As much of the world continues to work from home due to recurring COVID-19 related restrictions, software as a service, as well as online digital service platforms (cloud services, and streaming platforms) have found their way into every-day life for businesses and schools. As a result, digital platforms have grown significantly in the last year, with some of them becoming familiar household names, such as Zoom. The fact that many of these companies have tax-efficient offshore setups have prompted regulators around the world to introduce legislation to tax these entities, and the regulators in Thailand are joining 60 other countries implementing a “digital tax”.
In an update published earlier this year, we discussed how amendments to the Revenue Code are going to require foreign businesses providing digital services in Thailand to pay 7% VAT if they report an annual revenue from Thailand of more than THB 1.8 million (approximately USD 60,000). If a digital platform employs less than five persons and reports less than THB 1.8 million in revenue, it may fall within the small business exemption. This means that large digital platforms based overseas, namely Google, Line, Netflix, Facebook, Zoom and Apple, will be required to pay 7% VAT on any income received or payments made from 1 September 2021, when the amendments come into effect.
It also means tax filling obligations will commence from the tax month of September 2021 onwards, with the first deadline falling on 25 October 2021. Key amendments to the Revenue Code also include an obligation for overseas digital platform operators to remit VAT owed based on revenue to the Revenue Department. Notably, overseas digital platform operators cannot offset their VAT by costs incurred in their operations as they are outside the country. In addition, VAT payers will now be able to directly receive an official VAT invoice and apply VAT payments and credits to their accounts, decreasing the amount of time normally required for this process.
According to Revenue Department Director-General Ekniti Nitithanprapas, 20 major foreign operators have expressed plans to register as VAT payers in Thailand prior to the upcoming enforcement of the regulation. As mentioned earlier this year, registrations and VAT submissions can be made online via the Revenue Department’s website, though it may be advisable to assign a Thai employee or agent based in Thailand to file for VAT on the company’s behalf, as the website is currently only available in Thai.
As the enforcement of this regulation draws nearer, it is essential for businesses that fall under the definition of an overseas digital platform provider to be prepared to comply with the provisions of the amendments.
Further regulations to be enacted
The amendment made to the Revenue Code is not the only regulatory change overseas digital service providers should be aware of. According to the Electronic Transactions Development Agency (“EDTA”), a draft Royal Decree on Regulating Digital Platforms is underway. It will apply to operators of digital platforms that either directly offer goods and services to customers within Thailand or act as intermediaries between buyers and sellers, regardless of whether they are based in Thailand.
The draft Royal Decree defines ‘Digital Platform Services’ as those that provide digital services or a medium that connects users to products, services, or intangible assets through a computer network, regardless of whether an agreement takes place digitally. While the definition may be viewed as broad, the ETDA provided several examples during a public hearing, including global commercial digital marketplaces like Amazon, internet search engines such as Google, funding platforms like GoFundMe, online booking platforms like Grab, streaming services like Netflix, and various social media platforms.
The requirements that digital platform operators must abide by under the draft Decree will largely depend on the size and the level of risk associated with the platform operator. While the draft decree doesn’t provide specific definitions and provisions, it generally will subject large-scale digital platforms to several requirements, including controls over terms and conditions, service fees and prices, as well as other expenses to ensure transparency and fairness. The draft Decree is also expected to contain provisions over the listing or rating of goods or services, feedback mechanisms, dispute mediation, advertisements, product reviews, and take-down mechanisms. Most importantly, the draft Decree also touches upon the use of personal data and the verification of user identity.
It is also worth noting that much like the amendment to the Revenue Code, the draft Royal Decree will have extraterritorial applicability, which means that digital platforms based overseas will still be subject to the upcoming regulation if they offer services to Thailand-based customers. Even if providing services to Thailand-based customers is not explicitly stated, displaying content in whole or in part in Thai language, registering under the top-level-domain of “.th”, offering payments in Thai Baht, issuing invoices to Thailand-based customers, and/or having local persons or entities provide support services in Thailand would subject businesses to the provisions of the draft Decree. If they haven’t already done so, overseas digital platforms would also be required to assign a local representative in writing, giving power to the representative to inform authorities regarding operations of the website or platform. This is an area that Silk Legal can assist with.
In terms of penalties and liabilities, the draft Decree is expected to punish those who fail to adhere to its provisions with up to one year imprisonment and/or a fine of up to THB 100,000. Violators will also be subject to punishment for violating other relevant laws prescribed by the Electronic Transactions Commission or ETDA, with officials having the power to ban operators from conducting services until they fully comply with the requirements.
While the amendments to the Revenue Code are set to be enacted on 1 September 2021, the draft Decree is still undergoing review and was recently announced in a public hearing that took place on 15 July 2021. Comments from participants of the public hearing are to be submitted to the Electronic Transactions Commission to assist in finalizing the Decree.
This notwithstanding, questions still remain as to how the provisions of the decree will be enforced and how cross-border mechanisms will be put in place to ensure compliance with the upcoming regulation. The EDTA must also explore ways to guarantee congruence with existing laws to avoid conflicts with other governing bodies’ mandates and regulations. Nonetheless, it is prudent for overseas digital platform operators to review their internal policies with legal experts in this area in anticipation of the enforcement of such regulations. Please contact us at [email protected] or by using the contact form for inquiries about the matters discussed.