International Turnkey Contracting in ASEAN: EPC-Projects in Thailand

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published on 16 March 2022 | reading time approx. 5 minutes


The importance of turnkey or EPC projects (short for: Engineering, Procure­ment and Construction) has increased significantly in the Southeast Asia region – this also applies to Thailand. Various factors play an important role in the realisation. In the following article, we take a closer look at tax, investment and manpower conside­rations in Thailand.



Tax Considerations

When is a permanent establishment (PE) generally established for on-site works? Does a double taxation agreement (DTA) between Thailand and Germany affect this aspect?

In general, the Thai Revenue Code defines Perma­nent Establishment rather widely. The law assumes a per­manent establishment if:

  • a foreign company has an employee, an agent or a go-between for carrying on business in Thailand and
  • receives income in Thailand.


Under the DTA, the rule is that a company has a permanent establishment in Thailand in case of construction after:

  • 6 months in case of installations or setting up of plan equipment or machinery including auxiliary con­struction; and
  • 3 months in all other cases.


The Thai Revenue Department takes a wide approach to assessing the time of the construction. Time spent setting up the construction site is included in the aforementioned timeline. Thus, most projects would lead to a taxable PE in Thailand.


Is it a common approach in Thailand to split EPC-contracts in on- and offshore parts to mitigate tax risks?

Yes, in general you should consider a contract split to minimize Withholding Tax (WHT) in Thailand. Simplified, the offshore part typically covers delivery of goods and materials, and the onshore part covers services and works. In this case, only the onshore part would be subject to a Withholding Tax of 3 per cent; the offshore part would not be taxed in Thailand.

In contrast: If a foreign company establishes a PE in Thailand and does not split the contract, the entire con­tract value would be subject to 5 per cent Withholding Tax. The rate could be lowered to 3 per cent in case a permanent establishment has a permanently established branch office in Thailand.


Are there any specific taxes to be observed for EPC-contracts in Thailand?

The main relevant taxes are Withholding Tax (WHT), Value Added Tax (VAT) and Stamp Duty. Regulations concerning WHT are outlined in No. 2 above.  Additionally, Corporate Income Tax will apply in case of a PE at a rate of 20 per cent. Both, the importation of goods as well as any services rendered or used in Thailand is sub­ject to VAT at a rate of 7 per cent. Stamp Duty is applicable in many cases at the rate of 0.1 per cent on the contract value.


Investment Considerations

Are there specific investment conditions or permits/licences required for EPC-works in Thailand?

A foreigner would require a Foreign Business License prior to engaging into construction works or services in Thailand. Each activity rendered in Thailand is usually assessed individually; however, in practice, the relevant authority might opt to issue a single license covering the entire project, including construction works and services.

Providing engineering services in Thailand is practically almost impossible for foreigners. Prior to be recognized as engineer, the applicant has to pass a test and obtain a license from the Thai Council of Engineers. While the subjects might not differ too much from other jurisdictions, the test will be fully in Thai language.


Would a mere tax registration of a PE be sufficient or is a certain investment vehicle required in Thailand? 

A tax registration is not sufficient. The foreign company has to apply for a Foreign Business License in Thailand in order to conduct business. Engaging in business activities without a license is a crime and can be punished by imprisonment. The authorities can issue an order banning the permanent establishment from engaging in any further business activities. Violations will usually be sanctioned with daily fines.


Can the PE get own bank accounts and handle local currency payments as well as FOREX transactions for the project?

In a nutshell: Yes.


Labour Law Considerations

Which immigration requirements commonly apply for foreign staff temporarily deployed to work on-site in Thailand?

Foreign employees need a business visa and a work permit in Thailand. In terms of visa, the length of stay is relevant. If the stay is only 90 days, a normal business visa is sufficient. However, should a foreigner stay longer, an application for a long-stay visa might be necessary (1 year). In this case, the employer in Thailand has to have a ratio of Thais to Foreigners of not less than 4 to 1. In case of a permanent establishment, the ratio is lowered to 1 to 1. Should the employer be promoted by the BOI, an exemption from the ratio can apply in case of foreign experts.

Any foreigner requires a work permit when performing work in Thailand. The definition of work is rather wide, and as a rule of thumb, any type of activity can be considered work unless it is explicitly exempted (for example: business meetings or attending lectures are not considered work). Thus, in general, a work permit is required.

Issuing a work permit will require a registered capital of not less than THB 2 million per work permit for a locally registered company as employer, or THB 3 million per work permit in case of a PE. Furthermore, the foreign employee has to receive a certain minimum salary. The exact amount depends on the nationality. For Germans, the current rate is not less than THB 50,000. Such income is taxable in Thailand.

Should a worker stay in Thailand for only two weeks, an urgent duty work permit can be considered. While the process and requirements for such UDWP are lowered, it can only be obtained for certain types of works. Furthermore, while the UDWP can be extended, it usually requires leaving Thailand for a certain period of time, and is limited to a maximum of 45 days. However, the specifics should be checked with the issuing Labor Department in advance and therefore might differ from province to province.


Can work permits, if required, be applied for by an overseas company or the foreign individuals directly or is the involvement of a local entity required?

A work permit requires a local entity or registration, for example a Thai company or a registered permanent establishment. There are also certain service providers that provide outsourcing services.


Are there taxes or social security contributions applicable for foreign staff temporarily working on-site in Thailand? Under which conditions are foreigners required to pay income tax?

The income received for work in Thailand (or for a Thai employer) is taxable in Thailand. The personal income tax in Thailand is calculated based on progressive rates from 0-35 per cent; thus, the final taxation depends on the overall income earned in Thailand.

Furthermore, employees in Thailand are required to make contributions to the social security. In general, the rate is 5 per cent; however, the maximum contribution is THB 750 (approx. 20 Euro per months). Should the foreigner leave Thailand, paid contributions can be refunded in certain cases. However, in practice, the trouble and related costs might outweigh the benefits of the refund.

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