An often overlooked or misunderstood element of Thailand VAT rules applies when purchasing services from overseas. If you think this doesn’t apply to your business, think again and read on – there is a high chance it does.
But before we dive into this, will cover a quick review of the basic VAT rules and simpler occurences.
Thailand VAT is currently a 7% rate which is applied when goods and services are sold by a VAT registered business. Thai businesses are required to register for VAT when yearly revenue hits 1.8M THB, but can register beforehand.
Buying Locally When your Thai Business buys from a VAT registered Thai business, the seller will add (or include) VAT in the purchase price. The seller will pay the VAT due each month to revenue department and will issue you a VAT invoice which you can use to offset VAT already paid against VAT payments due.
Selling Locally This happens in reverse, your Business will pay the VAT due to revenue each month, reduced by any VAT on eligible purchase that you made. If your business is not VAT registered you do not pay any VAT on sales, but also cannot claim back VAT from your purchases.
Importing Goods When you import goods into Thailand, VAT is due which the importer will pay at customs before they release the goods.
Importing Services into Thailand
When a company outside Thailand provides any service that is used within Thailand then VAT will be due.
If it was a local transaction then VAT would only be due if the seller was registered for VAT. Overseas sellers are not registered for Thai VAT so business owners often wrongly assume this means the overseas service also has no VAT. However in these scenarios the responsibility for reporting and paying VAT is instead moved to the Thai buyer.
Important to note is that this applies even if the Thai company is not registered for Thai VAT. Not being registered means you still need to pay the VAT on overseas purchases, but will be unable to claim deductions against sales VAT.
This VAT on overseas service purchases will be paid by filing form Phor Phor 36 (PP.36) at the revenue department. You will need to file this form and make payment by the 7th of each month.
What purchases need declaring on Phor Phor 36?
The official criteria is whenever a payment is made to a foreign company for the provision of services used or consumed within Thailand. Method of payment makes no difference, so it doesn’t matter if you pay by bank transfer, credit card or any other way. “Used or consumed within Thailand” is a broad term covering many things, so will give a few practical examples.
Advertising goods or services that were made, sold or managed from Thailand (eg. Facebook/google ads promoting your Thai business)
Hiring a software developer to work on your website or application
Hiring a marketing company to promote your business
Hiring a business consultant
VOIP phone services
Payment processing services (VAT charged on the transaction fee, not total received, unless main total is eligible separately)
Does this mean I need to pay more VAT?
This varies by situation, but in the most common cases, the answer is No.
Scenario 1) Non VAT registered company
In this case you will need to pay VAT to the Thai government, without being able to make deductions, so you will be paying additional VAT to the Thai government.
However your purchase price will often be lower than if you bought in the Sellers locat country since they do not need (in most cases) need to pay their local VAT on exported services.
eg. A service for 100 GBP from the UK, would be 100 + 7% = 107 GBP total, which is cheaper than buying in the UK where it would cost 100 + 20% = 120 GBP. So you would be paying VAT to Thai government but paying less overall.
Scenario 2) VAT Registered, with VAT sales above purchases
Our example company has sold 200,000 THB of goods or services within Thailand this month, which all had VAT applied.
This means they have a payment due to revenue department of 14,000 THB (200,000 X 7%) They bought 50,000 THB of eligible goods and materials within Thailand which allow a deduction of 3,500 THB So currently 10,500 THB due, before we review the imported services.
They spent 60,000 THB on marketing services to a company in the UK. So this means that 4,200 THB needs to be paid when filing Phor Phor 36, which is submitted prior to the main tax return. However this 4,200 can be deducted from the 10,500 THB on the main VAT return.
So the company pays 4,200 THB plus 6,300 THB resulting in the same end VAT payment. Just paid in 2 stages with some extra paperwork filed.
Scenario 3) VAT registered, with most sales not VAT eligible
This company has sold 200,000 THB of services within Thailand (VAT eligible) plus 1,000,000 THB of exported services (No VAT)They spent 600,000 THB on overseas marketing company.
The VAT due on local sales is the same 14,000 THB This time 42,000 THB needs to be paid when filing Phor Phor 36. This means the main VAT return is due a refund (not payment) of 28,000 THB
If this credit happened occasionally it could be claimed as credit and offset against VAT due on the next few months. If a refund is due every month then the company can claim the refund in cash, however there are likely to be delays in obtaining the refund and this may increase chances of receiving an audit from the revenue department.