Thai Provident Funds Explained

Chad Creveling, CFA and Peggy Creveling, CFA |

By Peggy Creveling, CFA and Chad Creveling, CFA

If you work for a Thai company or international school, you may have the opportunity to participate in a company pension plan called a Thai Provident Fund (TPF). Depending on your situation, contributing to a TPF can make a lot of financial sense, not only for Thai citizens, but also for expatriates working in Thailand and subject to Thai income tax. To help you to decide whether to contribute to your company’s TPF, here are some things to consider.

What Is a Thai Provident Fund?

First legislated in 1987, Thai Provident Funds are voluntary “defined contribution” pension plans intended to help private sector employees in Thailand save for retirement. A defined contribution plan is a type of retirement plan in which the amount of the employer's annual contribution is specified. Each employer can set up its own TPF for employees and hire a professional asset management company to manage it. The main features of TPFs include:

  • Depending on the plan, employees can contribute and deduct from their Thai taxes between 2% and 15% of their salary, with the total contribution/deduction not exceeding Bt500,000 each year.
  • Employers will match employee contributions. The level of matching will vary with each plan, but at a minimum must at least be the same as the employee’s contributions
  • All contributions, employee and employer matching, are kept separate in individual employee accounts, and audited statements are produced for each employee on a regular basis
  • If the employee is separately making tax-deductible contributions to an individually owned Retirement Mutual Fund (RMF), the combined employee contribution to both the TPF and RMF cannot exceed 15% of salary or Bt500,000 per year.(For more information on RMFs, see “Tax-Saving Tips for Thailand-Based Expats.”)

To encourage employees to stay with a firm for a period of time, employees vest into, or receive a right to, their employer’s contributions gradually over a period of time. The vesting schedule for each plan is different, but at a minimum, employees must vest into 10% of employer contributions after the first three years, 50% after four years, 75% after six years and 100% after 10 years. Some employers have a more generous vesting schedule. In rare cases, up to 100% of employer contributions may be immediately vested. However, in all cases employees are 100% vested in their own contributions immediately. 

Tax Benefits

Receiving the employer’s matching contribution is why many people contribute to their company’s TPF. However, TPFs can also be a great deal in terms of reducing Thai income tax. First, as noted above, the original employee contribution is Thai tax deductible. As many expats are in the top Thai marginal tax brackets of 30% or 37%, this tax deduction is valuable. Furthermore, if the money is kept in the TPF until retirement, the original employee and employer contributions, as well as all investment returns, can be withdrawn tax-free. This differs from defined contribution plans in other countries. For example, in the US contributions to a defined contribution plan such as a 401(k) are tax-deferred only, or in the case of a Roth 401(k), the contribution is made on an after-tax basis. By way of comparison, a TPF allows the employee to have his cake (tax deduction) and eat it too (tax exemption after retirement).

Getting Money Out of a TPF

TPFs are intended to encourage savings for retirement, so the full tax benefits of contributing to a TPF only occur if you keep the money in the TPF until you retire. The minimum retirement age required by law is 55 years (this can be older depending on the employer), and you must also have been contributing to the TPF for a period of at least five years to get the full tax benefit.

If you don’t intend to stay at your current employer until retirement, you still can get tax benefits from contributing to a TPF. For example, if you leave your current Thai employer for a position at another Thai company, you can move your TPF funds to the TPF at the new company. Alternatively, if you quit your job before age 55 but after five years of contributing to the fund, you can still get a shelter from part of the tax due by calculating the amount using the following equation: 

Taxable Amount = [ Total Benefits Received Excluding Employee Contribution – ( 7,000 x Years of Employment ) ]*0.5

Finally, even if you leave your job before age 55 and before five years of employment, you still receive total vested benefits due you. You will pay tax on just the employer’s contribution and investment returns, so the employee contribution remains tax exempt even in these circumstances. 

Where Do TPFs Invest?

Each company TPF will offer different investment options. Some employers have very simple TPFs with few or no investment choices. These tend to invest primarily in low-risk Thai baht debt instruments.  Since 2000, however, it’s been possible for plans to allow more options to include riskier assets such as stocks. Therefore, some plans have broadened their plan’s investment selection and now allow employees to choose to take on more risk, depending on different factors such as age, capital needs in retirement, and ability to tolerate risk. Overall, however, the majority of TPF funds remain invested in low risk investments:


                                Thai Provident Fund by Asset Class

   (THB million, as of August 2011)

Type of Asset



Cash and Bank Deposit



Thai Government Bonds, Bills, and Debt



Bill of Exchange and Promissory Notes






Common or Preferred shares, Warrants



Investment Units






   Less Borrowing



Total Value





Special Considerations for US Expats

TPFs can be a great deal in terms of receiving employer’s matching contribution and saving on Thai income tax. If you are an American, however, there are additional considerations you should know. US citizens are taxed by the IRS on worldwide earnings and compensation. TPFs are not considered qualified retirement plans by the US, and therefore there is no US tax deduction allowed on contributions. In general, this means that employee contributions are still taxable in the US, and employer contributions are taxed as income when the employee vests into them. Similarly, investment returns on both employee and employer contributions are US taxable income in the year they are earned. Additionally, TPFs may be considered Passive Foreign Investment Companies (PFICs) by the IRS and investment income may require special treatment. Check with your tax advisor for more details.

Despite the lack of recognition as a tax-advantaged vehicle by the IRS and potential classification as PFICs, contributing to TPFs can still make sense for Americans, especially those whose compensation does not exceed the Foreign Earned Income Exclusion (FEIE). In this case, all compensation earned in Thailand would be shielded from tax by the IRS due to the FEIE. Contributions to a TPF would then save Thai tax. Contributions can still make sense for those earning in excess of the FEIE, but the tax benefit by itself diminishes as you enter the higher tax brackets. However, the employer matching benefit may still make the exercise worthwhile for highly compensated US expats, even if the net Thai-US tax benefit is not great.


For many Thailand-based expats, the various benefits of Thai Provident Funds can be a great way to boost your retirement savings and save on Thai tax. Do yourself a favor and check them out—just make sure you understand the rules and regulations, and for Americans, the potential tax consequences.