Director-General of Revenue Department Issues Guidelines for Determining the Jurisdiction of Juristic Persons with Multiple Establishments or Specific Characteristics, for Purposes of Filing Top-up Tax

The Top-up Tax relates to taxation of multinational enterprise (MNE) groups located in low-tax jurisdictions, pursuant to a framework for calculating tax based on the profits of those groups. Juristic persons may engage in sales or provide services in multiple countries worldwide, which may create ambiguity as to the jurisdiction(s) in which they are subject to Top-up Tax. Since MNE groups often operate in multiple countries, and potentially through more than one permanent establishment (PE), these new guidelines were established to determine the jurisdiction of a juristic person or a specific PE¹, as follows:

1. Juristic Persons Other Than a Permanent Establishment

In the case of a juristic person that is not a PE, consider: 

1. 1.1 If the juristic person is a tax resident under the laws of any country—based on criteria such as place of management, place of incorporation, or other similar principles—it is deemed to be located in that country.
2. 1.2 If the juristic person is not considered a tax resident under the laws of any country, it is deemed to be located in the country in which it was incorporated.

However, where a juristic person has more than one establishment, the Director-General’s Notification on Top-up Tax (No. 3) RE: Determination of the country of establishment for juristic persons with multiple locations and for juristic persons with particular characteristics  (“DGN on Top-up Tax (No. 3)”) establishes the following guidelines:

“Flow-through Entity” means a juristic person that does not have tax status to recognize income, expenses, profits, or losses in the country in which it was incorporated, unless it is a tax resident and is subject to tax on income or profits in a different country. For this purpose, a juristic person shall be regarded as having no tax status if the laws of the relevant country treat its income, expenses, profits, or losses as derived by, or attributable to, its owners in proportion to their ownership interests.

A flow-through entity is a juristic person whose income or profits pass through to its owners or shareholders without being subject to tax at the corporate level. Instead, the owners or shareholders must pay tax on the income at the individual level (or at the level of another taxable unit that owns the entity)². While this type of entity previously did not exist under Thai law, it is recognized in several other jurisdictions. Examples include:^3 4 

(1) Partnership

• A partnership’s income or profit/loss is not subject to tax at the entity level.
• Each partner must include his or her share of the partnership’s income or profit/loss in their own tax computations and pay the relevant taxes.

(2) Limited Liability Partnership (LLP)

• Similar to a general partnership but with limited liability.
• The tax liability and the obligation to report income or profit are still passed through to the individual partners.

(3) S Corporation

• A limited company that chooses to have its income “flow through” to shareholders.
• The shareholders are taxed on their respective shares of income, avoiding double taxation at the entity level.
• Only exists in the United States.

(4) Limited Liability Company (LLC) 

• An LLC combines the features of a partnership and a corporation.
• It offers flexible tax treatment, allowing the owners to elect for the LLC’s profits and losses to be treated as personal income, thereby avoiding corporate income tax and double taxation.
• The owners are taxed on their respective shares of profits as personal income, without corporate-level taxation, thereby avoiding double taxation.
• Only exists in certain jurisdictions within the United States.

In Thailand, no flow-through entities are recognized under the tax laws. However, a comparable arrangement (though not a juristic person) is the apportionment of income jointly earned by husband and wife, which may be separately computed for each spouse’s personal income tax purposes. By contrast, when the profits of unregistered ordinary partnership or a body of persons are distributed, under Thai law, tax is imposed twice at the personal income tax level. However, in the end, none of these is considered a flow-through entity for Thai tax purposes. 

Criteria for Determining the Jurisdiction of a Flow-through Entity

1.    If the entity is 

1. (1)    the ultimate parent of an MNE group; or 
2. (2)    subject to Top-up Tax under the Income Inclusion Rules, in accordance with the criteria for MNEs; or 
3. (3)    subject to Top-up Tax under the Income Inclusion Rule, in accordance with the criteria. 

It shall be deemed to be located in the country in which it was incorporated.

2.    In other cases, the entity shall be deemed to be located in a country separate and independent from any other country.

2. Permanent Establishments⁵

Where an entity has a permanent establishment, consider the following:

1. 2.1 If a PE is recognized for purposes of taxing business profits under a Double Taxation Agreement (DTA)⁶, the PE shall be deemed to be located in the country where the establishment is recognized and taxed under the DTA. 
2. 2.2 If a foreign juristic person operates in a country that does not have a DTA with its home country but is deemed to carry on business and is subject to corporate income tax there⁷ (for example, under the Thai Revenue Code, a foreign juristic person doing business in Thailand through employees, agents, or representatives is subject to tax on Thai-sourced income, it shall be deemed to carry on business in that country.)⁸
3. 2.3 If a foreign company is incorporated in a country without a corporate income tax system⁹ but operates in a manner constituting a business establishment—or is deemed to have one—in another country that qualifies as a PE under the standard of DTA model, and that country has the right to tax the profits attributable to the PE under Article 7 (Business Profits) of the DTA model published in 2017, the PE shall be deemed to be located in that country.
4. 2.4 If none of the foregoing situations apply, if the juristic person has another business establishment that operates outside the country (foreign country) in which the juristic person is incorporated, and that foreign country grants a tax exemption on the profits deemed to be derived from the operations carried on in that foreign country, the permanent establishment shall be regarded as being situated in a separate country, distinct from any other country in which other affiliated juristic persons are established. 

