The Thai Revenue Department (TRD) is considering ways to improve and increase revenue collection from businesses operating in e-commerce. In the past few years, the TRD has launched several attempts to include e-commerce business operators into the Thai tax system. In the context of international e-commerce transactions, the current Thai tax regulations do not provide the TRD with an adequate basis to impose Thai taxes since the foreign operators may not have a presence in Thailand under domestic rules.
Draft legislation is now under public consultation, following which, the draft will be passed to the National Legislative Assembly for enactment. All public stakeholders are encouraged to submit their comments on the draft legislation, which is open until 11 July 2017. This is a significant development in the Thai legislative process, which until May 2017, did not include a public consultation process.
The draft legislation raises several unanswered questions, some of which will hopefully be addressed in subsequently issued regulations.
The key provisions in the draft legislation are:
- A foreign company that operates a business using electronic media and either has (1) a local domain in Thailand, (2) a payment in Thai currency or money is transferred from Thailand, or (3) meets any other conditions as prescribed by the Director-General (the details of which have not yet been released), will be regarded as having a taxable presence in Thailand and will be subject to Thai corporate income tax at 20 percent on the net income or profits attributable to that permanent establishment. This amendment effectively seeks to expand the domestic definition of a “permanent establishment” in Thailand and it appears that the intention is to apply a broad interpretation. It is not clear how this expanded definition of a “permanent establishment” will be considered in the context of foreign companies operating in a jurisdiction that has a Double Tax Agreement (DTA) with Thailand. It is likely that an income tax permanent establishment will trigger Value Added Tax (VAT) registration requirements. However, it is questionable how this may impact the legal aspects of conducting business in Thailand as a foreigner.
- A foreign company that operates its business using electronic media, but does not meet the requirements of creating a “permanent establishment” in Thailand, will be subject to 15 percent withholding tax on income derived in Thailand from online advertising, providing space on a webpage or other income specified by the Ministerial Regulations (the details of which have not yet been released). The payer of the income will have the obligation to withhold the tax at the rate of 15 percent and remit it to the TRD. Presumably, this rate can be reduced under an applicable DTA between Thailand and the tax jurisdiction of the foreign company.
- A foreign company that sells intangible goods or renders services through electronic media to a non-VAT registered person in Thailand will be required to register for VAT and will be subject to VAT on the Thai sales it concludes. Under the current law, a company is only required to register for VAT if the income earned is more than Thai Baht 1.8 million (c. AUD 70,000) per year. This threshold will be retained.
- In the case of a foreign company that sells intangible goods or renders services through a website or application of another provider, the owner of the website or application will be treated as an agent of the foreign company seller. In that instance, the owner of the website or application will be responsible to register for Thai VAT and administer the VAT liabilities on behalf of the foreign company.
- Currently the importation of tangible goods with a customs value of less than Thai Baht 1,500 is exempt from VAT. The draft legislation removes this exemption threshold since it is perceived as creating unequal competition for local business operators in Thailand who are subject to 7 percent VAT regardless of the value of the goods.
The draft legislation will impact many foreign e-commerce players in the Thai market either through Thai corporate income tax, withholding tax or VAT. KPMG Thailand is preparing a submission as part of the consultation process.