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How VAT works in Thailand

Update: 01 December 2024
How VAT works in Thailand

In Thailand, the Value Added Tax (VAT) is a consumption tax levied on the sale of goods and services. It is collected at each stage of production or distribution, but the final burden of the tax is borne by the end consumer. Here’s how VAT works in Thailand:

1. VAT Rate

The standard VAT rate in Thailand is 7%.

  • Certain goods and services may be exempt from VAT, or subject to a zero-rate. These include exports, international transportation, and certain financial services.

  • Below are the types of sales that fall into each category:

    A. VAT at 7% (Standard Rate)

    The standard VAT rate of 7% applies to most goods and services sold in Thailand, including:

    • Retail sales of goods
    • Sales of services (e.g., consulting, professional services, maintenance)
    • Import of goods (goods imported into Thailand are subject to 7% VAT, with some exceptions for specific goods)
    • Sales of digital products (e.g., software, digital media, etc.)
    • Domestic services provided by local businesses to other businesses or consumers.

    B. VAT at 0% (Zero Rate)

    The 0% VAT rate applies to the following transactions:

    • Exports of goods: Goods sold and exported to foreign countries are subject to zero-rate VAT, meaning no VAT is charged on the sale. However, businesses can still claim VAT paid on their input purchases (input VAT).
    • International transportation: Transportation services, including air, sea, and rail, that are provided for travel between countries.
    • Certain international services: This includes services rendered outside Thailand or to foreign customers (e.g., services that are physically performed outside Thailand).
    • Sales to free trade zones: Goods sold to or within Thailand’s free trade zones are often subject to a 0% VAT rate.
    • Sales of certain goods and services to international organizations: Sales to organizations like the United Nations may also be subject to the 0% rate.

    C. VAT Exemption (No VAT Charged)

    Certain goods and services are exempt from VAT entirely, meaning they are not subject to VAT at the 7% rate, nor can the seller claim input VAT on purchases related to these goods or services. Some common exemptions include:

  • Financial services:

    Most financial services such as lending, borrowing, and interest on deposits.

    • Healthcare services: Medical and healthcare services provided by licensed medical professionals or hospitals.
    • Educational services: Services related to education such as tuition, training, and courses offered by educational institutions.
    • Rental of residential property: Rental income from residential properties is generally exempt from VAT, but commercial property rentals are subject to VAT.
    • Insurance services: The sale of insurance products and related services.
    • Public transportation: Domestic public transport (e.g., buses, trains, and certain domestic flights) is exempt from VAT.
    • Sales of certain agricultural products: Certain raw agricultural products (e.g., unprocessed rice, fruits, vegetables) are exempt from VAT.
    • Sale of some religious articles and donations: Goods related to religious worship and charitable donations.
    • Land and buildings: Sales of land and buildings are generally exempt from VAT, though this may differ if the sale is related to business operations (e.g., developers selling commercial properties).

2. Who Needs to Register for VAT

  • Businesses with annual revenues exceeding 1.8 million Thai Baht must register for VAT with the Revenue Department.
  • Small businesses with revenues below this threshold are generally not required to register, although they can choose to do so voluntarily.
  • Once registered, businesses are required to charge VAT on their sales and can also reclaim VAT paid on their purchases.

3. VAT on Sales

Businesses charge VAT at the rate of 7% on goods and services they sell. This is added to the sale price and paid by the customer. The business then collects this VAT from the customer and remits it to the government.

4. Input VAT (VAT on Purchases)

Businesses can claim back the VAT they paid on goods and services purchased for business purposes. This is known as input VAT. The business needs to keep track of the VAT paid on their purchases and can offset it against the VAT they have collected on sales (output VAT).

5. VAT Calculation (Output VAT and Input VAT)

  • Output VAT: This is the VAT a business collects from customers when selling goods or services.
  • Input VAT: This is the VAT a business pays on goods and services bought for use in the business.
  • If the output VAT exceeds the input VAT, the business must pay the difference to the government. If the input VAT exceeds the output VAT, the business can claim a refund or carry forward the credit to offset future VAT liabilities.

6. Filing and Payment

  • VAT-registered businesses are required to file monthly VAT returns (Form PND 30) with the Revenue Department, even if no tax is due.
  • The return must report the total sales, total purchases, VAT collected, and VAT paid. The net VAT due (or credit) is then paid or refunded.
  • VAT payments are due by the 15th day of the following month.

7. Exemptions and Zero-Rating

  • Exempt goods/services: Some goods and services are exempt from VAT, including certain financial services, healthcare, and education.
  • Zero-rated goods/services: Exports and certain international services are zero-rated, meaning they are subject to a VAT rate of 0%. This allows exporters to claim back input VAT, even though they do not charge VAT on their sales.

8. Special Rules for Certain Businesses

  • Small Businesses: If a business has annual revenue below the 1.8 million Baht threshold, it may be exempt from VAT registration.
  • Tourism and Hospitality: Special rules apply to hotels and other tourism-related services. For example, foreign tourists may be able to claim VAT refunds on certain goods purchased in Thailand.

9. Penalties

  • Failure to comply with VAT regulations can result in penalties, including fines and interest charges on unpaid VAT.

In summary, VAT in Thailand operates on a self-assessment basis where businesses are responsible for collecting VAT from customers, remitting the tax to the government, and claiming any applicable VAT credits. Proper record-keeping and timely filing of VAT returns are essential for businesses to comply with the law.