3. In the case of a legal entity that is not a flow-through entity, and is established or situated in multiple countries

The DGN on Top-up Tax (No. 3) establishes the following additional rules for determining the jurisdiction of juristic persons with specific characteristics,¹⁰ specifically, a juristic person that is not a Flow-through Entity and operates in multiple countries:

1. 3.1 If both countries have a valid DTA in force, the juristic person shall be deemed to be a tax resident in accordance with that DTA.

2. 3.2 If no DTA exists, or if one exists but the competent authorities in the contracting countries cannot reach an agreement regarding jurisdiction—or if double taxation cannot be eliminated because the juristic person is considered a tax resident of both countries—the juristic person shall be deemed to be located in the following country:

   1. 3.2.1 In any given accounting period, if a greater amount of tax is paid in one country, the entity shall be deemed to be resident in that country for that accounting period. However, amounts paid under “the Income Tax Provision Rules for Controlled Foreign Corporations” shall be excluded in accordance with Clause 1 of the DGN on Top-up Tax (No. 3).¹¹
   2. 3.2.2 If the foregoing method cannot be used, or does not provide a definitive answer, the juristic person is deemed to be located in the country in which the juristic person has the greater amount of allowable deductions from net income¹² for the relevant period.
   3. 3.2.3 If neither applies, the juristic person is deemed to be located in a country separate and independent from any other country, unless it is the ultimate parent, in which case it shall be deemed to be located in the country in which it was incorporated.

However, if the conditions in 3.1 and 3.2  above are not met—i.e., the juristic person is not subject to the Income Inclusion Rule under the laws of its country of establishment but holds an ownership interest in another juristic person—it shall be deemed to be located in another country for purposes of Top-up Tax under the Income Inclusion Rule in accordance with Clause 1 of the DGN on Top-up Tax (No. 3), unless prohibited by any applicable DTA or agreement for the elimination of double taxation and the prevention of tax evasion.

Once the scope of entities subject to Top-up Tax has been identified as those located in low-tax jurisdictions, the Top-up Tax must be calculated in accordance with the criteria and methods set forth in the Royal Decree. The author notes that relevant authorities still need to issue additional regulations detailing the criteria, methods, and procedures for calculating Top-up Tax, to ensure that implementation in Thailand is practical and systematic.

Therefore, MNE groups subject to the top-up tax must not only understand the tax laws applicable in each jurisdiction in which they operate but also maintain a clear understanding of the relevant accounting standards with which they are required to comply. In addition, they entities must continue to monitor forthcoming subordinate regulations that will clarify additional details under the tax law.

If you have any concerns about compliance with Thai tax regulations, please seek a professional consultation from qualified tax advisors for further guidance and support.

This article is intended as merely a regulatory overview, and is not intended to be comprehensive or to constitute legal advice. If you have any questions on this or on other areas of tax law, please do not hesitate to contact our Tax Team at SCL Nishimura & Asahi Limited.

Budhima Kerdsiri
Counsel

Hatairat Sukprasert
Associate

¹ Royal Decree on Top-up Tax, B.E. 2567 (2024), Section 25 (1) 

² Thomson Reuters, Pass-through entity: Overview and FAQs. [online] Available at: <https://tax.thomsonreuters.com/en/glossary/pass-through-entity> [Accessed 13 Nov. 2025].

³ Investopedia, Understanding Flow-Through Entities: Types, Advantages & Disadvantages. [online] Available at: <https://www.investopedia.com/terms/f/flow-through.asp> [Accessed 12 Nov. 2025].

⁴ UC Davis School of Law , ISSUES RELATING TO FLOWTHROUGH ENTITIES. [online] Available at: <https://law.ucdavis.edu/sites/g/files/dgvnsk10866/files/media/documents/Income-Jaques-a.pdf> [Accessed 13 Nov. 2025].

⁵ Royal Decree on Top-up Tax, B.E. 2567 (2024), Section 25(2) 

⁶ Royal Decree on Top-up Tax, B.E. 2567 (2024), Section 4 Definition of “Permanent Establishment” (1) 

⁷ Royal Decree on Top-up Tax, B.E. 2567 (2024), Section 4 Definition of “Permanent Establishment” (2)

⁸ Thai Revenue Code, Section 76 bis

⁹ Royal Decree on Top-up Tax, B.E. 2567 (2024), Section 4 Definition of “Permanent Establishment” (3) 

¹⁰ Royal Decree on Top-up Tax, B.E. 2567 (2024), Section 25 (2) , paragraph 2

¹¹ Director-General’s Notification on Top-up Tax (No. 3), Clause 1 
“Income Tax Provision Rules for Controlled Foreign Corporations” means rules for taxing shareholders—directly or indirectly—in a foreign corporation for a given accounting period, based on their ownership interest in that corporation’s profits, regardless of whether such profits are distributed. This does not include the Income Inclusion Rule under international anti-base erosion measures. 

¹² Pursuant to Section 35 of the Royal Decree on Top-up Tax, B.E. 2567 (2024), the total of:
(1) 5% of the aggregate employee compensation of all low-taxed affiliated juristic persons that are members of the same multinational corporate group located in that country for the relevant accounting period; and
(2) 5% of the aggregate value of tangible assets of all low-taxed affiliated juristic persons that are members of the same multinational corporate group located in that country for the relevant accounting period
shall be deducted from the net aggregate income of the multinational corporate group located in that country. (However, this total amount shall not include the remuneration of employees and the value of tangible assets of any affiliated entity that is characterized as an investment entity.

Authors