Seven statements on Bitcoin taxation in Thailand
The smart integration of Thailand into the tax-efficient structuring of global crypto wealth
During the pandemic, Bitcoin has proven to be a solid store-of-value investment, and virtually all Bitcoin owners enjoy high profits. Therefore, the taxation of Bitcoin profits does/will not encounter resistance in large parts of the population but is outright demanded by public opinion. It is our expectation that there will be no such thing as puppy protection for Bitcoin, Ethereum, and altcoin profits.
The introduction of new tax laws is subject to constitutional limits. These include principles such as the prohibition of retroactivity and equal treatment. This enables taxpayers in most cases to adapt proactively to new framework conditions and, if necessary, to relocate their activities or residence abroad. Existing tax laws affect a different category. As blockchain technologies largely conquer new economic sectors and business models, the application of existing tax laws to new circumstances poses a particular challenge. This affects the activities of both tax authorities and tax consultants. It can be expected that the revenue departments all over the world will aggressively interpret and strictly enforce their existing cryptotaxation regulations to compensate for tax losses from other businesses with significantly reduced tax revenues.
Thailand’s Revenue Department could (!) hold the view that the Thai territory tax system and the legal and factual structuring options preclude access to Bitcoin profits as a tax substrate. This would mean that the land of smile would lose significant tax revenues, and this at a time when the tourism and hospitality industry is struggling for many years to come and its main issue to be considered is the tax utilization of losses. Until today, there is no indication that the Thai tax authorities have resigned in this sense. #bitcointaxation
Instead, the more likely scenario is that Thai tax authorities aggressively seek ways to comprehensively tax resident bitcoin millionaires. This affects not only whales and goldfish but any crypto earnings above a low threshold value. This is nicely facilitated by the unrestricted and unlimited access of the Thai tax authorities to big data at Thai authorities, banks, and digital asset exchanges. In addition, on the one hand, there are the technologies of blockchain analysis, in which the Thai authorities use the support of foreign high-tech companies. On the other hand, there is the only apparent anonymity of the Thai Internet.
Coinowner’s self-delusion: Even in these days, it is a standard tax planning strategy for crypto owners to base unclarified tax obligations on the hope that this will not be taken up by Thailand’s tax authorities. Or that it is an easy game to shift the sale to offshore in a tax-free area. Basing the strategy on hope and errors works only for a certain period of time.
Tax authorities are slow. Thailand’s Revenue Department is no exemption. However, when they knock at the door of the taxpayer, they are well prepared and have the unlimited power and support of all government agencies. Thailand’s government collects all data and information available, it never deletes any piece of information, and the inter-governmental data exchange is flawless and limitless. The strategy hoping to get away with the crypto tax problem is nothing other than self-delusion.
Bitkub tax guidelines for cryptocurrency trading: The announcement of one of the Thai licensed digital asset exchange providers says: ” We do not apply tax guidelines/policies from any digital asset (cryptocurrency) purchase in any way. The reason behind this is that the Revenue Department does not have clear guidelines to tax this type of purchases. If you want to know more about this, we strongly suggest getting in touch with the Revenue Department directly.” This seems not to be a reasonable stance for a Thai taxpayer.
#1. Characterization of the coin
Cryptoassets: From the current viewpoint of Thailand’s Revenue Department, cryptocurrencies and other coins and tokens are intangible assets. They are neither Thai nor foreign currency but property. The trade follows general taxation principles. Capital gains of companies are taxed at the regular corporate tax rate of 20% CIT. Capital gains made by individuals are taxed at Thailand’s progressive tax rate of up to 35% PIT.
Capital gain: In a bear market, tax structuring deals with offsetting capital gains, rolling over any remaining capital losses to future years, and similar tasks. The high volatility can result in a tax burden that exceeds the sustainable capital gain of the crypto-investment – if tax planning failed.
Accounting: The law firm’s accounting team follows the characterization as “an identifiable non-monetary asset without physical substance” in the meaning of IAS 38 (Intangible Assets). Therefore, accounting is done at cost or revaluation. However, the transfer of the virtual currency from a wallet, address, or account, to another wallet, address, or account that belongs to the same person, is still qualified by Thailand’s tax authorities as a non-taxable event. Currently, there is no reporting requirement for such transfer. Whether this flexibility can be used for tax planning purposes, has to be evaluated in each individual case.
New asset class: In the future, tax authorities could take a pragmatic approach and qualify all or certain types of digital assets as a new asset class, near to foreign currencies, and could establish new tax rules for this. Movements in value could be taxable/tax-deductible as they accrue. This means that tax liabilities can arise from gains that are unrealized.
