Value Added Tax (VAT) in Thailand

What is VAT in Thailand?

VAT in Thailand is a consumption tax levied on the value added to services and goods at any stage of production or distribution. It is an indirect tax ultimately borne by the final consumer and is essential to Thailand’s fiscal policy.

The VAT system in Thailand follows the principles of the VAT systems of many other countries in the world. It is based on the concept that the tax is levied at each stage of the production and distribution chain but is ultimately paid by the final consumer. This means businesses charge VAT on their sales but can deduct the VAT they’ve paid on their purchases, effectively shifting the tax burden down the supply chain.

The standard VAT rate in Thailand is usually 7%. However, there are exceptions and different rates for certain goods and services. For example, some goods and services may be exempt from VAT, while others may be subject to a reduced rate.

Businesses in Thailand that meet specific criteria are required to register for VAT purposes. Once registered, they must charge VAT on their taxable sales and remit the VAT collected to the Thai Department of Revenue. In addition, registered businesses can claim input tax credits for the VAT they’ve paid on their purchases.

Overall, VAT in Thailand is an essential source of revenue for the government and plays a fundamental role in funding public services and infrastructure investment. Understanding the rules and regulations surrounding VAT is vital for businesses operating in Thailand to ensure compliance with tax laws and optimize their financial management strategies.

What is the rate in Thailand?

The prevailing VAT rate in Thailand is 7%.

Certain activities are subject to a 0% VAT rate. These include : 

• Export of goods
• Services rendered in Thailand but consumed outside Thailand are subject to the rules, procedures and conditions prescribed by the Director General.
• International transportation services by air or sea
• Sales of goods and services to Thai government ministries, departments, or state-owned enterprises as part of aid programs in the form of foreign loans.
• Sales of goods and services to international organizations, which Thailand must treat as embassies under treaties.
• Sales of goods and services to foreign commercial and trade offices in Thailand under agreements with foreign governments.
• Sales of goods or services between warehouses and enterprises in export processing or free trade zones

Who is subject to VAT in Thailand?

In Thailand, VAT applies to businesses that meet specific criteria set by the Thai Department of Revenue. In general, the following companies are subject to VAT : 

• Businesses whose annual turnover exceeds the registration threshold : If a business’s annual turnover exceeds the threshold set by the Department of Revenue, it must register for VAT and charge VAT on its taxable supplies.

• Importers : Importers bringing goods into Thailand are generally required to pay VAT at the point of import.

• Service providers : Businesses providing services subject to VAT must also register and charge VAT on their services if their annual turnover exceeds the registration threshold.

• Manufacturers and suppliers : Suppliers and manufacturers of goods and services must charge VAT on their sales transactions and may claim input tax credits for VAT paid on their purchases.

• Exporters : While exports are generally zero-rated for VAT purposes, exporters must be registered for VAT and comply with the relevant regulations to claim VAT refunds or credits on their inputs.

It’s essential for businesses operating in Thailand to understand their VAT obligations, including registration requirements, invoicing rules and filing procedures, to ensure compliance with Thai tax laws and regulations. In addition, specific industries or transactions may have unique VAT treatment, so businesses should seek guidance from tax professionals or the Thai Department of Revenue to clarify their VAT obligations.

How do you register in Thailand?

To register for VAT in Thailand, businesses must follow specific procedures the Thai Department of Revenue outlines. Here’s a general outline of the process:

Step 1. Determine eligibility : The first step is to ensure that your business meets the eligibility requirements for VAT registration. Generally, companies with an annual turnover exceeding the registration threshold set by the Thai Department of Revenue must register for VAT.

Step 2. Prepare the necessary documents : Gather the necessary documents and information required for VAT registration. This typically includes :
Business registration documents (e.g. Certificate of Incorporation)
Tax Identification Number (TIN) for the business
Annual accounts or other evidence of turnover
Details of business activities and types of goods or services supplied

Step 3. Submit the application : Complete the VAT registration application form provided by the Thai Department of Revenue. You can obtain the form from your local Revenue Department office or download it from the Department’s website.

