Is Hiring Freelancers Legal? Contracts and Taxes

Hiring freelancers is fully legal when the arrangement is a "hire-of-work contract" under Section 587 of the Thai Civil and Commercial Code, rather than an "employment contract" in which the employer controls working hours and methods like those of a regular employee. The hiring party has two main responsibilities: clearly define the work and terms in a contract, and deduct 3% withholding tax each time payment is made.

 

How Is a Freelancer Different from a Full-Time Employee?

 

 

Do You Need a Contract When Hiring a Freelancer?

A written contract should be prepared for every engagement, especially when the work is high-value, continues for several months, or involves sensitive company information. A written agreement helps both parties understand the scope of work and reduces the risk of disputes.

 

What to Include in a Freelance Contract

1. Parties' details: names, addresses, and identifying information of the hiring party and contractor

2. Scope of work: work details, number of deliverables, file formats, and items to be delivered

3. Project timeline: start date, delivery date, and terms for late delivery

4. Fees and payment: contract value, payment installments, and withholding tax

5. Revisions: number of included revisions and additional charges for work beyond the agreement

6. Rights to the work: ownership of copyright and permitted uses of the work

7. Confidentiality: conditions governing access to customer, employee, or business information

8. Termination: conditions for ending the engagement, refunds, and each party's responsibilities

 

For hire-of-work contracts that qualify as dutiable instruments, stamp duty is charged at THB 1 for every THB 1,000, or fraction thereof, of the agreed remuneration. Under the Stamp Duty Schedule, the contractor is responsible for paying the duty.

 

Example: A contract worth THB 10,500 is subject to THB 11 in stamp duty.

 

Read more >> Key Elements of a Freelance Contract, with Example

 

How Much Withholding Tax Applies When Hiring a Freelancer?

Generally, a juristic person paying a freelancer who is an individual must deduct 3% withholding tax from the payment under Section 40(2) of the Thai Revenue Code, which covers income from services rendered, and remit it to the Revenue Department using Form P.N.D.3.

 

 

What the Hiring Party Must Do After Withholding Tax

1. Issue a withholding tax certificate (Section 50 Bis) to the freelancer each time payment is made.

2. File Form P.N.D.3 and remit the tax withheld by the seventh day of the following month.

3. If the freelancer's total annual revenue exceeds THB 1.8 million, the freelancer must also register for value-added tax (VAT).

 

Read more >> How to Convert a P.N.D.3 Withholding Tax File for Online Filing

 

Is Withholding Tax Required for Fees Below THB 1,000?

If the fee under a single contract or transaction is below THB 1,000, the payer is generally not required to deduct withholding tax. However, if the total fee under the contract is THB 1,000 or more, withholding tax still applies even when the fee is divided into several installments and each payment is below THB 1,000.

 

What Are the Risks of Not Having a Contract or Withholding Tax?

• Failure to withhold tax: The hiring party may be liable for failing to remit tax and may share responsibility with the income recipient for surcharges and penalties under the Thai Revenue Code.

• No written contract: If a dispute arises over delivery or payment, there may be no clear evidence of the terms agreed by the parties.

 

Summary: Is Hiring a Freelancer Legal?

Hiring freelancers is legal when the engagement reflects the actual nature of the work, the contract clearly defines the terms, supporting records are complete, and tax obligations are handled correctly. Businesses should pay particular attention to the distinction between freelancers and employees, the 3% withholding tax on qualifying payments, the filing of Form P.N.D.3 or P.N.D.53, and the contractor's VAT status. These checks help reduce legal, accounting, and HR management risks over the long term.

 

FAQ: Common Questions About Hiring Freelancers

Does a freelance contract need to be in writing? 

Although a written contract is not legally mandatory in every case, it is strongly recommended. It provides evidence of the scope of work and payment terms and helps establish that the arrangement is a hire-of-work contract rather than an employment contract.

 

Do freelancers need Social Security coverage? 

Freelancers are not treated as employees, so the hiring party does not have to register them as insured persons under Section 33. Freelancers may apply for voluntary Social Security coverage under Section 40 themselves.

 

What happens if withholding tax is not deducted from a freelancer's payment? 

The hiring party may be liable for failing to remit tax under the Thai Revenue Code and may share responsibility with the income recipient for surcharges and penalties.

 

Can a hiring party control a freelancer's working hours? 

This should be avoided. If the hiring party controls working hours and methods in the same way as for a full-time employee, the arrangement may be interpreted as an employment contract, potentially creating retroactive obligations under labour law.

 

Do freelancers need to register for VAT? 

Freelancers must register for value-added tax (VAT) if their total annual revenue exceeds THB 1.8 million.

 

Related Articles

• What Types of Employment Are There, and What Are Their Advantages?
• Employment Contract Forms Every HR Team Needs
• Free Employment Certificate Template and What Employers and Employees Should Know
• PDPA Compliance Guidelines for Protecting Employee Data