Tax and Legal Implications of Engaging Freelancers for Businesses in Thailand

1) What are the tax risks for businesses when hiring freelancers instead of full-time employees?

There are no specific tax risks, but payments to employees and freelancers follow different withholding-tax rates and forms.

For freelancers, service payments are usually subject to withholding tax at source and must be reported using forms e.g. Form PND 3 or PND 53, with a fixed withholding rate depending on the service and the payee. This is different from payments to employees, which follow the progressive payroll withholding system.

2) How do tax authorities determine whether a freelancer arrangement should be reclassified as employment?

Authorities determine whether a freelancer should be reclassified as an employee by examining the actual working relationship rather than the contract label, focusing on factors such as the level of control the company exercises over how, when, and where the work is performed; the worker’s integration into the business etc. If these indicators show that the worker functions like an employee, authorities may treat the arrangement as employment for tax and compliance purposes.

3) What are the employer’s withholding or reporting obligations when working with freelancers?

When paying freelancers in Thailand, the employer must withhold tax at source and file the appropriate withholding-tax returns. In most cases, service fees paid to freelancers are subject to a fixed withholding-tax rate (commonly 3% for general services or 5% for certain professional services), and the payer must remit the withheld amount to the Revenue Department.

4) Are withholding taxes applicable when engaging cross-border freelancers?

Yes. When a Thai business pays a cross-border freelancer, withholding tax may apply depending on where the work is performed, the nature of the service, and whether a Double Tax Agreement (DTA) applies.

5) How do double taxation treaties impact taxation of payments to foreign freelancers?

Double taxation treaties (DTAs) can significantly change how Thailand taxes payments to foreign freelancers by limiting or removing Thailand’s right to impose withholding tax. In most DTAs, service income earned by an independent freelancer is taxable only in the freelancer’s home country unless the freelancer has a permanent establishment (PE) in Thailand.

6) What compliance documentation should businesses maintain when working with freelancers?

There are no formal legal requirements for documentation when engaging freelancers; however, in practice, businesses typically maintain clear and complete records to support proper classification and ensure tax compliance. This may include a written service agreement, invoices from the freelancer, withholding-tax records, and proof of payments.

7) What compliance requirements must companies meet when engaging freelancers?

There are no specific legal requirements for companies when engaging freelancers. In practice, compliance focuses on:

• Withholding Tax – Withhold tax at the applicable fixed rate on freelancer payments and provide a withholding-tax certificate.
• Correct Classification – Ensure the worker is genuinely an independent contractor.
• Record-Keeping – Maintain service agreements, invoices, payment proof, and withholding-tax filings to support classification and tax compliance.
• Social Security & Benefits – No contributions or employee benefits are required for true freelancers.

Overall, compliance centers on proper tax withholding, accurate classification, and supporting documentation.

8) What are the legal and contractual best practices for structuring freelancer engagements to minimize tax risks?

To minimize tax risks when engaging freelancers in Thailand, businesses should:

• use a clear service agreement specifying independent contractor status;
• ensure genuine independence (no fixed hours or exclusivity);
• withhold and remit the applicable tax with certificates;
• avoid employee-like benefits or integration into the payroll system;
• verify cross-border tax rules for foreign freelancers;
• maintain records of agreements, invoices, payments, and classification assessments.

Author: Chotika Lurponglukana