Thailand rules on cross-border digital sales go live; VAT rate to remain at 7%
On September 1, 2021, Thailand became the latest South-East Asian nation to extend its VAT legislation to cover the supply of digital services.
Thailand's new VAT rules covering the cross-border supply of digital services came into effect on September 1, 2021. The VAT rule. A total of 69 non-resident digital businesses had registered by the first day of these new Thailand VAT rules.
Thailand's VAT rate will remain at 7% until September 30, 2023. The decision to extend the reduction of the country's VAT rate was by Thailand's cabinet on August 24, 2021.
Due to the impact of the pandemic Thailand had reduced its VAT rate from 10% to 7% in September 2020 for one year. However, the ongoing crisis has prompted Thailand to extend this VAT reduction to September 30, 2023.
The news is timely for non-resident digital businesses in the process of registering for Thailand's VAT for Electronic Services (VES) system.
Thailand recently released its guidance on the extension of its VAT system to cover digital supplies by non-resident businesses effective from September 1, 2021.
The guidance — titled 'A Guide on VAT on Electronic Service Provided to Non-VAT Registrants in Thailand by Non-resident Business Person' — clarifies issues of concern to potentially affected non-resident digital businesses. It has also revealed that the Thailand Revenue Department will maintain a list of VAT registrants, following the example of many tax jurisdictions worldwide.
The guidance also provides more information on the validation of Thailand VAT numbers; VAT filing and payment; the use of FX sources for the conversion of foreign currencies to Thai Baht, and a host of other compliance-related details.
Thailand VAT registration begins
Thailand's VES system was up and running from August 16, 2021. With 69 non-resident digital businesses registering by September 1, 2021. the effective date for the new Thailand VAT rules.
In a July 26 interview, Ekniti Nitithanprapas, the Director-General of the Thailand Revenue Department, was quoted as already expecting 20 large non-resident digital businesses to register as VAT payers in Thailand from September 1.
Thailand, as many other jurisdictions do, maintains a public list of non-resident digital businesses as they register. The list is maintained here.
Potential Thailand VAT revenue boost
The VAT rule change is expected to raise 5 billion Thai baht (circa USD167 million or EUR138 million) in its first year. The affected digital services will – as is now common for such rules globally – include music and video streaming, gaming, and online hotel booking platforms.
According to this article by Bangkok-based firm Tilleke & Gibbons, the act defines an "e-Service" as "a service that includes incorporeal property delivered through the internet or other electronic means, where the service is, in essence, performed automatically, and where the service cannot be performed without information technology".
The act also defines an "e-Platform" as "a market, channel, or any other process or method that multiple service providers can use to provide e-Services."
An article in The Bangkok Post, quoting a Thailand Revenue Department official, stated that affected business will have to register for and collect 7% VAT on their sales to Thailand-based customers once their "annual income exceeds 1.8 million baht (circa USD55,000). However, the 7% is a reduced currently in operation in Thailand and is due to revert to the original standard rate of 10% VAT on October 1, 2021, barring any additional legislation to extend the length of the reduction to 7%.
A South-East Asia tax trend
Thailand's move follows a now familiar path in South-East Asia. In January 2020, Malaysia and Singapore both implemented new rules relating to digital sales from non-residents. In July 2020, Indonesia followed suit while a House Bill has also been introduced for debate in the Philippines.
In Vietnam, meanwhile, a draft law was originally introduced with a provisional go-live date of December 5, 2020 .
Thailand VAT discussions background
Thailand has been moving closer to taxing e-commerce for the past few years. Thailand's Council of State and Revenue Department had been deliberating over a new e-commerce tax bill for some time with no exact introduction date confirmed. It was previously expected to come into effect on January 1, 2020. Previous estimates when discussing this e-commerce tax bill were that the Thailand Revenue Department would recoup between 3 billion and 4 billion baht (circa USD$98m to $131m) per annum.
An August 2019 Reuters report quoted Mr. Nitithanprapas, the Director-General of Thailand's Revenue Department, that a VAT on electronic businesses would be introduced in 2020. There was no elaboration back then on the exact date of such an introduction.
According to a previous report - in The Bangkok Post back in April 2019 - a draft bill aimed at taxing "digital platform operators" had been deliberated on by the Thai Council of State and the Revenue Department.
It was back in April 2018 when the Thailand Revenue Department first started the process of communicating with stakeholders who provided important feedback to a public hearing held in relation to the proposed legislative change.
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