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Thailand’s Engagement with the Global Minimum Tax in 2025

UNDERSTANDING THE GLOBAL MINIMUM TAX (GMT)

The Global Minimum Tax (GMT) is a major shift in international taxation led by the Organisation for Economic Co-operation and Development (OECD), aiming to curb profit shifting and ensure fair tax distribution. Thailand is among the signatories of this initiative, which is based on two main pillars.

Pillar 1: Fair Taxation of MNEs

Under Pillar 1 multinational enterprises (MNEs) are to be taxed in the countries where they earn income from their economic activity. The aim is to ensure the fair taxation by taxing the companies where their income is generated.

  • Targets MNEs with global annual revenues above EUR 200 billion and profit margins over 10%.

  • Establishes a nexus rule that creates tax obligations in countries where MNEs earn at least EUR 1 million annually.

    • This allows Thailand to tax digital companies like Netflix and Amazon, which generate revenue locally but previously paid minimal taxes.

    Pillar 2: Enforcement of a Global Minimum Tax

    Pillar 2 sets a minimum effective tax rate (ETR) of 15%. This is intendet to discourage MNEs from shifting profits to low-tax jurisdictions.

  • Applies to MNEs with revenues exceeding EUR 750 million.

  • Imposes a top-up tax on companies operating below the 15% effective tax rate (ETR).

    • Thailand’s general corporate tax rate is 20%, but companies benefiting from Board of Investment (BOI) incentives may fall below the threshold. For these reasons Thailand may impose a Qualified Domestic Minimum Top-Up Tax (QDMTT) to retain tax revenues locally.

    CURRENT LANDSCAPE OF WORLDWIDE INCOME TAX IN THAILAND

    Although Thailand has yet to fully implement the OECD’s Pillar 2, its principles are already affecting businesses, especially those with international operations.

    Who is likely to be Affected?

  • Financial institutions with consolidated revenues exceeding EUR 750 million.

  • Companies listed on the Stock Exchange of Thailand that meet the revenue threshold.

    • Thai MNEs in jurisdictions enforcing Pillar 2 will be subject to the Income Inclusion Rule (IIR) and the Under-Taxed Payment Rule (UTPR), which  may result in foreign tax authorities collecting revenues from Thai companies instead of the Thai Revenue Department.

    Implications for Thailand

  • Revenue Growth: Higher tax revenues, especially from digital and tech firms.

  • Increased Foreign Direct Investment (FDI): Standardized tax transparency could attract investors.

  • Economic Growth: Additional revenue supports infrastructure and job creation.

    • FUTURE OF GLOBAL TAXATION IN THAILAND

    On December 11, 2024, the Thai Cabinet approved legislation to implement Pillar 2 beginning January 1, 2025. Two key pieces of legislation will shape Thailand’s GMT implementation:

    Decree on Additional Taxes B.E. ...

  • Establishes a 15% GMT and defines taxable income using the Net GloBE Income approach.

  • Applies to entities with EUR 750 million in global revenues in at least two of the last four years.

  • Requires businesses to submit GloBE returns within 15 months of the end of the fiscal year.

  • Aligns with international tax principles like the IIR and QDMTT.

    • National Competitiveness Enhancement Act for Targeted Industries B.E. ...

    Managed by the BOI, this law channels a portion of GMT revenues into a fund aimed at enhancing competitiveness of high-tech and innovative industries. The draft is under review, with potential amendments forthcoming.

    IMPLICATIONS FOR THAI BUSINESSES

    While GMT aims for fairness, it presents challenges for Thai businesses:

  • BOI-Incentivized Companies:

    • Firms benefiting from BOI tax incentives may be subject to a top-up tax if their ETR is below 15%. Some deductions and exclusions may mitigate the impact, but caps on deductions limit relief.

  • Tax Deduction Issues:

    • The Revenue Code’s tax calculations differ from the GloBE ETR, requiring adjustments for compliance.

  • Limited Benefits for Thailand: Tax treaties often favor developed nations. To remain competitive, Thailand may need to emphasize non-tax incentives like customs duty exemptions and income tax waivers.

  • Investment Treaties: GMT rules may conflict with existing bilateral investment treaties, especially those that provide tax stability.

    • PREPARING FOR CHANGE

    In order to adapt to the new tax landscape, businesses should consider the following steps:

  • Risk Assessment & Compliance

  • Evaluate Pillar 2’s impact on operations.

  • Ensure transparent tax reporting and timely GloBE return submissions.

  • Employee Training & Collaboration

  • Train finance and tax teams on new calculation methods.

  • Foster interdepartmental collaboration for accurate tax assessments.

  • Strategic M&A Considerations

  • Assess GMT implications prior to mergers and acquisitions.

  • Identify potential top-up tax liabilities for acquired entities.

  • Technology Investments

  • Implement advanced data collection and compliance tracking systems.

    • CONCLUSION

    Thailand’s adoption of the Global Minimum Tax under Pillar 2 marks a major shift in its tax policy. While this initiative fosters fairness and transparency, it presents challenges for businesses, particularly those benefiting from BOI incentives. By proactively preparing for compliance, companies can mitigate risks and capitalize on opportunities in the evolving global tax environment.

    Content supplied by Mahanakorn Partners Group Co