrepreneurs is the payment for software to companies abroad and the duty to withhold tax (P.N.D. 54).

Today, let’s understand this issue together: why such payments are often interpreted as “Royalties” and what the correct approach according to the law and Double Taxation Agreements (DTA) should be.

Generally, when entrepreneurs pay abroad to purchase or use software, officials often consider such money as assessable income under Section 40(3) “Goodwill, Copyright or any other rights” (Royalty). When paid to a foreign company, it falls under the criteria for withholding tax under Section 70 of the Revenue Code. When considered in conjunction with the DTA, this type of income is classified under Article 12 (Royalties), which generally empowers the paying state (Thailand) to collect tax, forcing Thai entrepreneurs to bear the burden of withholding and remitting tax.

However, payments classified as 40(3) income under the Thai Revenue Code need not always be interpreted as “Royalties” under Article 12 of the DTA. If we consider international standards (such as the OECD Commentary on Article 12), there is a clear classification of licensing. It specifies that if the license is limited only to granting rights to an “End-User” to install and use the program, without rights to reproduce, modify, or distribute for commercial benefit,

Payments of this nature should not be regarded as “Royalties” (Article 12) but should be considered “Business Profits” under Article 7 of the DTA instead. The key principle is that the source state (Thailand) can collect tax on the business profits of a foreign company only if that company has a “Permanent Establishment” (PE) in Thailand, as defined in Article 5.

In reality, most foreign software companies providing services of this nature do not have a permanent establishment in Thailand. Therefore, when the software payment is considered “Business Profits” (Article 7) and the recipient has “No PE” (Article 5) in Thailand, Thailand has no right to collect such tax.

This interpretation approach has been confirmed by the Revenue Department itself, as appears in Ruling No. Kor Khor 0702/5283 dated March 19, 2025 (see full ruling at: https://www.rd.go.th/67737.html). It diagnosed that in the case of paying for “Off-the-shelf Software” to a company in the USA, where the software is for internal use and cannot be modified or reproduced for sale, such income is considered “Business Profits” under Article 7 of the Thai-US DTA. If the company does not have a permanent establishment in Thailand under Article 5 of the Thai-US DTA, the company has no duty to pay income tax in Thailand under Sections 66, 70, and 76 Bis of the Revenue Code, and the paying company has no duty to withhold tax (P.N.D. 54).

Therefore, paying for software as an “End-User” should generally be considered “Business Profits” (Article 7), not “Royalties” (Article 12). If the foreign service provider has no Permanent Establishment (PE) in Thailand, the Thai entrepreneur has no duty to withhold tax P.N.D. 54.

Understanding the principles and having clear reference rulings will help your business manage taxes correctly and reduce unnecessary expenses. See you in the next article.

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