Thailand Export Services 0% VAT
On 29 March 2011, the Director-General of Revenue issued Notification on VAT (No 181) which supposedly eases the rule prescribed in Notification on VAT (No 105) for applying the 0% rate of VAT to export services -- services performed in Thailand and consumed in a foreign country. This Tax Insight has been updated for DGN VAT (No 181).
The Director-General's Rule
Export services are services performed in Thailand and consumed outside Thailand, and in virtually the same way for Thailand goods consumed outside of Thailand (export goods) export services should enjoy the export rate of 0% VAT.
But unlike export goods, export services is one of the horrors of Thailand VAT compliance. Whilst the intention of the law is for export services to enjoy the 0% VAT rate, Thailand tax audit officers investigate just about every export service transaction that a company zero-rates, and their challenges for the 7% VAT rate plus penalties and surcharge can often be horrendous.
Section 80/1(2) of the Revenue Code prescribes clearly the 0% rate, not the 7% rate, shall apply to export services. But Section 80/1(2) also prescribes that the application of the 0% rate is subject to the rule prescribed by the Director-General of Revenue, and this is where the problem lies.
(1) The compliance matter to note is the word "entirely", and even in the case of only a small part of a service not being consumed in a foreign country, such as, for example:
(2) Whilst this is a supposed easing of the 0% VAT rule for export services, many Revenue Department officers still do not easily allow the 0% rate of VAT for export services.
International businesses should note that Thailand Revenue Department tax audit officers do not easily allow the 0% rate of VAT for export services, and if your Thailand company is not able to prove to them beyond doubt the services were consumed in a foreign country, they will require you to pay 7% VAT plus penalties and surcharge.
This Tax Insight is general information only. It should not be used to determine any particular matter without consulting with an experienced Thailand tax advisor.