Thailand: Foreign e-service companies are subject to VAT

Foreign e-commerce businesses will be subject to VAT at 7% on services supplied to customers in Thailand from September 1, 2021. In addition to encouraging VAT collection, the law aims to create a level playing field for domestic and foreign operators providing services online to Thai customers.

E-service companies expected to be affected include:

• online hotel reservations;
• subscription to online movies, music and e-books;
• Online games;
• Online Advertising;
• sticker downloads;
• websites, applications and online marketplaces; and
• online streaming.

Popular foreign online platforms expected to be affected include Apple, Google, Facebook, Netflix, Line, YouTube and TikTok.

The Thai government expects annual revenues of THB 5 billion (approx. USD 160 million) from this measure.

background

The amendments to the Tax Code on the levying of VAT on foreign electronic services are contained in the Act amending the Tax Code (No. 53) BE 2564.

The basic principles remain the same as last year’s bill.

If the e-services tax is enforced from September 1, 2021, the obligation to pay VAT on overseas e-services, which previously rested by law on their customers in Thailand, will be shifted to the overseas e-service providers .

The Treasury of Thailand aims to develop tax practices in line with international standards set by the OECD, with more than 60 countries including Australia, New Zealand, Japan, Taiwan and South Korea already adopting similar practices in line with the OECD’s recommendations.

Important changes

The definition of ‘goods’ under Section 77/1(9) of the Revenue Code has been amended to exclude intangible assets provided over the Internet or other electronic networks, ie electronic services.

Electronic services and electronic platforms are defined as follows:

“Electronic Services” means services, including intangible assets, provided via the Internet or any other electronic network, the nature of which is essentially automated and non-deliverable without information technology.

“Electronic Platforms” means a marketplace, channel or any other process used by multiple Service Providers to provide Electronic Services to Customers.

Foreign e-service providers are required to register to pay VAT if they generate income over 1.8 million THB per year from e-services provided to customers in Thailand who are not VAT payers, e.g. B. Private customers.

Persons subject to VAT are divided into two categories:

• Foreign e-service providers who provide services from abroad to non-VAT customers using such services in Thailand; and
• Owners of electronic platforms who are subject to VAT in place of the foreign suppliers operating on their platform and who supply services electronically to non-VAT-registered customers using such services in Thailand.

E-service providers that fall under the above criteria are required to register for sales tax and remit sales tax on a monthly basis, similar to domestic companies. However, such e-service providers are prohibited from issuing tax invoices.

This is a “pay-only” system, meaning that service providers are subject to VAT on income but cannot offset VAT paid on expenses.

To make things easier for taxpayers, the VAT processes such as registration, tax return and payment can be done electronically via the Ministry of Finance’s simplified VAT system for e-Service (SVE) online platform.

Enforcement Procedures of the Ministry of Finance

The Treasury of Thailand will enforce the new law through a variety of measures, including:

• Requesting information about financial transactions from e-service operators from taxpayers and/or financial institutions;
• Social sanctions by making the lists of VAT registered e-business operators available to the public on its website to investigate and report non-compliance to the Treasury; and
• Exchange of information for tax purposes with other jurisdictions using the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC) and the Automatic Exchange of Information (AEOI) portal.

Supplementary regulations and information guides are expected to be issued by the Ministry of Finance of Thailand in the coming months to provide further details on the implementation of VAT on foreign e-services.

Paul Ashburn

Co-Managing Partner

Duangnetr Sarachai

rector

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