Ukrainian IT specialists, marketers, and consulting companies increasingly work with clients from Thailand - from Thai startups and hotel chains to local offices of international brands. At the same time, it is precisely at the stage of signing a contract or receiving the first payment that a practical question arises: why does a Thai bank or the client’s accounting department withhold 15% from the invoice, and does this mean that the income is taxed twice — in Thailand and in Ukraine? The answer is provided by the Convention between the Government of Ukraine and the Government of the Kingdom of Thailand for the Avoidance of Double Taxation, signed on March 10, 2004 and effective from November 24, 2004, as well as the practice of applying Thai tax legislation.

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From the outset, note that, as of 2026, the Convention applies with the amendments introduced by the Multilateral Convention (MLI — Multilateral Instrument); Ukraine ratified the MLI in 2019, while Thailand did so in 2022. This means that the so-called principal purpose test (PPT) is automatically added to the treaty: if the tax authorities establish that the principal purpose of the structure or transaction was specifically to obtain a benefit under the Convention, the benefit may be denied. This directly applies to arrangements that appear to artificially “shifting” consulting income through a Ukrainian individual entrepreneur (FOP) solely to obtain a lower tax rate.

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Which article of the convention applies to consulting and marketing services

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The first thing to determine when structuring the agreement is which type of income under the Convention the remuneration for the services falls under. This is not a mere formality: the qualification determines whether Thailand has the right to tax such income at all.

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Income earned by a consulting or marketing company is generally not considered “royalties” within the meaning of Article 12 of the Convention — this article covers payments for the use of copyrights, patents, trademarks, know-how, or industrial equipment, rather than payment for work performed or services rendered. However, the distinction can sometimes be subtle: if, within the scope of “marketing services,” the right to use a developed methodology, database, algorithm, or brand book is effectively transferred, the Thai counterparty or tax authority may reclassify part of the payment as royalties subject to a withholding tax rate of up to 15% under paragraph 2 of Article 12. Therefore, the agreement should clearly distinguish payment for performing work from any transfer of rights to the results of intellectual activity.

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If the services are provided by a Ukrainian LLC, Article 7 of the Convention, “Business Profits,” applies: the profits of an enterprise are taxable only in the state of its residence, unless it carries on business in the other state through a permanent establishment situated there. If, however, the services are provided personally by an individual entrepreneur (as a consultant, rather than through a company), Article 14, “Independent Personal Services,” is more likely to apply — with a similar logic: the income is taxable only in Ukraine, except where there is a “fixed base” in Thailand or the individual is present there for 183 days or more during any twelve-month period.

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Therefore, both articles lead to the same conclusion: the mere presence of a Thai client does not give Thailand the right to tax the income. The right to tax arises only when a permanent establishment is established in Thailand (for an LLC), or a fixed base or prolonged physical presence exists there (for an individual entrepreneur).

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When does a permanent establishment arise: the six-month rule for services

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Article 5 of the Convention contains a special provision that is particularly important for service businesses: the provision of services, including consulting services, by a resident of one state through employees or other personnel constitutes a permanent establishment if such activity, in connection with the same or a related project, continues for a total period of more than 6 months during any twelve-month period.

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This means that short-term business trips by employees of a Ukrainian LLC to Thailand to implement a marketing strategy or train the client’s personnel do not, in themselves, create a permanent establishment, as long as their total duration within a single project does not exceed the six-month threshold. At the same time, the MLI additionally provides for an “anti-fragmentation rule”: periods of work by several closely related enterprises on the same project are aggregated, so artificially dividing a single contract into several shorter contracts between related parties does not allow this threshold to be circumvented.

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For purely remote consulting and marketing services provided from Ukraine without personnel physically present in Thailand, the risk of creating a permanent establishment under this article is practically absent. This is why the remote work format is the most tax-safe model for Ukrainian businesses serving Thai clients.

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Why does the Thai Ccient still withhold 15% from the invoice?

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In practice, even without a permanent establishment, a Ukrainian company or individual entrepreneur may face a situation where the Thai payer withholds withholding tax. The reason is Thailand’s domestic legislation: pursuant to Section 70 of the Thai Revenue Code, a resident company that pays income to a foreign company that does not carry on business in Thailand is, by default, required to withhold tax at a rate of 15% from the amount of the payment for services — regardless of where the work was actually performed and regardless of whether a permanent establishment exists.

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In other words, the withholding obligation arises automatically under Thai domestic law, while an exemption or reduced rate under the Convention does not apply “automatically” — it must be separately substantiated with documentary evidence. If this is not done, the Thai counterparty will withhold 15%, and this amount is effectively what constitutes the “double taxation” referred to in the title of the article: the same income is taxed once in Thailand through withholding and a second time in Ukraine as part of the individual entrepreneur’s income or the LLC’s profit.

