Ask the right question before the tax question
Once income starts climbing, every Thai freelancer hears the same advice: it is time to set up a company. The advice almost never arrives with numbers attached, and plenty of people who follow it discover they now pay more tax than before, plus a monthly stack of filings they did not have.
This guide compares both sides with real figures, and gives you decision lines you can actually apply.
The first thing to understand is that Thai personal tax on freelance income does not depend only on how much you earn. It depends heavily on which category your income falls into, and how much that category lets you deduct. That single variable changes the answer more than anything else.
The sole trader side: deductions are everything
Three income categories cover most freelancers.
- Section 40(2) — fees for work performed for others. This is where most freelancers actually sit. Lump-sum deduction is 50 percent, capped at THB 100,000 a year. That cap is the painful part.
- Section 40(6) — specified liberal professions. Medical practice deducts 60 percent, while law, engineering, architecture, accounting and fine arts deduct 30 percent.
- Section 40(8) — income from commerce and other prescribed businesses. Many categories here deduct 60 percent with no ceiling.
Be honest about this: the 60 percent lump sum is not handed to everyone who calls themselves a freelancer. Your activity has to genuinely fit a prescribed business category. If you take individual assignments from clients without operating as a business, you are likely in 40(2), and that THB 100,000 cap is why your tax bill looks nothing like your friend's, even though the work looks similar.
After deductions come allowances — THB 60,000 personal, plus whatever else you qualify for — then progressive rates. The first THB 150,000 of net income is exempt, and the bands step up through 5, 10, 15, 20, 25, 30 and 35 percent.
Case A: THB 2M revenue, section 40(8), 60 percent lump sum
Deduct THB 1,200,000, leaving 800,000. Take the 60,000 personal allowance and net income is 740,000. Tax is roughly THB 63,500 — about 3.2 percent of revenue.
Case B: the same THB 2M revenue, but section 40(2)
Deduct only THB 100,000, leaving 1,900,000. After the allowance, net income is 1,840,000 and tax is roughly THB 325,000 — around 16 percent of revenue.
Same revenue, five times the tax. Which is why the first question is not should I incorporate. It is which category is my income actually in, and does my working structure honestly reflect that.
The company side: two layers to plan around
A company pays corporate income tax on net profit. Small companies — paid-up capital of THB 5 million or less and annual revenue of THB 30 million or less — get reduced rates: the first THB 300,000 of net profit is exempt, 300,001 to 3,000,000 is taxed at 15 percent, and anything above 3 million at 20 percent.
But the money is still inside the company. Getting it to you happens two main ways.
- Director salary is a company expense, so it reduces taxable profit — but it becomes your section 40(1) income, where the deduction is 50 percent capped at THB 100,000.
- Dividends are paid from post-tax profit and carry 10 percent withholding, which you can elect to treat as a final tax.
Case C: THB 5M revenue, low real costs
Assume genuine expenses of THB 1.5 million. As a sole trader under 40(8) with the 60 percent lump sum, you deduct 3 million, land at roughly 1.9 million net income, and pay about THB 340,000.
Incorporated, paying yourself THB 1.2 million a year, company profit is around 2.3 million and corporate tax is roughly THB 300,000. Personal tax on the salary adds about THB 125,000. Total: around THB 425,000 — before any dividend tax if you pull profit out.
The company loses here, because a 60 percent lump-sum deduction is extremely hard to beat.
Case D: THB 5M revenue, high real costs
Now assume subcontractors, media spend and rent totalling THB 3.5 million. As a sole trader claiming actual expenses, net income is about 1.44 million and tax is roughly THB 225,000.
Incorporated, paying yourself THB 600,000, company profit is 900,000 and corporate tax is about THB 90,000. Personal tax on that salary is about THB 21,500. Total: roughly THB 111,500 — if profit stays in the company.
Distribute all of it as dividends and 10 percent withholding adds about THB 81,000, bringing the total to roughly THB 192,500. Still slightly ahead, but the gap narrows sharply.
