November 19 2012 Categories: Thailand Taxes No comments yet
The VAT system was introduced in Thailand in 1992 that is to say at the same time than the Special Business Tax (SBT). In a nutshell most transactions (exchange of goods or services) that are occurring in Thailand are either subjected to VAT or to the SBT.The principle of VAT is simple, any business which having a turnover of more than 1,800,000 THB per annum, and that is not subject to the Special Business Tax, must register for VAT within 30 days of the date they reach 1,800,000 THB in sales.
How does it Works?
The VAT works trough a system of VAT debits and credits. For example a business subjected to VAT will receive VAT credits anytime it is purchasing goods and services from suppliers that are also into the VAT system. Same business will receive VAT debits anytime it is selling services or good to its customers. Every month the company will balance the VAT it paid (credits or input) against the VAT it receives (debits or outputs).
If the company has more VAT credits than VAT debits, the payment of the VAT will be done trough a compensation between recorded VAT credits and VAT debits meaning that the amount of the VAT credits available will be reduced from the amount of VAT debits due for the month. If the balance results in more VAT debits than credits then the company will actually have to pay the difference to the Revenue Department.
It seems simple on the paper but the system is actually more complicated than this and can become a minefield for companies.
The first problem is that a company may not claim all its VAT credits (inputs). Some VAT credits are disallowed and cannot be used and compensated against VAT debits (outputs). For example a company that claims input VAT on expenses paid that are not directly connected to the business (the most common mistake is to claim VAT input on entertainment expenses) will be due for trouble.
Also, many companies selling goods have gotten themselves into trouble for setting up a warehouses or sale points without registering the warehouse / sale point as a place of business of the company. Now VAT on goods applies as soon as the goods are moved out of the company premises whether the good is paid for or not. All items moved out of the company premises are treated as sold already for VAT purposes.
If the Revenue Department finds out that your company made those mistakes then the Tax officer is entitled to request that your company paid VAT on all those items plus a penalty equal to double of the VAT amount plus interest at 1.5% per month over the period.
May Foreign Company not Carrying Business in Thailand be subjected to VAT?
Yes, but when a foreign company not carrying business in Thailand is liable to pay VAT it is the Payee that is to say the company paying the invoice that will be liable to pay the VAT by filing the form POR POR.36.
What transactions are subjected to the VAT rate of 7%?
Thailand official VAT rate is actually 10% not 7%. But VAT rate was reduced to 7% as part of the economic measures taken following the crisis of 1997. The reduced rate of 7% has been since then confirmed every year.
Are subjected to the 7% VAT rate all sales of goods or services rendered in Thailand and all import of goods (but for exempted goods). Imported goods are subjected to both custom duties and VAT.
Note that they are different rates of VAT depending of the type or nature of the transaction.
What is VAT rate of 0%?
Many foreign investors are wondering about the significant of a zero percent VAT. Why not simply exempt the transaction from VAT. Is it not one of those red tape measures which Thailand is famous for?
No it is not and the truth is that the VAT 0% rate system gives more benefit to the exporters than a simple exemption.
A business qualifying for zero percent VAT is entitled to earn credits for its input tax, and may eventually apply for a VAT refund.
The VAT rate is 0% for the following transactions: export of goods; provision of services performed in Thailand and used in foreign countries; provision of international transport services by aircraft or sea-going vessel; sale of goods and provision of services to the authorities or state enterprise under a foreign loan or assistance project; sale of goods and provision of services to the United Nations Organization; sale of goods and provision of services between one bonded warehouse and another.
What are the Transactions exempted from VAT?
Are exempted from the VAT the sale of goods which is not an export, or provision of services under (1) Section 81 (1) which includes sale of agricultural produce, animal and animal feeds, fertilizer, chemical products for eradicating weeds, sale of newspaper, inland transport service, rental of immovable property; or under (2) Section 81 (2) such as sale of agricultural produce, animal and animal feeds, fertilizer, chemical products for eradicating weeds, sale of newspaper, etc.
Finally are exempted from the VAT small business where tax base does not exceed 1,800,000 Baht.
Are VAT refunds easy to obtain?
A lot of businessmen are complaining (with reason) about the Revenue Department slowness when coming to VAT refund. Yes it takes times and it is not a pleasant process.
One of the reasons it’s takes so much time to get refund is because Thai Revenue Department has been when the system was first implemented defrauded of hundred millions THB of fake taxes refund. The second reason is that Thai Revenue Department is not different from the tax administration in your own country, always eager to collect money more reluctant to refund it.
When is VAT Payable?
VAT system is established based on a monthly calendar. VAT return POR POR 30 must therefore be filed on a monthly basis within 15 days of the following month together with the VAT payment. If a company has more than one place of business, each place of business must file the return and make a payment separately unless there is an approval from the Director-General of the Revenue Department.
As explained above services utilized in Thailand supplied by service providers in other countries are also subject to VAT in Thailand. In such a case, service recipient in Thailand is obliged to file VAT return (Form POR POR 36) and pay tax, if any, on behalf of the service providers.
About the Author:
The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.
© Copyrights 2009 – Rene Philippe Dubout – This article may be reprinted if information about the author, the websites, and the URLs remain intact.
What forms should I use to pay VAT?
The POR POR.30 is the VAT return form used to compute and balance output tax against input tax in each tax month. The Por Por 30 must be filed within 15 days of the month when VAT arise. The POR POR.36 is the value added tax return which applies in any other cases not covered by the POR POR 30. It must be filed within 7 days from the end of the month in which payment was made.
Originally posted 2009-11-15 05:12:28.