A Quick Glance at the Changes in Thailand’s VAT Provision
Thailand companies servicing overseas customers are liable to pay Value Added Tax (VAT) for those services if their customers use any part of the information procured via that service to do business within Thailand, the country’s Supreme Court said in a recent ruling.
Thailand VAT for Overseas Services: The Background: (Supreme Court case No. 6710/2554)
Like most countries, generally accepted premise held VAT as type of consumption tax for goods or services that is collected by each provider in the supply chain on value addition and remitted to the government. It was implied till now that services or products used outside Thailand would have no VAT as end-user consumption occurs outside Thailand.
The recent case involved a Thai service company that gathered and reported information about certain good and their manufacturers inside Thailand. It provided the reports to its foreign customers located outside Thailand; therefore it didn’t pay VAT as the supply chain ended outside the country i.e. the reports were not consumed in Thailand.
The specific services the Thailand Company performed to create the reports were:
- The inspection of goods
- Price assessments
- Manufacturer quality assessments
- Quality assurance testing of products
However, the Thai Revenue Department stated that the said service came under VAT as the information provided was then used by the customers to decide whether or not to buy these goods from Thailand based companies.
Thailand VAT for Overseas Services: Supreme Court Verdict
The Thai Supreme Court ruled that when a foreign customer outside Thailand uses Reports (of information on products and manufacturing in Thailand) for taking business decisions/transactions pertaining to Thailand, it leads to “using the services” in the country.
The actual service was collection of information by the Thai company for consumption by the foreign customer. This activity was considered as prime and as per order it would come under value addition therefore attract VAT if used inside Thailand.
However, the second activity of reporting results to a customer outside Thailand was considered immaterial for VAT purpose.
It was concluded that any company providing such information to any foreign entity would be liable to pay VAT for the information used inside Thailand.
Thailand VAT for Overseas Services: The Implications
The Supreme Court decision may burden Thai service providers to charge VAT from their foreign customers or ensure that information they provide is not used by the overseas customer for business in Thailand.
Professional Assistance
Doing business overseas can have its fair share of complications even for the seasoned executives as business regulations, policies and compliance rules keep on changing. As it may not always be possible for businesses to prepare thoroughly while doing business in a foreign land, it is always advisable to seek expert help of a professional business consultant, who can provide assistance in areas like global transfer pricing, international financial reporting, etc.
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