The lesson from C and D: incorporation pays off mainly through two things — real expenses that far exceed the lump-sum deduction, and profit retained inside the business. If you withdraw every baht every year, most of the theoretical benefit evaporates.
All figures above are illustrative and exclude personal allowances specific to you. Run the numbers on your own filings before deciding anything.
The costs nobody counts
Comparing tax rates alone always produces the wrong picture, because a company carries fixed costs a sole trader does not.
- Government registration fees of about THB 5,500 — THB 500 for the memorandum of association and THB 5,000 for company registration. Confirm current rates with the Department of Business Development, and add a service fee if you use an agent.
- Monthly bookkeeping, year-end closing, and a statutory audit. Every Thai company needs audited financial statements, even a dormant one with no transactions.
- A much heavier filing calendar: PND 1, PND 3 and PND 53 monthly, PND 30 if VAT registered, social security contributions as an employer, PND 51 at the half year, and PND 50 with financial statements within 150 days of year-end, plus submission of the statements to the DBD after shareholder approval.
- Exit cost. Closing a company means deregistration, liquidation and tax clearance — several months and real money. Companies are far easier to open than to close.
Added up, the fixed cost of running a company usually lands somewhere between five figures and several tens of thousands of baht a year. If your projected tax saving is smaller than that, incorporating is buying the feeling of being official.
Decision lines that actually work
Consider incorporating when at least one of these is clearly true.
- Net profit — not revenue — has exceeded roughly THB 1.5 to 2 million a year for two consecutive years.
- Your real expenses meaningfully exceed the lump-sum deduction available to you, especially if you sit in 40(2) with its THB 100,000 ceiling.
- Corporate clients require a juristic person as counterparty, or you need to bid on public sector work.
- You have a permanent team, business assets, or legal exposure you want to limit.
- You have partners, or plan to sell or raise capital later.
Signals that you are not ready: income still uneven, low real costs, working solo, and no existing bookkeeping discipline. Adding a legal entity on top of a system that does not exist yet mostly buys you paperwork.
The middle path most people skip
You do not have to pick an extreme.
- Stay a sole trader, but run business-grade books. Separate bank accounts, keep every receipt, maintain an income and expense record, and compare lump-sum against actual deductions each year. If you do incorporate later, the data is already there.
- Register for VAT without becoming a company. VAT registration is not tied to legal form — individuals can register, and must once revenue passes THB 1.8 million a year.
- Model it on paper for twelve months. Build both scenarios using last year's real numbers, including accounting and audit fees. If the difference is not obvious, it is not time.
If you decide to go ahead: the first 30 days
- Reserve the company name with the DBD.
- Register the memorandum of association and the company, choosing registered capital proportionate to the business.
- Collect your 13-digit tax ID and company certificate.
- Open the company bank account, and stop receiving client payments personally that same day.
- Register for VAT via form PND 01 (Por Por 01) if required or commercially necessary.
- Register as an employer with the Social Security Office once you have staff.
- Set up document discipline from day one: continuous numbering, separate series for quotations, invoices, receipts and tax invoices, and payment evidence that matches the books.
Common questions
Does incorporating stop the 3 percent withholding? No. Companies providing services are withheld on too. The rate and filing form follow the income type, and the credit offsets corporate tax instead of personal tax.
Must a new company register for VAT immediately? No. The THB 1.8 million threshold applies the same way to individuals and companies. Many register early anyway because corporate clients want tax invoices.
Can I register now and start using it later? You can, but you will pay for audited accounts and file returns every year from the first year, even with zero revenue. A dormant company is a recurring cost that produces nothing.
This decision should not come from advice in a group chat. It should come from your actual profit, your income category, and how stable your work is. If you cannot say what last year's real profit was, that is the first job — long before any registration.
MANA exists to make that number available: documents per job, outstanding receivables, and the full year's income and expense picture in one place.