Value Added Tax (VAT)

The value added tax (VAT) system, which came into effect on 1 January 1992, largely replaced the old business tax system, which critics claimed caused inefficient redundancies and facilitated tax evasion. Under the new tax regime, value added at every stage of the production process is subject to a seven percent tax rate.

Those who are affected by this tax are Traders, Manufacturers, importers, exporters, wholesales, retailers, wholesalers and persons or legal entities that provide services under a registered business or in a professional capacity.

Any person or legal entity that has an annual turnover exceeding 1.8 millions baht is required to enter into the VAT system. VAT registration is within 30 days of reaching the income threshold. A business may opt to register for VAT, regardless of turnover. A VAT registration is a precondition of employing foreign labour.

VAT Categories

1. VAT Exempt
Certain type of supply are exempt from VAT, these include

Supplies made by entities with an annual turnover not exceeding 1.8 millions baht
Sales or import of unprocessed agricultural products and related goods such as fertilizers, animal feeds, chemicals, etc.
Sales or import of newspapers, magazines and textbooks.
Certain Industries
Educational
Artificial and cultural
Medical, audit and lawyer practice services.
Research, library, museum, zoo, employment of labour, amateur sports and public entertainers.
Domestic transportation and international by way of land.
Real estate rental.
Service provide by local government authorities.
Sales of goods or services to Thai ministry, departmental, department.
Sales of goods or service to religious institutions.

2. Zero Rated:
The supply of certain goods and services attract a zero VAT rate. These include

Exports of goods
Services provided in Thailand and utilized outside Thailand in accordance with the rule, procedure and conditions of revenue code.
International transportation by air or sea.
Sales goods and services to Thai government or state enterprises under loan or aid programs
Sales goods and services to the United Nations agencies, embassies and consulates
Sales goods and services between bonded warehouses and between operators located in EPZs.

3. 7% Rated
The majority of goods and services are subject to VAT when sold domestically by a VAT-registered supplier.

VAT is typically calculated at 7% of the sales value including excise taxes (if any).


4. Customs VAT
Where imported goods are no exempt or subject to zero rates of VAT, VAT will be levied by the Royal Thai customs department. VAT on imported goods is calculated at 7% of the total of the CIF value, plus excise tax, plus import duties and other taxes and fees (if any)

5. Imported Service VAT
Services utilized in Thailand supplied by foreign service providers are also subject to 7% VAT in Thailand. In such a case, service recipient in Thailand is obliged to file VAT return (PP.36) on behalf of the service providers. This tax is applied at the point of payment.

VAT Calculation

Output tax – input tax = tax payable, 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 the seller of a goods or service which is then used in the operator’s business. Unused input tax can creditable against output tax within the next 6 months

If the result of this calculation is a positive figure, the operator must submit (PP. 30) the remaining tax to the Revenue Department not later than 15 days after the end of each month. However, for a negative balance, the operator is entitled to a refund in the form of cash or a tax credit. A claim for a tax refund must be made within 3 years.

A VAT registered trader must be able to issue proper tax invoices, failure to do so will result in penalties and potential criminal liabilities.