#2. Tax events and constructive receipts
Hodling taxation: A pure increase in coin value is not a tax profit. Hodling is not (yet) taxable. However, a tax event that results in a due and payable tax burden does not only occur, when the digital assets are sold for fiat money (Baht, US$, etc.) but also if cryptocurrencies are used to buy goods and services. To acquire or exchange against other coins and tokens is in Thailand not privileged as a tax-neutral “like-kind exchange”, but is also a realization event. The rearrangement and shifting in a cryptocurrency wallet can, therefore, result in a taxable event, even if the digital wealth remains on the same platform.
Retroactive tax changes: To tax the hodler of cryptocurrencies and other digital assets would require a change in the local tax regulations. Unrealized profits could be calculated through a mark-to-market mechanism, starting on a certain day, for a specific tax year, or even retroactively. An unrealized, or “paper” gain or loss is a theoretical profit or deficit that exists on balance, resulting from an investment that has not yet been sold for cash or exchanged against another type of crypto. A realized profit or loss occurs when an investment is actually sold for a higher or lower price than where it was purchased. The likelihood of such legal adaptation depends on future developments, which are difficult to predict.
Realization events: Although personal income taxation requires a cash inflow at the level of the individual taxpayer, a “constructive receipt” is sufficient. Coins, tokens, and benefits as the result of a hard fork or an airdrop, qualify as tax event (“realization event”). Whenever the taxpayer acquires the ability to transfer, sell, exchange, or otherwise dispose of the cryptocurrency, he is treated as receiving the cryptocurrency at that time. Virtual currency is treated as an asset when and if it can be converted to cash. Particular tax rules for receiving (digital) assets as a gift, have to be observed.
Transfer taxation: Profit taxation related to the cross-border transfer of Bitcoin that are acquired in one jurisdiction and sold for a profit in another tax regime presents a complex advisory environment. This includes taxation in the exit country and the destination country, holding period, income deferral, and reporting obligations as well as government verification capabilities.
Mining taxation: The mining of cryptocurrencies results in new coins and tokens. From a tax point of view, it is a misunderstanding that taxation occurs not before such new assets are subject to any crypto-to-crypto or a crypto-to-fiat trade. Under international rules, mined Bitcoin and other proof-of-work coins must be valued as income at fair market value on the day it is mined, taken into consideration the mining costs as well. This has to be distinguished between a hobbyist and a business miner. The rules for proof-of-stake coins might differ. Thailand’s Revenue Department did not provide any guidance on mining taxation yet.
Margin trading and derivatives follow other rules.
#3. Foreign transactions
The location-less blockchain transaction stands in a crossfire with Thailand’s source-based (territory) personal income tax system. The territory tax system has not been established by considering blockchain technology. But it would be naive thinking to generate tax-free offshore income by accomplishing a profitable crypto trade on foreign exchange, while the “cross-border” transfer to the crypto exchange is deemed as a non-taxable event at all.
Under Section 41 Revenue Code, as translated into English on the Revenue Department’s own website, “a taxpayer who … derived assessable income … from business carried on in Thailand, … shall pay tax …, whether such income is paid within or outside Thailand.” Foreign income is not identical to foreign-sourced income.
According to a statement of the bureau of legal affairs at the Revenue Department (“BLARD”) as quoted in Bangkok Post on May 21, 2018, “those who live in Thailand but trade digital assets abroad, … it’s the duty of taxpayers to declare such income, otherwise, they will face both civil and criminal penalties if the Revenue Department discovers the transactions.”
The extended profit tax rules under the Royal Decree would be pretty meaningless if digital transactions on the blockchain and their related profits would be deemed as untaxable foreign-sourced income. Instead, the Revenue Department has the standpoint that Thailand’s territory tax system does not exclude crypto profits from domestic taxation if the profit transfer is delayed until the next fiscal year. Blockchain-related profits are not easily foreign-sourced. The blockchain is everywhere, even in Thailand.
The realization of profits is not identical to its remittance to Thailand. The classification of the blockchain technology to the remittance principle (“upon bringing such assessable income into Thailand”, Sect. 41 para 2 RC) has to be carefully reviewed.
Old capital gain taxation: The statement above describes the legal situation starting in 2018, but potentially also in 2017. It does not base on the 2018-Royal Decrees but on old legislation. Under this view, the high Bitcoin profits made in 2017 are fully taxable and had to be declared in the tax declaration for 2017. The Revenue Code was amended by the Royal Decree to include “the share of profit or any benefit derived from holding or having possession of digital tokens” and “capital gain from the transfer of cryptocurrencies or of digital tokens that exceeds the cost of the investment” in Section 40(4) (h) and (i) Revenue Code as assessable taxable income. Anyway, Section 40 (8) Revenue Code mentioned “income from … any other activity not specified in (1) to (7).”
