Seven statements on crypto taxation in Thailand
Thailand’s Revenue Department and the cryptocurrency taxation
The taxation of crypto profits and turnovers, as well as the tax treatment of crypto losses, is a highly complex topic. The international crypto taxation systems are not harmonized and sophisticated cross-border tax structuring is, therefore, possible. Except for so-called private coins, transfers are immutable and permanently registered on the blockchain with regard to the sender address, receiver address, amount and time stamp. The crypto addresses are pseudonymous. Tax law enforcement is potentially possible forever.
Thai crypto taxation does not follow in all aspects the standards which are widely published on the Internet. Proven tax structuring from abroad should not be naively copied and applied in the land of smile. The Thai territorial personal income tax system, Thai view on cryptocurrencies and other aspects make the difference.
Crypto investments are typically highly complex multi-jurisdictions, multi-coins, multi-business, and multi-players ventures. Crypto tax advice requires a deep understanding of corporate and investment laws, as well as blockchain technology know-how and practical industry experience. The challenge is not so much the proper declaration of profits, but a tax-compliance structuring to avoid or to minimize the overall tax burden.
Getting away with the crypto tax issue
Even in 2019, 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. Basing the strategy on hope works 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 limitless. The strategy hoping to get away with the crypto tax problem is a self-delusion.
Seven viewpoints of the Revenue Department on digital asset taxation – and the need for a professional tax structuring
#1. Fully-taxable: From the viewpoint of Thailand’s Revenue Department, Bitcoin taxation is easy: Cryptocurrencies and other coins and tokens are intangible assets. 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.
Tax structuring in a bear year deals with offsetting capital gains, rolling over any remaining capital losses to future years and similar tasks. The high volatility can result in tax burden that exceeds the sustainable capital gain of the crypto-investment – if tax planning failed.
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.
#2. Tax events and constructive receipts: An increase in value is not 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, or if digital assets are exchanged against other coins and tokens. The rearrangement and shifting of a cryptocurrency wallet can, therefore, result in a taxable event, even if the digital wealth remains on the same platform.
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 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.
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. 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.
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 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.
#3. Foreign transactions: The location-less blockchain transaction stands in a crossfire with Thailand’s territory personal income tax system. It would be naive thinking to generate tax-free offshore income by accomplishing a profitable crypto trade on a foreign exchange, while the “cross-border” transfer to the crypto exchange is deemed as a non-taxable event at all.
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 its related profits would be deemed as untaxable foreign 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 foreign-sourced. The blockchain is everywhere, even in Thailand.
#4. The 2017 taxation: The statement above describes the legal situation 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 “a 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” as assessable taxable income. Whether this describes the final arrangement for crypt-profit taxation or just adds potential circumventions to the already existing rule of full crypto-taxation, might be seen differently.
#5. 15% W/H 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.
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%.
#6. 7% VAT: 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.
#7. ICO taxation: Specific rules apply to ICO Initial Coin Offerings. More details will be provided later.
Cryptocurrencies can utilize traditional capital gains strategies by offsetting gains with losses, the timing of dispositions to qualify for long-term treatment, and the tax-effective harvesting of losses and gains. However, the specific character of the digital coins with zigzagging prices creates additional tools and modules for a highly efficient tax structuring of digital wealth. These and other tax implications had been discussed in the (now pretty outdated) article “Seven questions: Bitcoin taxation in Thailand.” How to reverse and revert the tax-contamination of digital assets is described at “Seven strategies for tax-contaminated cryptocurrencies“. A big part of how this game is played is to not reveal how this game is played.
Professional services in Thailand’s Fin-Tech sector
PUGNATORIUS Ltd. is the trusted tax advisor for Bitcoin billionaires in Thailand and abroad. Dealing with tons of crypto taxation assignments in the previous years, the tax counsel 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 law firm offers mainly these seven legal and tax services:
- Thai crypto-compliant company formations
- Regulatory-avoiding and tax-efficient cross-border structuring
- Digital asset and financial services licensing
- Blockchain and ICO advisory services
- Thai and cross-border tax structuring
- Cryptotransaction support services
- Legal opinions and professional statements