DDigital assets have quickly become popular among Thai investors over the past few years, as their value tends to increase significantly more than other traditional assets, but with higher risks. According to the Digital Asset Enterprises Emergency Order of 2018, digital assets consist of cryptocurrencies and digital tokens. Digital assets, especially cryptocurrencies, can generate incredible returns and profits, and are easy to trade through online applications.
The 2022 Digital Global Overview Report, published by creative agency We Are Social and social media management platform Hootsuite, revealed that 20.1% of the Thai population are crypto holders, while the global average rate is 10.2%. Despite the high volatility in the crypto market, investing in cryptos is extremely attractive for Thai investors.
Another asset, the digital token, is beginning to attract interest from Thai entities as they aim to expand their fundraising strategies beyond the common IPO of a company’s common stock. The entities offer digital tokens through the Initial Coin Offer (ICO) portal approved by the Securities and Exchange Commission (SEC) of Thailand. Investors in the digital tokens may receive benefits attached to the tokens as specified in the prospectus or white paper, such as income or profit sharing as part of an investment token, or the right to use a product or service as part of a utility token.
When income, profits or benefits arise from digital assets, taxation is inevitable. The Thai tax code provides for five types of taxes applicable to those dealing with digital assets:
Only profits derived from the trading of cryptocurrency and digital tokens (e.g., sale and exchange), and profits or remuneration derived from the mining of digital tokens are subject to withholding tax.
- 15% if the investor is an individual;
- 15% if an investor is a foreign company or legal entity that does not carry on business in Thailand, but receives taxable income paid from or in Thailand.
If the transaction is made through digital asset exchanges approved by the SEC and the Ministry of Finance (MoF), the payer does not have to deduct any withholding tax.
Anyone who derives income from digital assets in the following ways will be deemed to receive “taxable income” and will therefore be subject to personal income tax:
- Trade cryptocurrency or digital token. Profits from the sale or exchange of cryptocurrencies or digital tokens are considered “taxable income”. The cost of crypto and digital tokens should be calculated using a method recognized in accounting standards, such as first-in, first-out (FIFO) or moving average cost (MAC), which should be calculated separately for each digital asset. The chosen method must be applied consistently throughout the tax year.
- Cryptocurrency mining. Profits from cryptocurrency mining are considered “taxable income”. The process of mining cryptocurrency, i.e. creating new crypto by “solving mathematical puzzles”, will not be considered “taxable income” as long as the cryptocurrency is not will not have been exchanged. The cost of cryptocurrency and digital tokens must be calculated by applying a method recognized in accounting standards, such as FIFO or MAC, which must be calculated separately for each digital asset. The chosen method must be applied consistently throughout the tax year.
- Cryptocurrency earnings in the form of salary or salary. The value of cryptocurrency income received as salary or wages can be treated as a cost when sold, while the value at the time of acquisition or the average price at the date of acquisition is used to calculate the income, which must be a reliable reference price. . The chosen method must be applied consistently throughout the tax year.
- Gift or airdrop of cryptocurrency or digital tokens. The value of cryptocurrency or digital token revenue received as a gift or airdrop can be treated as a cost when the cryptocurrency or digital token is sold, while the value at the time of acquisition or the average price at the date of acquisition is used to calculate the income, which will be a reliable reference price. The chosen method must be applied consistently throughout the tax year.
- Cryptocurrency or digital token farming (e.g. yield farming or staking). The same concept as the previous two cases applies to determine benefits or compensation from farming cryptocurrency or digital tokens.
The taxpayer can use the amount of the withholding tax as a tax credit to be deducted from the personal income tax calculated when filing a tax return.
On March 8, 2022, the Thai cabinet approved that, for personal income tax calculations, a loss from trading digital assets can be offset against profits made in the same year of taxation if such trading is conducted through SEC and MoF approved digital asset exchanges, beginning May 14, 2018.
The corporation tax rate is 20% of net profit. Legal persons that have benefited from investment promotion may enjoy a reduction in corporate income tax or may be exempted from paying tax under laws or regulations relating to investment promotion ( i.e. the Board of Investment or the Eastern Economic Corridor).
VALUE ADDED TAX (VAT)
According to Article 77/1 (10/1) of the Tax Code, electronic services means services comprising intangible assets that are provided via the Internet or any other electronic network. The service must be essentially rendered automatically and impossible to render without information technology.
A digital asset is considered a type of electronic service. Therefore, business operators who sell products or provide services to customers or customers related to digital asset transactions must collect VAT at 7% of the sale price from customers or customers.
On March 8, 2022, the firm approved a VAT exemption for the transfer of digital assets through SEC and MoF-approved digital asset exchanges, and for the transfer of crypto issued by the Bank of Thailand (Retail Central Bank Digital Currency, or Retail CBDC), under a cryptocurrency development and testing program issued by the Bank of Thailand for public use from April 1, 2022 through December 31, 2023. Digital tokens issued on the Primary market or ICO portals are still subject to VAT, but the revenue department is now considering whether this should also be exempt.
SPECIFIC PROFESSIONAL TAX
In the future, the revenue department may consider changing the tax type from VAT to a specific business tax for certain types of digital assets.
Since digital assets have only recently become popular and widespread in the world and in Thailand, relevant Thai laws and regulations, especially in taxation, are still being reviewed and amended to keep up with the rapid growth of digital asset companies.
It is important for crypto and digital token investors and digital asset trading operators to closely monitor the state of regulations and upcoming changes, which are expected to be implemented this year or in the years to come.
International Legal Advisors Thailand Ltd. (ILCT)
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Sathorn, Bangkok 10120, Thailand
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