#4. Thai withholding tax
Under the May 2018-amended Revenue Code, individuals who gain and receive benefits from putting money into digital assets are subject to a 15% withholding tax. Regulations by the Finance Ministry to impose a 15% withholding tax on capital gains and benefits from digital asset transactions for corporate entities have to be observed.
Tax rate: This change in law does not have the character of a tax reduction. It does not allow to deem the withholding tax rate as final taxation. Therefore, to quote the BLARD, “juristic persons and individuals are required to include capital gains and benefits from digital asset transactions in computing income tax.” As a result, the upper limit for Bitcoin taxation remains at 35%, instead of 15%. Capital gains income is one of the regular types of taxable income. Certain specific types of capital gain are exempted. There is no separate capital gains tax law.
FIFO: There is a certain flexibility to apply different cost basis calculation methods including FIFO (first-in-first-out) and specific identification. It makes a difference whether this is done for all coins in one queue across all wallets and exchanges (universal) or separately by wallet and exchange.
#5. Value-added tax
The May-2018 legislation dealt with 7% VAT on a digital asset transaction. The Revenue Department announced to waive this additional tax burden for retail investors who trade cryptocurrencies and digital tokens through digital exchanges.
The Finance Ministry issued ministerial regulations to impose a 15% withholding tax on capital gains and benefits from digital asset transactions for corporate entities. This is not (yet) part of a VAT waiver by the Revenue Department. Therefore, companies making digital-asset-related trades will be liable for a 7% VAT payment from the transaction value, on top of the 15% withholding tax, on top of the 20% CIT.
Private coin sales on a licensed Thai digital asset exchange are not subject to 7% VAT. Trading activities of a Thai taxpayer on binance.com or another foreign exchange have to take into consideration Thailand’s VAT legislation, including its scope of applicability abroad. Blockchain technology is not perfectly synchronized with Thailand’s regulatory tax framework.
Under Thailand’s E-service Act, coming into effect on September 1, 2021, incorporeal property that is delivered through an internet system or other electronic means, does no longer qualify as “good” for VAT purposes. Although this change in law is not deemed to have an effect on cryptocurrency and digital asset transactions, its tax implications to Bitcoin taxation have to be carefully considered.
#6. Lightning taxation
Serving as a second layer on top of Bitcoin and enabling cheap and fast private payments, the Lightning Network unleashes an entirely new set of unresolved accounting, audit, and tax challenges. Opening and closing transactions occur on the blockchain, while all transactions in between are off-chain, Above all, it is unclarified whether lightning transactions are taxable events or whether no realization occurs until the Lightning channel closes and the transfer of funds is represented on the blockchain. The Lightning network as a tax game-changer: More on #lightningtaxation soon.
#7. Statute of limitations
Traditionally, tax claims can be asserted by the tax authorities within a limitation period of five years. The start of this period is the due date for filing the corresponding tax return. Since the tax authorities are entitled to fully investigate the accuracy of a supplementary income tax return, the statute of limitations begins from the date the supplementary returns were filed.
Decision No. 4546/2561 of Thailand’s Supreme Court opens the way to an extension in two ways. On the one hand, the Supreme Court decision can be understood to mean that by filling of supplementary income tax returns the period starts anew. On the other hand, the court approves the application of an exception leading from a five-year to a ten-year statute of limitations.
Elite advice on crypto tax risks and tax planning opportunities
PUGNATORIUS Ltd. is the Bangkok-based specialist provider of legal services and tax advice on foreign investments in Thailand. Regarding Bitcoin taxation, the firm has been involved from the very beginning in a variety of structuring schemes and has been a pioneer from the earliest days. This includes hodling, investments, and active trading, on one’s own wallet, on local or international exchanges, or in other ownership, joint venture, or corporate structures.
Regarding serious Bitcoin wealth, a big part of how this game is played is to not reveal how this game is played. As the Bangkok Bitcoin tax advisor, PUGNATORIUS Ltd. is familiar with the procedures and policies of the Thai and foreign crypto exchanges, mining ventures, defi structures, crypto partnerships, and offshore projects. Dealing with lots of various crypto taxation assignments in the previous years, the Bangkok law office has a wealth of experiences and background information on tax-efficient coin-structurings, the decision-making process at Thailand’s Revenue Department, and the previous and current policy of the governing agencies in the land of smile.
The high-value cryptotax advice is used not only to obtain a reliable assessment of taxation parameters and tax risks. More important are the tax consequences and the possibilities to eliminate or significantly reduce tax risks through local and cross-border smart tax planning. The firm’s tax advice on cryptos is not to be had for nothing, not intended to be published, and, instead, gives the client a competitive edge. The law firm’s dedicated crypto tax advice in strictest confidence is provided for a flat fee of ___ Bitcoin, to be transferred in advance. If the client’s Bitcoin wealth is not significant enough to seriously invest in legal and tax advice, a cheaper option can be discussed.