Training Fees, Technical Service Fees & Royalties: What's the Tax Difference?

A Thai manufacturing company invites specialists from a Chinese company to provide equipment operation training for its employees.

If the training only covers equipment operation, safety procedures, or general skills, the tax treatment is generally determined based on the nature of the training service.

However, if the training involves the transfer of proprietary technology, confidential know-how, or grants the Thai company the right to use specific technology, it may be treated as a royalty for tax purposes.

It is important to note that not all technical training constitutes a technology transfer. Even if professional technical knowledge is involved, it does not automatically qualify as a royalty. The key question is whether the Thai company has actually been granted the right to use the technology or intellectual property.

Therefore, when entering into a training agreement, businesses should clearly define the scope of training, deliverables, and whether any intellectual property rights or technology licenses are included, to avoid unnecessary tax disputes.

Technical service fees are a common type of cross-border payment for manufacturing businesses in Thailand, particularly in connection with equipment installation, production line commissioning, technical consulting, and system maintenance.

For example, a Thai factory purchases production equipment from a Chinese supplier and pays an additional fee for equipment commissioning and technical support.

If the overseas company is providing maintenance services, operational guidance, or professional consulting, without granting any rights to patents, know-how, or other intellectual property, the payment may generally be treated as service income or business profits.

However, if the agreement also includes patent licensing, technology licensing, or other intellectual property rights, it is necessary to distinguish between a technical service fee and a royalty for tax purposes.

In addition, the place where the services are performed may also affect the tax treatment.

If overseas technicians travel to Thailand to perform the services, businesses should assess, based on Thai tax law and any applicable Double Taxation Agreement (DTA), whether the overseas company has created a Permanent Establishment (PE) in Thailand and whether the related income is subject to Thai income tax.

Therefore, businesses should not assume that all technical service fees are automatically subject to withholding tax, nor should they assume that payments to overseas service providers are always exempt from Thai tax.

Unlike training fees or technical service fees, the defining feature of a royalty payment is that the business is granted the right to use intellectual property or other proprietary rights.

For example, a Thai company may pay an overseas company for the right to use a trademark, patent, copyrighted software, or proprietary technology.

Under Section 70 of the Thai Revenue Code, royalty payments made by a Thai company to a foreign company that is not carrying on business in Thailand are generally subject to 15% withholding tax, provided the relevant legal conditions are met.

However, this does not mean that every royalty payment is automatically subject to a 15% withholding tax rate.

If the recipient is resident in a country that has concluded a Double Taxation Agreement (DTA) with Thailand and qualifies for treaty benefits, the applicable withholding tax rate may be reduced in accordance with the treaty.

Software-related payments provide a good example. The tax treatment may differ depending on whether the payment relates to:

• the purchase of standard software,

• a cloud-based software subscription (SaaS), or

• the right to use software copyright or other intellectual property.

Therefore, businesses should not determine the tax treatment solely based on labels such as "Software Fee." Instead, the classification should be based on the actual contractual rights granted and the substance of the transaction.

In addition to determining the nature of the payment, Thai businesses should also pay close attention to the following two key tax issues when making payments to overseas companies.

1. Withholding Tax (WHT)

Businesses should determine whether the payment constitutes Thai-source taxable income, whether withholding tax applies, and whether any relief is available under an applicable Double Taxation Agreement (DTA).

If the payment falls within the scope of Section 70 of the Thai Revenue Code, the Thai payer is generally required to withhold tax and file PND.54 (ภ.ง.ด.54).

2. Value Added Tax (VAT)

Even if a payment is not subject to Thai withholding tax, it does not necessarily mean that there is no VAT obligation.

For example, if an overseas company provides management consulting, technical support, or employee training outside Thailand, but the services are used or consumed in Thailand, the transaction may be subject to imported service VAT.

Under Thai VAT regulations, where the relevant conditions are met, the Thai recipient may be required to file PP.36 (ภ.พ.36) and account for VAT on the imported services.

Therefore, withholding tax and VAT are separate tax obligations and should always be analyzed independently.

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