Step 4. Submit supporting documents : Along with the application form, submit all the supporting documents specified by the Department of Revenue. Ensure that all records are accurate, complete and adequately certified where required.

Step 5. Attend an interview (if required) : In some cases, the Department of Revenue may require an interview with the business owner or authorized representative to verify the information provided in the registration application.

Step 6. Awaiting approval : Once the application and all supporting documents have been submitted, the Thai Department of Revenue will review the application. If everything is in order and the business meets the criteria for VAT registration, the Department will issue a VAT registration certificate.

Step 7. Begin VAT reporting : Upon receipt of the VAT registration certificate, the business can start charging VAT on taxable supplies and issue VAT invoices to customers. In addition, the company must comply with VAT reporting and filing requirements by submitting VAT returns to the Department of Revenue within the specified time limits.

It’s important to note that VAT registration procedures and requirements may vary depending on the type of business, its activities and other factors. It is therefore advisable to consult tax advisors or legal experts familiar with Thailand’s tax laws and regulations to ensure compliance and a smooth registration process. In addition, businesses should keep abreast of any updates or changes to VAT regulations issued by the Thai Department of Revenue.

Are there any activities that are exempt from VAT?

In Thailand, certain activities are exempt from VAT. These exemptions are listed in the Thai Revenue Code. Some of the main activities that are exempt from VAT include : 

• Export of goods and services : Goods and services exported from Thailand are generally exempt from VAT. This exemption encourages exports and helps to make Thai products more competitive internationally.

• Sale or importation of certain goods : Some goods, such as agricultural products, medical supplies, educational materials and certain essential food items, may be exempt from VAT to reduce the tax burden on necessities.

• Financial services : Specific financial services, including interest, dividends and capital gains, are exempt from VAT. The purpose of this exemption is to prevent double taxation of financial transactions.

• Health and education services : Healthcare services provided by hospitals, clinics and medical professionals, and educational services offered by schools, colleges and universities are generally exempt from VAT to ensure the affordability and accessibility of essential services.

• Insurance services : Insurance premiums and related services, including life, health and property insurance, are often exempt from VAT to avoid additional tax burdens on individuals and businesses seeking insurance coverage.

• Certain government services : Some government services provided by government agencies or departments may be exempt from VAT, although this exemption may vary depending on the specific nature of the service.

• Public transport : Public transport services, including bus, train and ferry services, may be exempt from VAT to promote affordable and accessible transport options for the public.

It’s important to note that while certain activities are exempt from VAT, businesses engaged in exempt activities may not be entitled to claim input tax credits for the VAT paid on their purchases. Therefore, companies should carefully consider the VAT implications of their operations and seek the advice of tax advisors or legal experts to ensure compliance with Thai tax laws and regulations.

When do you file and pay VAT in Thailand?

In Thailand, businesses registered for VAT must file VAT returns and make VAT payments to the Thai Department of Revenue regularly. The frequency of filing VAT returns and making payments depends on the size and nature of the business and its annual turnover.

Here are the general guidelines for filing and paying VAT in Thailand :

• Frequency of filing : VAT returns are usually filed every month, with the filing deadline falling on the 15th of the following month. For example, the VAT return for January is generally due by 15 February.

• Payment deadline : At the same time as the VAT return is filed, businesses must make VAT payments to the Revenue Department by the same deadline. The VAT payment must cover the VAT liability incurred during the reporting period.

• Electronic filing and payment : The Department of Revenue of Thailand encourages businesses to file VAT returns and make payments electronically through its online portal or other designated electronic platforms. Electronic filing and payment methods streamline the process and provide businesses with a convenient and efficient way to meet their tax obligations.

• Penalties for late filing and payment : Failure to file VAT returns or make VAT payments by the prescribed deadlines may result in penalties and interest imposed by the IRS. Therefore, businesses must comply with filing and payment deadlines to avoid financial penalties.

• Record keeping : Businesses must keep accurate and up-to-date records of their transactions, including sales, purchases and VAT calculations. Proper record-keeping facilitates the preparation of VAT returns and ensures compliance with Thai tax laws and regulations.

