THAILAND GUIDE

Thailand – The Economy

Thailand is a newly industrialized country, with the second-largest economy in Southeast Asia and the 22nd-largest in the world by PPP.

The economy of Thailand is dependent on exports, which accounted in 2019 for about sixty per cent of the country’s gross domestic product (GDP). Its currency, the Thai Baht, which was ranked as the tenth most frequently used world payment currency in 2017.

The industrial and service sectors are the main sectors in the Thai gross domestic product, with the former accounting for 39.2 percent of GDP. Thailand’s agricultural sector produces 8.4 percent of GDP—lower than the trade and logistics and communication sectors, which account for 13.4 percent and 9.8 percent of GDP, respectively. The construction and mining sector adds 4.3 percent to the country’s gross domestic product.

Other service sectors (including the financial, education, and hotel and restaurant sectors) account for 24.9 percent of the country’s GDP. Telecommunications and trade in services are emerging as centers of industrial expansion and economic competitiveness.

Thailand is the second-largest economy in Southeast Asia, after Indonesia. Thailand also ranks second in Southeast Asia in external trade volume, after Singapore. The nation is recognized by the World Bank as “one of the great development success stories” in social and development indicators.

Thailand is also one of countries with the lowest unemployment rates in the world. This is due to a large proportion of the population working in subsistence agriculture or on other vulnerable employment (own-account work and unpaid family work). Thailand is a middle power in global affairs and a founding member of ASEAN and ranks high in the Human Development Index.

Small and Medium-Sized Companies

Small and Medium Enterprises (SMEs) are defined by the Thai Government based on the number of employees and fixed capital. Enterprises with less than 200 employees and a fixed capital of less than THB 200 million (USD 6.4 million), excluding land and properties, are considered medium sized enterprises.

Small enterprises are those with no more than 50 employees and a capital of less than THB 50 million (USD 1.6 million).

According to Thailand Development Research Institute (TDRI), the country currently has about 3 million SMEs (which constituted 99.7% of all enterprises), employing up to 12 million people or around 82 percent of total employment.

SMEs make substantial contributions to the retail and wholesale, transport, hospitality, and agriculture sectors – about half of all SMEs are in tourism and related sectors.

Compliance Highlights

• The Revenue Department – The Revenue Department collects, administers, and develops six types of taxes: personal income tax; corporate income tax; value added tax; specific business tax; stamp duties; and petroleum income tax. These taxes combined account for more than 80 percent of total government revenue.
  
  The department operates 12 regional revenue offices, 119 area revenue offices, and 850 area revenue branch offices throughout the country as well as 14 bureaus at its headquarters.
  
  The department collaborates with international organizations including the International Monetary Fund, the World Bank, and the International Bureau of Fiscal Documentation [fr] to ensure international best practices for tax administration and policies
  
  
• The Department of Labor Protection and Welfare (DLPW) – monitors compliance with the law and provides support towards the improvement of working conditions and the working environment. The DLPW has several functions including:
  
  • to establish and develop labor standards
  • encourage and supervise workplace compliance with national laws and international labor standards
  • to ensure worker protection, rights, and benefits in the formal and informal economy
  • to promote and develop a system on occupational safety, health, and the working environment
  • to promote, develop and disseminate knowledge and understanding of labor standards, labor protection, occupational safety, labor relations, state enterprise labor relations and labor welfare
  • to prevent and resolve labor disputes and industrial unrest

Labor Contracts Law

Internationally minded companies hiring employees in Thailand must operate within a strict framework of legislation.

Most aspects of employment regulations in Thailand are based on the Employment Protection Act, the Employment Relations Act and the Civil and Commercial Code, with some aspects set by provinces. General requirements applying to all contracts include:

• The Employment Protection Act and the Civil and Commercial Code do not specify that a contract must be written, but it is advisable to put the key terms in writing as they form the working conditions
• If the contract is in English, for example, there should be a Thai translation if the employee is local. The Thai-language contract will be used in any legal disputes
• The Employment Protection Act says blue- and white-collar workers have the same protection under the law
• Employment contracts are generally either open-ended and indefinite, or fixed term
• Fixed-term contracts cannot include a probationary period and must specify an end date. If the end date is exceeded, it can be deemed to have become open-ended. Fixed-term contracts do not require an ‘advance notice’ of termination
• Probation periods are permitted but usually do not exceed 119 days, as employees are entitled to severance pay once they have worked for 120 days
• Employers are recommended to put contracts in writing as they include the working conditions, but this is not legally required by the Civil and Commercial Code or the Employment Protection Act.
• Employers and employees are free to agree terms for their contract, but the Civil Code does not allow contracts that are disproportionately advantageous to the employer.

It also important to bear in mind the types of contracts/agreements and how they can affect the employment relationship. The main contract types/agreements of Thailand include:

1. Open-ended, Indefinite Employment Contracts: The most common type of employment agreement gives the start date and details of the agreement. These must include names and addresses of both parties; location of work; any probationary period (generally not exceeding 119 days); salary and working hours, breaks and vacations; any information regarding confidentiality and intellectual property if relevant. Open-ended contracts require ‘advance notice’ of termination, usually 30 days, unless termination is with due cause.
   
   
2. Fixed-term, Definite Employment Contracts: These stipulate the start and end dates of the agreement and end on the expiry date without needing ‘advance notice’ of termination. They cannot be terminated before the end date unless there is due cause. The Thai Supreme Court ruled that if the contract includes provisions for it being terminated prematurely, it becomes an open-ended contract. The contract also automatically converts to open-ended if the employee is paid for continuing to work after the end date. Fixed-term contracts cannot include a probationary period.
   
   
3. Probation Periods: These are allowed but generally do not exceed 119 days, as employers are required to make severance payments after 120 days of employment.
   
   
4. Collective Bargaining Agreements (CBAs): Generally known under Thai law as ‘agreements relating to conditions of employment’ these apply at workplace level and must be implemented if the company has 20 or more employees. Once in force, the employer cannot enter any contract that does not comply with the agreement, unless it is beneficial to the employee. If employers want to change the collective agreement, they must negotiate with employees’ representatives under the terms of the Labor Relations Act.

Payroll – Tax Contributions and Benefits

Income Tax:

Tax residents are those who spend a total of 180 days in Thailand in a calendar tax year. Thai tax laws do not define short-term residency rules. Residents and non-residents are taxed on employment and business income whether payments are made in or outside Thailand.

Residents who earn income from abroad are taxed if it is paid into Thailand in the tax year it is received.