Teachers tax treaty claims

Five years ago I responded to a thread on the Ajarn forum after a teacher experienced difficulty obtaining a refund of Thai Personal Income Tax (PIT). Since then I have obtained more than ThB 85,000,000 in refunds for teachers. The purpose of this article is to dispel some of the myths, misconceptions, scare stories and absolute mumbo-jumbo surrounding these claims. In fairness, many teachers new to Thailand have never encountered such confusion and understandably choose to trust their employers and superiors, some of whom are blissfully ill informed. There is a breathtaking level of corruption and dishonesty in Thailand and it is common for companies to pay senior Revenue Department staff an inducement in order to reduce their taxation liability. This extends to evading payment of payroll taxes deducted from employees, especially those who have left the country. In these circumstances teachers can expect the Revenue Department to find every excuse to defer processing a repayment claim until after a teacher has left Thailand, following which communications are simply ignored.

Thailand has entered into Double Taxation Agreements (DTA's) with several countries over the years. DTA's are not just for the benefit of teachers but cover many aspects of international taxation including investment income, pensions, and film royalties. The existence of an agreement does not therefore automatically indicate a teaching exemption.
The terms of these agreements differ from one to another, but most provide for teachers to be exempted from PIT, usually for the first two year visit to Thailand for the purpose of teaching. Where it is applied correctly the exemption is for the full two years of the contract and not just two income tax years. Thus, if a teacher commences work in September, year 1, works through all of year 2 and ends his contract in August of year 3 he will be eligible for a refund for those parts of years 1, 2 and 3 when he was working in Thailand.

The American agreement, for example, exempts teachers who were resident in the USA before commencing their first Thai teaching contact. The teacher does not need to be American, but to have been an American resident prior to visiting Thailand.
There are agreements, notably with Canada, South Africa and New Zealand which do not provide an exemption for people who were resident in those countries, whereas other countries, such as Eire, do not have agreements with Thailand at all. The Revenue Department often apply this aspect incorrectly and refer to a teacher's nationality in determining a claim. Obtaining a refund for a teacher from, say Canada, who was resident in the USA prior to Thailand adds an extra layer of bureaucracy to the procedure, and usually a government fee, but it is possible. Since the exemption depends upon a teacher's previous country of residence then, upon conclusion of a teaching visit, the teacher may move on to a third country, and if that country has a DTA with Thailand which includes the teaching exemption, the teacher will be exempt from income tax in the third country too.

It is a common misconception that a teacher should return to his home country at the conclusion of the visit but this is not so and there is nothing in any DTA which requires this. I have seen this mentioned on the TES forum plus other indications that the first visit ends when a teacher returns to his home country for a holiday, but these are merely excellent examples of what happens when Thai Revenue staff invent their own conditions and a teacher lacks the expertise to challenge them.

Part of the confusion surrounding these claims is that, in many treaties, the Thai version is not a precise translation of the English version, and therefore a teacher may submit his claim based upon the English version of a treaty only for the Revenue Department to challenge that claim using the Thai version. In these circumstances the teacher and the Revenue Department can become embroilled in a never ending spiral of correspondence with each firmly believing the other is in the wrong.

The exemption usually applies for the FIRST teaching visit not exceeding two years although some agreements provide for a three year exemption whilst others do not stipulate the visit has to be the first such visit at all. There is, however, widespread misunderstanding of what constitutes a "visit". Individual officers attempt to combine consecutive visits into one single visit in order to deny the exemption by maintaining that several consecutive visits constitute one continuous visit exceeding two years. Officers regularly seek to apply their own conditions in these circumstances, insisting the teacher should have remained outside Thailand for whatever period of time they can think of before returning to Thailand. That time period will simply be adjusted in each individual case to ensure the teacher is denied the exemption, which is why there is such confusion over how long a teacher should remain outside Thailand between visits.

There are robust arguments against the amalgamation of consecutive visits although simply because a Revenue officer agrees on one occasion does not preclude that Officer from changing their mind twenty-four hours later if they feel they can get away with it, and many teachers have abandoned claims in these circumstances without challenge, so it is hardly surprising some Revenue offices keep trying this approach.