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How to confirm the right to an exemption from Thai WHT

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For the Thai payer to lawfully refrain from withholding tax (or withhold tax at a reduced rate) at the time of payment, the Ukrainian income recipient needs to provide a package of documents confirming the right to apply the Convention:

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• a Ukrainian tax residency certificate (Certificate of Residence) — issued by the territorial body of the State Tax Service of Ukraine in the form prescribed for the application of international treaties, and usually requiring legalisation or an apostille and a notarised translation into Thai or English;
• an application or form for applying the benefits under the Convention, which the Thai Revenue Department requires the income payer to submit together with a copy of the service agreement;
• an agreement that clearly specifies the nature of the services (consulting, marketing), the place where they are actually performed, and the absence of any transfer of intellectual property rights, providing grounds to classify the income specifically as “business profits” rather than royalties;
• confirmation of the absence of a permanent establishment — factual information regarding the duration and nature of any personnel business trips to Thailand within the project.

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In practice, preparation of this package should begin even before the contract is signed, rather than after the first tax withholding: if the Thai payer has already withheld 15% and remitted it to the budget, recovering this amount through the refund procedure in Thailand is a significantly longer and more complicated process than applying the tax benefit “upfront.”

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Method of eliminating double taxation: tax credit, not exemption

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Even if the Thai payer withholds tax for one reason or another and it is no longer possible to obtain an exemption, Article 23 of the Convention can fully avoid double taxation. It establishes the credit method: the amount of tax paid in Thailand on a particular item of income is credited against the Ukrainian tax attributable to the same income—but only up to the amount corresponding to the Ukrainian tax on that income, and not more.

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For an LLC under the general taxation system, this mechanism is implemented through Article 13 of the Tax Code of Ukraine by crediting foreign income tax, provided the competent authority of Thailand (Revenue Department) issues confirmation of the tax actually withheld and paid. Retain the Thai withholding tax certificate and, if necessary, translate and legalise it, as it serves as the primary evidence for the tax credit.

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Special risk for individual entrepreneurs under the simplified tax system

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Particular attention should be paid to a situation that is especially sensitive for the Ukrainian IT and consulting market: an individual entrepreneur under the simplified taxation system (Group 3 unified tax). The 2004 Convention expressly lists “corporate income tax” and “personal income tax” among the taxes covered by its provisions, but does not mention the unified tax as a separate instrument, since at the time the treaty was signed, the simplified taxation system in its current form did not yet exist.

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This creates practical uncertainty: formally, the unified tax replaces personal income tax, and the competent authorities generally agree to extend the application of tax treaties to it for determining tax residency and allocating taxing rights. At the same time, the foreign tax credit mechanism provided for taxpayers subject to personal income tax and corporate income tax is not directly designed for the simplified tax system: an individual entrepreneur paying the unified tax has no tax base against which the foreign tax paid can be deducted — the tax is levied on turnover rather than on net profit with credits taken into account. Therefore, if the Thai payer nevertheless withholds 15% from the invoice, an individual entrepreneur under the unified tax system effectively loses the ability to offset this amount in Ukraine, and it becomes a direct additional expense rather than classical double taxation.

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Practical conclusion: for an individual entrepreneur, it is much more important not to look for a tax credit mechanism after the fact, but to secure the application of an exemption from withholding at the payment stage in advance — through a tax residency certificate and a properly executed agreement. For projects involving regular and substantial payments, it is also worth assessing whether it would be more appropriate to operate through an LLC under the general taxation system, where the foreign tax credit mechanism works more predictably.

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Practical recommendations for structuring the agreement

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In light of the above, when preparing an agreement with a Thai client for consulting or marketing services, consider the following points.

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• Clearly define the subject matter of the agreement as the “provision of services,” avoiding wording regarding “licensing” or the “transfer of rights to use” methodologies or materials that the Thai party may interpret as royalties.
• Specify the place where the services are actually performed (remotely from Ukraine) and limit the duration of any personnel business trips to Thailand within a single project, monitoring the total period against the six-month threshold under Article 5 of the Convention.
• Include a tax clause in the agreement stating that the parties act in accordance with the 2004 Convention and require the Thai client to assist in applying the tax benefit (providing forms and signing applications for the application of the DTA).
• Before the first payment, obtain a tax residency certificate from the State Tax Service of Ukraine and prepare its translation and legalisation—this is the part of the process that most often causes delays and jeopardises the payment timelines under the contract.
• Assess the applicability of the principal purpose test (PPT) under the MLI: if the structure was created solely to obtain a treaty benefit without genuine economic activity, the benefit may be denied; therefore, the agreement and the actual activities must correspond to each other.

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Conclusion

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The Convention between Ukraine and Thailand provides Ukrainian businesses with a lawful instrument to avoid paying tax twice on income from consulting and marketing services; however, this instrument does not work automatically. It requires advance preparation of documents, clear wording of the agreement's subject matter, and an understanding of the difference between a formal exemption from withholding tax at the time of payment and the subsequent crediting of tax already paid. For an LLC under the general taxation system, the risks are largely manageable because Article 13 of the Tax Code of Ukraine provides a clear tax credit mechanism. For an individual entrepreneur under the unified tax system, the key is to prevent Thai WHT from being withheld at the contract structuring stage, since compensating this amount in Ukraine after the fact is significantly more difficult.

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