Here's an instructive example of a Thai tax situation which is probably more common than you might think. Bob is English and is 53 years old. He lives full time in Pattaya on a retirement visa and is a computer systems consultant. Most of his days are spent in his study, at a house on a quiet street. There he consults for a company in Australia. All of this is done over the internet. Other than the fact that he lives in this country, Bob's work has nothing to do with Thailand. His salary is paid by the company into his account in the U.K.

Obviously, Bob could be doing this anywhere in the world. And he will swear to you that he doesn't need to pay taxes on his income because he knows four others who are doing something similar.

Does Bob owe Thai income tax on his income? Yes. According to Section 41 of Thailand's Revenue Code, taxes are due in Thailand on income from ''work or any activity'' done in Thailand. Because Bob does the work in Thailand he owes Thai taxes on it.

But there's something else to keep in mind. In Bob's case, because he is English, we have to take into consideration the treaty for the avoidance of double taxation between Thailand and the U.K. This particular treaty says that only one of the two countries can tax Bob for work he does. Which one? The treaty provides that it's the state in which the taxpayer is resident that gets the taxes. Since Bob's residence, defined as presence for 180 or more days a year, is Thailand, he would have to pay his taxes in Thailand.

There's yet another issue. Bob is in Thailand on a retirement visa. The terms of a retirement visa provide that one may not work, even part time. If he violates this he's exposed to the penalties from Section 75 of the Thai Immigration Act, BE 2522 (1979). In Bob's case this could mean penalties of up to a year in jail and a fine of up to 10,000 baht. Likewise, under Section 36 of the Immigration Act, Bob's retirement visa could be revoked.

Of course, it is practically impossible for anyone, including the Thai tax authorities, to know whether Bob is working in Thailand _ he doesn't have a formal place of work in Thailand and isn't paid in the Kingdom. So lots of people do what Bob is doing and nobody complains much. But you should be aware that what he's doing does trigger tax obligations.

How would Bob make his work tax-compliant in Thailand?

Well, he couldn't do it on a retirement visa. He could do it by forming a company. The Thai company would then hire Bob as an employee and he would get a work permit in Thailand. The company would owe Thai corporate tax on what it was paid by the company in the U.K. The local company would pay Bob a salary, and Bob would be responsible to pay Thai income taxes on this.

Obviously, this is expensive, time-consuming and basically a pain. Working under the radar is far easier and saves Bob a lot of money and hassle. The chances of him getting caught, provided he keeps his mouth shut about his work when he's down at the pub having some bevvies, is almost nil. However, the reality is that what he is doing is illegal and there are real penalties if he is caught.