VAT Regime of Electronic Services (e-Services)

Starting 1 September 2021, government will levy VAT on foreign digital services (e-services) consumed in Thailand, a move anticipated to collect nearly Baht 5 billion in state revenue, annually.

This article discusses the principles of the new tax and those to be impacted

Governments worldwide have concurred they cannot effectively or efficiently tax trade on the digital economy, amounting to billions of US dollars in revenue losses. Tax codes are partially to blame. Under current domestic and international tax rules, multinationals generally pay corporate income tax where production occurs rather than where goods or services are used. These multinationals, despite their global reach, are not subject to corporate income tax if they do not have a physical presence in the country where its consumers reside.

The Organization for Economic Co-Operation and Development (OECD) and the G20 Inclusive Framework are working hard to build a foundation for an international tax regime. In the meantime, countries have implemented a so-called digital service tax (“DST”), demanding digital service providers/platform operators to pay tax at certain rates based on turnover or revenue.

Thailand’s Revenue Department, over recent years, has been considering taxing digital or e-services provided by non-residents, particularly those providing e-services directly to consumers. Although the current VAT regime (Section 83/6(2) of the Revenue Code) requires all consumers, with no exception, to remit VAT to the authority, enforcement is not practically administrable.

After some years of monitoring the digital economy and the potential to effectively tax its lifeblood, the Thai Revenue Department, on 10 February 2021, published Royal Decree Amending the Revenue Code (No. 53) B.E. 2564 (2021) VAT on e-Services in the Royal Government Gazette. e-Service VAT, as from 1 September 2021, will be imposed according to the following:

• Non-resident digital service providers who electronically provide digital services to consumers in Thailand, and who are not VAT registered operators, must pay 7% VAT on their income.
• Non-resident digital service providers must pay VAT output tax to the Thai Revenue Department, but cannot use or deduct input VAT from output VAT payable.
• If those non-resident entities provide e-services through a third-party digital host (e-platform) that enables payment and delivery, then the e-platform must [collect and] remit the VAT payable on behalf of the non-resident service provider.

Non-resident digital service providers providing digital service from abroad to non-VAT consumers in Thailand must register themselves as VAT operators in Thailand, but they are prohibited to issue tax invoices. In any case, where the consumers in Thailand are registered VAT operators, the non-resident digital service providers do not register themselves as VAT operator, and the VAT consumers still have to remit VAT under Section 83/6(2) of the Revenue Code.

As a consequence, non-resident digital service providers streaming services, selling digital content (e.g. music, movies, games, etc.), offering online advertising, and maintaining digital platforms (e.g. AppStore, Play Store, etc.), will be bound to pay VAT.

Local digital service providers will not be subject to this VAT e-service scheme. They will continue to pay VAT and income tax as local VAT registrants.

Thailand, as other countries, will impose VAT on e-services in order to earn its keep from trade in the digital economy. The new tax will certainly add revenue to government coffers. However, it may also level the commercial playing field for local e-service providers as non-resident providers will soon also be liable for VAT in Thailand.

Those now operating e-platforms for non-resident e-service providers will also have to prepare for the new VAT regime.

The new law will not apply other VAT operators. They will continue to remit the 7% VAT to the Revenue Department when paying for services to a non-resident service provider.

Consumers will not be required to pay or remit VAT on their payment for e-services to non-resident service providers. They should, however, expect price increases on their digital purchases, as non-resident digital service providers will likely shift the VAT burden to them.