• Annual VAT return : In addition to monthly VAT returns, businesses may be required to file an annual VAT return summarising their VAT activities for the entire tax year. The yearly return typically reconciles the total VAT liability for the year and any input tax credits claimed by the business.

Businesses operating in Thailand must keep abreast of VAT filing and payment requirements and any updates or changes to tax regulations issued by the Thai Department of Revenue. Seeking the advice of tax advisors or accounting professionals can help businesses navigate the VAT process and ensure compliance with Thai tax laws.

How is VAT calculated in Thailand?

VAT in Thailand is calculated on the value added to goods and services at each stage of production or distribution. The calculation of VAT follows a simple formula:

• Determine taxable sales: First, determine the total value of taxable sales made by the business during the reporting period. Taxable sales include the selling price of goods or services on which VAT is payable.

• Apply the VAT rate: Once the amount of taxable sales is determined, apply the applicable VAT rate to calculate the VAT liability. The VAT rate in Thailand is 7%. However, certain goods and services may be subject to reduced rates or exemptions.

For example, if a business had taxable sales of 100,000 Thai baht during the reporting period and the applicable VAT rate is 7%, the VAT liability would be calculated as follows : 
VAT liability = taxable turnover × VAT rate
= 100,000 THB × 7%
= 7,000 THB

• Input tax credit: Businesses registered for VAT in Thailand are entitled to input tax credits for the VAT they’ve paid on their purchases and expenses related to their business activities. Input tax credits can be deducted from the VAT liability, reducing the net amount payable to the Inland Revenue Department.

• Net VAT payable: After input tax credits have been taken into account, the net VAT payable to the Revenue is calculated. Suppose the input tax credits exceed the VAT liability. In that case, the excess can be carried forward to offset future VAT liabilities or refunded by the Revenue Department, subject to certain conditions and rules.

Businesses must keep accurate records of sales, purchases and VAT calculations to ensure compliance with Thai tax laws and regulations. In addition, companies should consult with tax advisors or accounting professionals to understand the specific VAT implications of their operations and transactions in Thailand.

What are the penalties for non-compliance?

Failure to comply with VAT regulations in Thailand can result in various penalties and consequences imposed by the Thai Department of Revenue. The specific penalties for non-compliance may vary depending on the nature and severity of the offence, but generally include : 

• Late filing penalties : Please file VAT returns on time to avoid late filing penalties imposed by the Department of Revenue. The penalty amount may vary depending on the length of the delay and the taxpayer’s compliance history.

• Late payment penalties : If sales tax payments are not made by the due date, late payment penalties may be assessed by the Department of Revenue. These penalties are calculated as a percentage of the tax due and may accrue interest over time.

• Inaccurate or false returns : Submission of inaccurate or false VAT returns may result in penalties and fines imposed by the Department of Revenue. Taxpayers must ensure the accuracy and completeness of their VAT returns and supporting documents.

• Failure to register for VAT : Businesses that must register for VAT but fail to do so may be subject to penalties and legal consequences. The Inland Revenue can impose fines and take enforcement action against non-compliant businesses.

• Failure to keep records : Failure to maintain proper records of transactions, invoices and other relevant documentation as required by Thai tax laws may result in penalties and sanctions from the Department of Revenue.

• Revocation of VAT registration : In cases of repeated or severe non-compliance with VAT regulations, the Department of Revenue may revoke a business’s VAT registration and prohibit it from engaging in taxable activities until compliance is restored.

• Criminal prosecution : In severe cases of tax evasion, fraud or wilful non-compliance with VAT legislation, the Revenue may initiate criminal proceedings against the individuals or businesses involved. Criminal prosecution can result in fines, imprisonment or other legal sanctions.

It’s essential for businesses operating in Thailand to understand their VAT obligations and comply with tax laws to avoid penalties and legal consequences. Seeking the advice of tax or legal professionals can help businesses ensure compliance and mitigate the risk of non-compliance with Thai VAT regulations.