Negotiations are continuing, using one of my clients as an example, between the Thai Revenue Department and the UK Inland Revenue under Section 25 para 2 of the UK Thailand Convention and If successful this approach should see Thailand applying the agreements more fairly, although from experience I still expect individual officers will attempt to apply their own individual prejudices wherever it suits them. The Thai side are dragging their heels but genuine progress has been made.

There is nothing prohibiting a teacher from returning to Thailand for a second or subsequent teaching visit, but the teacher must pay tax FOR THAT VISIT. Some Revenue Officers misunderstand this aspect and believe that upon returning to Thailand the teacher must pay tax for the first visit too, even if there are several years between visits. This is a different misunderstanding from that which sees Revenue officers seeking to combine consecutive visits. This argument accepts that there are two separate visits but asserts that a teacher is only permitted one visit and when a second visit is made the exemption should be withdrawn for the first visit.

After receiving a legitimate refund of tax paid during the first visit there should be no question of teachers having to repay that money unless the claim itself was fraudulent. In some instances schools are claiming they can obtain tax treaty refunds but in reality they are not filing claims under the relevant tax treaties at all, but are merely doctoring the teachers' original tax documents, understating the salary paid, in order to obtain a refund which, in itself, is technically fraudulent. The difficulty with this is that teachers have been obliged to pay the refunds back when they return to Thailand, even several years later, and are misled into believing they are refunding a tax treaty claim. In fact they are simply handing back the earlier fraudulent tax refund obtained by the school, and the time period for making a genuine claim has been lost in the process.

In other instances where a teacher has left Thailand, providing a school administrator with power of attorney, Revenue Department Staff with limited experience have requested the school administrator sign a letter confirming the refund will be repaid upon the teacher returning to Thailand. School administrators are an obliging lot and will sign the letters simply because they have no power to challenge the Revenue Department. I have been surprised to find teachers are still falling foul of this.

It is not uncommon for school administrators to dissuade teachers from claiming the exemption by maintaining the teacher will have to pay tax in their home country anyway. This is generally untrue. Americans are usually covered by the Foreign Earned Income Exemption and British teachers who are not UK resident do not pay UK Income tax on overeas earnings. Generally speaking the teaching income is entirely exempt from tax in the teacher's home country but there are some occasional instances where this is not so.

It is also sometimes suggested that by banking a refund cheque the teacher is "money laundering". This comes from a misunderstanding of sections 341 and 269/5 of the Criminal Code. Money laundering is a practice whereby the proceeds of an illegal activity are given the appearance of having a legitimate origin. There is nothing illegal about these treaties and they may be viewed on the Revenue Department website. The Revenue Department are hardly likely to promote a money laundering activity on one section of their website and warn people about the dire consequences of money laundering elsewhere on the same website. Most foreign banks are, however, unfamiliar with Thai cheques and, as money laundering regulations have become stricter, we have seen banks refusing to accept cheques from Thailand. There are procedures which allow Thai cheques to be cleared through the international banking system but they are not widely known.
I can see how a teacher might accept these claims are illegal if his bank refuses to accept a Thai cheque due to money laundering concerns.

My favourite argument, however, is that "the school is paying the teacher's tax". It would be more correct to say the school is deducting tax from the teacher's gross and paying it to the Revenue Department. It is possible for a school to pay the teacher's tax but in this situation the regular Personal income Tax paid by the school must be rearded as additional salary, and additional tax must be paid on the tax which the school pays. This "double grossing" calculation works thus (2551BE figures):

NET SALARY ThB 1,000,000

Personal Income Tax:
150,000 NIL
350,000 @ 10% = 35,000
500,000 @ 20% 100,000

Employee's Gross 1,135,000

Employer's tax on tax
( 135,000*100/70*30%) 57,857

Total tax therefore ThB 135,000 + ThB 57,857. = ThB 192,857.

In every instance where I have encountered schools maintaining they are paying a teacher's tax an examination of the tax records reveals that the only tax being paid is the regular amount ( ThB 135,000 in the above example) and not the grossed up figure ( ThB 192,857 above). in these circumstances schools usually do not state the tax deducted on teachers' payslips and teachers are blissfully unaware of the amount being paid to the Revenue Department. In any event it is still the teacher's tax and a refund may be claimed.

Another explanation I have heard provided by Thai HR staff is that the Revenue Department operate a lottery and teachers only receive refunds where they have lucky Taxpayer Identity Numbers.

