CHAPTER 13

VALUE ADDED TAX & SPECIFIC BUSINESS TAX

Value added tax was introduced in Thailand in 1992. In general, it replaced specific business tax, although SBT still continues to apply to certain businesses and to certain commercial transactions, as set out below.

VAT registration With effect from 1 April 2005, traders with gross income of (1) 300,000 Baht in any single month or (2) 1,800,000 Baht or more per year are liable to register for VAT. 

Traders not otherwise required to register for VAT may register voluntarily for VAT if they wish. This would be appropriate for e.g. exporting businesses which are zero rated, to enable the trader to reclaim input VAT paid on materials or services purchase.

A person or entity who is liable to VAT must register for VAT before the commencement of business operations or within 30 days after its income reaches the threshold. The application must be submitted to the Area Revenue Office if the business is situated in Bangkok, or to the District Revenue Office if it is situated elsewhere.

Should the taxpayer have several branches, the application must be submitted to the Revenue Office where the head office is situated.

Tax rate As at 1 May 2005, the VAT rate on the sale of goods, the provision of services or imports, is 7%.

Calculation of value added tax VAT is calculated as follows:

Output tax - Input tax = Tax due

Where output tax is the VAT which the operator collects from the purchaser when a sale is made, and input tax is the VAT which an operator pays to a seller of goods or a provider of services used in the operator's business.

Monthly VAT returns At the end of each month, the VAT trader adds up all VAT invoices it has paid and adds up all VAT invoices it has issued, including all the 'input' and 'output' taxes it has paid and collected. If the trader has paid more taxes than it has collected, the trader can apply for a refund or a credit. Because some Tax Invoices arrive late and because some Tax Invoices need to be corrected, it is common that amended VAT returns must be filed. If the trader has collected more taxes than it has paid, it pays the difference to the Revenue Department.

VAT invoices A VAT trader must issue a VAT receipt, referred to as a Tax Invoice, for each transaction over Baht 500 or when requested to do so. Tax Invoices are important, because the payor, if in business, can usually claim back the VAT paid. The requirements for a Tax Invoice are very strict: they must contain the name and full address of the purchaser and no errors (other than minor spelling errors) or corrections are allowed. If there is an error, erasure or alteration of the Tax Invoice it must be cancelled and a new one issued. It is not sufficient to sign or initial a correction.

Zero rate VAT The following transactions attract zero rate VAT:

1. Exports

2. Services provided in Thailand to persons in foreign countries.

3. International transportation by air and sea by Thai juristic persons. Foreign juristic persons may apply a 0% rate where their country applies 0% to Thai juristic persons that operate business in that country.

4. Sale of goods or services to civil servants or state enterprises under foreign loan or aid schemes.

5. Sale of goods or services to the United Nations and its agencies, foreign embassies and consulates.

6. Sale of goods or services between bonded warehouses, between operators in export processing zones, or between the former and the latter.

Exempt from VAT The following persons or services are exempt from VAT:

1. Small businesses whose annual turnover is less than 1.8 million Baht, provided that income in any month does not exceed 300,000 Baht
2. Sales and import of unprocessed agricultural products and related goods such as fertilizers, animal feeds, pesticides, etc.;
3. Sales and import of newspapers, magazines, and textbooks;
4. Healthcare services provided by government and private hospitals as well as clinics,
5. Educational services provided by government and private schools and other recognized educational institutions,
6. medical and auditing services, litigation services and other similar professional services,
7. Rent of immovable property
8. Cultural services such as amateur sports, libraries, museums and zoos;
9. Services in the nature of employment of labour, research and technical services and services of public entertainers;
10. Goods exempted from import duties under the Industrial Estates Act imported into an Export Processing Zones (EPZs) and under Chapter 4 of the Customs Tariff Act;
11. Imported goods that are under the supervision of the Customs Department which will be re-exported and be entitled to a refund of import duty; and
12. Other services such as religious and charitable services, services of government agencies and local authorities.

13. Gold bullion.

Significance of VAT exempt activities and zero rated activities Providers of goods or services that are zero rated may have to pay VAT on goods and services they purchase, but cannot claim a VAT credit.

Thus it is often better to be zero rated than tax exempt, as providers of zero rated goods and services (usually exporters) can reclaim all the VAT they have paid.

Transactions subject to VAT Internal trade in most services and goods are, as can be seen above, subject to VAT. Exports of goods or services (including sales to diplomatic missions and some other exempt organizations) are subjects to zero rate tax. Therefore exporters will normally be entitled to a refund of all the VAT they have paid.

Services performed for overseas consumers, where there is written evidence or agreement, are subject to zero rate VAT. Services performed abroad for a Thai company are subject to 7% VAT (with effect from 2003) and are treated as an import. A separate VAT return must be filed by the Thai company importing the service and the VAT paid at that time. This payment can be credited at the time the next regular VAT return is filed.

Importers pay the current VAT rate at the time they import the goods. This is in addition to customs taxes. The VAT on imports is based on the total goods of the invoices including shipping and customs duties. The Customs Department will issue a Tax Invoice which may lack some of the details of a privately issued Tax Invoice, but which can nevertheless be used as a privately issued Tax Invoice.

The full burden of VAT falls on the consumer who cannot claim a refund and to a certain extent, traders who have not registered for VAT and who thus cannot claim the credit. Some VAT payments cannot be reclaimed even by regressed traders. This would include, for example, VAT paid on automobiles or for entertainment. VAT paid on employees’ benefits also cannot be claimed by an employer.

VAT Refund In each month, if input tax exceeds output tax, the taxpayer may claim the refund, either in form of cash or a tax credit to be used in the following months. Therefore in case of zero-rated businesses, the taxpayer will always be entitled to a VAT refund. With regard to unused input tax, it may be credited against output tax within the following six months. However, a refund can only be claimed within three years from the last date of filing.

Certain input taxes, such as tax in relation to entertainment expenses, are not creditable against VAT. However, those non-creditable input tax payments can instead be used as deductible expenditure against corporate income tax.

Specific business tax

History Specific business tax was the predecessor of VAT in Thailand, and has been to a large extent replaced by it. SBT still however applies to certain businesses and to certain transactions, as follows:

1. Commercial banks and similar businesses.

2. Life assurance companies.

3. Finance companies, securities companies and credit foncier companies.

4. Pawnshops.

5. Sales of shares on the Securities Exchange of Thailand.

6. Sale of immovable property.

Tax rates SBT is computed on monthly gross receipts, or on the value of the land/buildings/shares sold, at the following rates:

Business	Taxable income	Tax rate (inclusive of municipal tax)
Banks, finance and similar businesses	Interest, discounts, service fees other fees, profits from foreign exchange	3.3%
Life assurance	Interest, service fees and other fees	2.75%
Pawnbroking	Interest, fees, and income from selling pawned goods	2.75%
Real property	Gross income	3.3% (reduced to 0.11% until 31 December 2005, where carried out in connection with debt restructuring)
Repurchase Agreement	The difference between the sale price and the repurchase price	3.3%
Factoring	Interest, discounts, service fees and other fees	3.3%
Shares of companies listed on the SET	Sale of such shares	0.1% (currently exempt)

Revised 1 December 2006

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