Taxation of Retirees on severance pay upon retirement age
Recently the Labor Protection Act (“LPA”) has been amended, entitling the retirees to a statutory severance pay and setting the retirement age. The new law clearly provides that the retirement which requires an employer to pay severance pay under the LPA includes the below cases:
The effective date of this new law is from 1 September 2017. The employers who fail to pay a severance pay to retirees shall be subject to a maximum of 6-month imprisonment and/or a maximum fine of THB 100,000. The employers should revisit their retirement policy, work rules, employment contracts and any other document related to the retirement if they should be made and/or amended to comply with this new law.
For personal income tax (“PIT”) purposes, the taxpayer can exclude severance pay received under the LPA for the amount not exceeding remuneration or salary for the last three hundred days of employment, and not exceeding THB 300,000. However it must note that this exclusion does not include the amount of severance pay received for a reason of retirement. Thus the retirees shall be taxed on entire severance pay received as a result from retirement. The retirees may choose to be taxed separately from the other income provided that such payment is a single payment paid by a reason of termination of employment which the employment duration is 5 years or longer. In calculating PIT separately from other income, the retirees are eligible for special tax deduction which the retirees may be able to deduct the expenses at almost 50% of assessable income and will pay tax at the lower tax rate.
Effective from tax year 2017, if the taxpayers receive severance pay or any single payment as a result from termination of employment several times regardless whether from the same payer, only income which is paid in the first tax year of which such payment is made is eligible for special tax calculation. The payment made in the following year will be treated as an ordinary income which shall be taxed at the normal personal income tax calculation which may result in higher tax when comparing with the special tax calculation. In this regard, the employers should ensure that the payment for a reason of termination of employment will be made within the same tax year so that the terminated employees or retirees are able to fully utilize the special tax calculation.
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