I have also known teachers to be informed that claiming a refund is "against the law". No indication of any specific law is offered, however, just "the law" in general. This stems largely from the miserable situation many schools got themselves into back in 2003. For several years many schools did not deduct tax from teachers' salaries, relying upon their Thai accounts staff to determine who was eligible for relief and who was not. This resulted in several schools receiving tax demands from the Revenue Department where they had failed to deduct tax from teachers who were not eligible for the exemption. In the muddle that ensued Thai Revenue staff misinformed Thai school administrators of the proper regulations, those administrators provided school Principals with mis-information and many teachers paid back taxes unnecessarily. Others skipped the country leaving their schools to foot bills amounting to millions of Baht. Where a school does operate treaty relief there is often a failure to appreciate the positon of teachers who remain in Thailand beyond the two year point.

In circumstances where a teacher continues for a third year, administration staff simply commence deducting tax from the commencement of the third year without considering that the exemption only relates to a visit not exceeding two years. Those teachers whose visit exceeds two years are no longer entitled to the exemption and should receive tax demands for the two years where the school did not deduct tax. There is no negotiation over this, even if the teacher has left the country at the end of the two-year visit and returned for the new contract. In these circumstances the Revenue Department will notify Immigration beforehand in order to prevent the teacher leaving Thailand until the first two years' tax are paid in full.
This cannot be rectified and teachers have been presented with substantial tax demands in these circumstances. Where a school has operated this scheme, paying salaries gross, the teachers become subject to internal Thai Revenue Department regulations which are separate from the tax treaties and which are not open for interpretation in the same manner as the treaties are.

Determining who may claim what is only part of the process, however, and as with many aspects of life in Thailand it is not what you do that determines whether a claim is successful, but the way that you do it. Anyone who thinks they are simply going to hand a form in to the Revenue Department and receive a cheque with ease will be very disappointed. There is considerable prejudice towards teachers receiving these refunds and in some instances school administration staff will collaborate with Revenue Department staff to mislead and confuse teachers so as to compromise teachers' claims. Most Revenue staff would rather have their teeth pulled without anaesthetic than hand a Farang hundreds of thousands of Baht.

Revenue officers will often be "too busy" or maintain it is not their job. This is generally a signal that the Officer is out of their depth. Most Revenue officials are only familiar with repayment claims under ThB 10,000. Being confronted with claims for millions of Baht worth of refunds presents Revenue officers with more responsibility than they ever expected and they will consequently put off handling a claim indefinitely will all manner of ingenious excuses.

As part of the claim process the Revenue Department require internal tax documents from the school where the teacher worked and paid tax. Some schools do not provide the documents for a variety of reasons. Suffice to say, if a teacher breaks contract, the school may be very obstructive, even if professing to remain professional. Teachers who break their contracts are fully entitled to claim tax refunds but should consult a tax specialist in confidence long before leaving the school. It should be noted that some specialists will pass confidential information to Principals in exchange for an "easy life" while others will not. I am aware of one individual who chose to write offensive letters about his Principal and was so mystified over the delay obtaining a tax refund he took to writing even even more offensive letters to people in the hope of improving his chances. Take my word on this, it doesn't work. Where a school deliberately withholds documents vital to the claim process the teacher is entitled to hold the school responsible for the loss of his/her tax refund and where my lawyers have drawn this to a school's attention we have subsequently achieved exceptional levels of co-operation.

It is not unusual for certain schools to underdelare a teacher's salary and consequently the tax documents provided to the teacher do not always agree with amounts paid to the Revenue Department. Sometimes the Revenue Department do not even know the teacher existed. If a school can successfully underdeclare, say, ten million Baht worth of salary, there is a potental tax saving in excess of a million Baht. When the school presents teachers with a variety of reasons (see above) as to why they should not claim and, especially, resists requests for tax documents, then suddenly begins offering a free tax refund service, teachers are seriously deluding themselves if they think they will receive a tax refund once they have left Thailand.

