Thai Revenue Code to impose VAT on foreign digital transactions

After much consideration, Thailand is set to regulate tax revenues from foreign digital transactions by reforming its traditional tax system to cover loopholes that have been introduced by the global digital economies. This change is in line with its ASEAN neighbours, such as Singapore, Malaysia, and Indonesia, who have already issued similar regulations earlier this year to equalize competition between foreign and local companies.

On June 9, 2020, the Thai cabinet approved a draft amendment to the Thai Revenue Code to impose Value-Added Tax (VAT) on foreign electronic service (e-Service) providers and foreign digital platforms such as social media, hotel booking, online booking platforms, and streaming media. The definition of digital electronic service under this amendment is “service rendered through internet network or other electronic network which provides significant services automatically that cannot otherwise be provided without the use of information technology.” 

Under the amendment, foreign e-Service providers and foreign digital platform operators with no permanent establishment or no physical presence in Thailand that receive an annual income exceeding THB 1.8 million (USD 58,000) from provision of digital services to  non-VAT consumers in Thailand are required to register as VAT operators. Consequently, they will be subject to file VAT returns and pay VAT at the rate of 7% to the Thai Revenue Department without eligibility to use input taxes against output tax or issue tax invoices to consumers.

The proposed act is expected to significantly impact large multinational companies such as Netflix, Facebook, and Google. In response, Google has already issued a statement saying that they are ready to register as VAT operators, while Netflix and Facebook have yet to make any corresponding comments. It is highly likely that we will see foreign companies adopting new tactics and business models to combat the VAT collection. Consequently, it could potentially lead to additional costs being passed on to the consumers. 

The draft amendment must be submitted to the National Legislative Assembly for approval before being published in the Royal Gazette. As of now, it remains unclear how the Thai Revenue Department is going to set the criteria, enforce the law, and keep track of the revenues reported by foreign e-Service providers. More importantly, it is still unclear what will be the penalty levied for non-compliant companies. Hopefully, the Thai Revenue Department will issue further regulations and guidelines to clarify these practical concerns before the law is officially implemented. Until then, large multinational companies and investors may have to wait before key decisions can be made.

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