The Revenue Department are also highly suspicious of teachers since there have been a significant number of opportunistic claims from individuals who regard the Revenue Department as some form of lottery. The difficulty here is that these claims are often bordering upon fraudulent and it can only be a matter of time before someone is arrested. No doubt if and when that happens the story will circulate that it is "illegal" to claim treaty relief once again. There have certainly been claims by teachers who know full well that they are ineligible to claim and, at best, these opportunistic claims serve to delay legitimate refunds since the Revenue Department have very few properly trained staff for this work so every failed claim they examine delays a genuine claim. New passports especially cause suspicion as they are sometimes an indicator that the teacher has deliberately lost a previous passport which indicated an earlier teaching appointment in Thailand.

It is common for the Revenue to request sight of a previous passport, and where they think a teacher may have worked in Thailand previously Revenue Officers will not repay a single Baht until they are certain a claim is justified. Of course this provides yet another excuse to stall a claim indefinitely and a request for an expired passport is often simply another deliberate obstruction.

I have encountered Principals recruiting teachers with the promise they will not pay tax in Thailand, referring to the relevant tax treaties as proof, without mentioning the school itself has no process in place for reclaiming the tax it deducts. In these circumstances schools are sometimes providing free assistance in submitting claims. It must be stressed that this is not a "blanket" exemption and some teachers are not entitled to claim. Where it transpires a false claim has been intentionally submitted, with the full co-operation of the school, it is the teacher, and not the school, that will be held responsible. Where a false claim is submitted through a school the teacher can expect his Principal to protect his own interests by distancing himself from the teacher and even dismissing the teacher for bringing the school into disrepute. The following is the exact wording of a message I received from a Principal in such circumstances, having assisted a teacher in submitting a claim through the school:

"He (the teacher) was only helped by one of the secretaries but signed his own papers so he faces some difficult questions by himself......his contract has not been renewed".

The author of this message has since left Thailand, but his ideas on how to avoid responsibility for claims have most certainly been passed onto other Principals.

Added to all of this is the further complication that many Revenue staff and school administrators are from poor backgrounds. The knowledge that teachers are reclaiming millions of Baht sometimes results in documents being withheld and claims being obstructed in the hope of obtaining an "incentive". Following on from my success we now have a remarkable number of school administrators who have become overnight tax advisors. The ruse here is to withhold documents from my staff in order to "prove" we can't obtain the client's refund whilst offering their own services to the teachers.

Some schools are even employing relatives of the owners as "tax attorneys" and these individuals are the source of many misunderstandings. One school Principal has even recommended the services of a "lawyer" without mentioning she was his Thai girlfriend. Thai "lawyers", usually nothing more than visa specialists, are not beneath offering Principals a percentage of the fee teachers pay them in exchange for introductions to teaching staff and this leads to some totally inexperienced individuals trying their luck. It is remarkable that these individuals weren't obtaining refunds before I arrived on the scene, and a good many still aren't.

I would strongly urge teachers to request evidence of recent successful claims from any such representative before agreeing to anything. The claim process is subject to regular changes and if you are introduced to someone who has not obtaained a refund in recent months the chances are they are struggling to keep up with developments. One individual has even had friends contact me posing as interested clients in order to obtain information. Any competent advisor will be able to explain the rules which determine whether a teacher should or should not pay tax on their Thai earnings in their home country.

It should be considered that the interests of the school and the teacher may conflict, especially since some schools are not submitting the full amount of payroll tax to the Revenue Department. Some schools will therefore appoint their own specialist to provide a free service to teachers only for the teachers to ultimately be informed that they are not entitled to a refund for some unfathomable reason. In these cases it is quite possible that the school concerned never paid the payroll tax over in the first place, and no refund claim was ever made.

Unfortunately Revenue Officers have trouble differentiating gossip from the law. It only takes just one Officer to have an epiphany, possibly influenced by someone with absolutely no tax experience whatsoever, and the entire process comes to a standstill in any particular office. In Thailand the uninformed opinion of somebody's older relative can often outweigh anything written in an international treaty, and therein lies the chief problem with these claims. Teachers are relying on what the staff in local Revenue offices tell them. Try explaining to Ning in Pattaya tax office that the terms she is imposing are other than or more burdensome than those imposed by the IRS, especially when her mother thinks otherwise.....it is, of course, much easier, given all of the above, to just tell the Farang teacher that these claims are illegal, that the exemption has been terminated, that it doesn't apply if you return for a second visit, etc. etc. which is where we were four years ago.

If you have any tax issue questions, you can call Stephen (the writer of this article) directly on 02 742 6114 or email