New Guidance: Real Impact on VAT Activity, Non-VAT Businesses, and out-of-scope of VAT Businesses

Legal provisions that have changed

“Clause 3, Input tax which a registrant under Clause 1 and Clause 2 paid because of carrying on the business of the sale of goods outside Thailand, the registrant is not entitled to deduct it from output tax in computing value added tax because it is prohibited by  section 82/5 (6) of the Revenue Code.

If a registrant under the first paragraph carrying on business in Thailand which is liable for payment of VAT that is subject to deduction from output tax when calculating VAT under the rules, procedures, and conditions established by the Director-General under Section 82/6 of the Revenue Code.” 

Revocation
The second paragraph of Clause 3 of Paw 89 was repealed by Clause 3/1 and Clause 3/2 of Paw 164, which are added to the language of Paw 89:

“Clause 3/1, in the case where a registrant engages in both types of business that are subject to VAT and the out-of-scope of VAT under Section 77/2 of the Revenue Code, and the registrant uses the goods or services in both businesses, the registrant first must allocate input tax based on the proportion of revenue of the non-VAT business. The remaining input tax after allocation then may be deducted from output tax in the VAT calculation for the VAT business under Section 82/3 of the Revenue Code.”

“Clause 3/2, In the case where a registrant engages in VAT business, Non-VAT business (i. VAT-exempt business, ii. Specific Business Tax business, and iii. Specific Business Tax-exempt business), and the out-of-scope of VAT pursuant to Section 77/2 of the Revenue Code, and the registrant uses goods or services for all three businesses mentioned above, the registrant first must allocate input tax based on the out-of-scope VAT. The remaining input tax then is apportioned between the VAT and non-VAT businesses in accordance with Section 82/6 of the Revenue Code, together with the Notification of the Director-General of Revenue Department on VAT (No. 29), dated 9 March 1992, under the rules, procedures, and conditions established by the Director-General under Section 82/6 of the Revenue Code.” 

Example of using shared input tax when operating 2 types of businesses
1. VAT business
2. Out-of-scope of VAT 

Shared input tax: no need to allocate input tax as 100% of it can be used to offset output VAT

Shared input tax: Input tax first must be allocated to the income of the out-of-scope of VAT business, on a pro rata basis. The remainder can be used to offset output VAT for the VAT business.

Example of Clause 3/1:

“In the tax month of May, Company A, a VAT registrant, has total revenue of Baht 20 million from each type of business, as follows:
- Domestic sales: Baht 16 million ; and
- From out-of-scope of VAT business i.e., sale of products produced overseas and delivered outside Thailand): Baht 4 million (20% of total revenue). 

Company A had an input tax of Baht 1 million, which could not be separated by type of business.

Therefore, Company A first must allocate 20% (Baht 200,000) of the input tax in proportion to income from the out-of-scope of VAT business then Company A will have the right to deduct the remaining Baht 800,000 from output tax in its VAT calculation for that tax month.”

Conclusion

- Baht 200,000 (1,000,000 x 20%) is an input tax (out-of-scope of VAT) that CANNOT be claimed as offset against with output tax.
- Baht 800,000 is the input tax (VAT) that can be claimed as offset against output tax for that tax month.

Example of using shared input tax when operating 3 types of businesses
1. VAT business
2. Non-VAT business, SBT business, Non-SBT business
3. Out-of-scope VAT business

Shared Input Tax: No need to allocate input tax for out-of-scope of vat because 100% of it can be used to offset output VAT
But for VAT & Non-VAT businesses, must average input tax on a pro rata basis

Shared input tax: first must be allocated based on to the proportion of business income that falls out-of-scope of vat first. Then the remaining input VAT can be allocated among the VAT & Non-VAT businesses on a pro rata basis, based on the income for the previous fiscal year 

Example of Clause 3/2:

“Company B, a VAT registrant, is engaged in the sale of fresh chicken, both domestically and for export. In 2023, sales can be categorized as: the 7% VAT business (the domestic sale of fresh chicken) with 50% of total revenue, and the 0% VAT business (the export of fresh chicken) with 50% of total revenue. In the May 2024 tax month, Company B had total revenue of Baht 20 million, earned:
- From export sales: Baht 6 million;
- From domestic sales: Baht 10 million; and 
- From the out-of-scope of VAT; i.e., sales in which the products were produced overseas and delivered outside Thailand: Baht 4 million (20% of total revenue). 

Company B had input tax of Baht 1 million, which could not be separated by type of business.

Company B first must allocate 20% (Baht 200,000) of the input tax, in proportion to the income from the out-of-scope of VAT business, and then take the remaining input tax from the allocation of Baht 800,000 and average the input tax based on the percentage of income from the previous year (income in 2023 is calculated at a ratio of 50:50). 

Therefore, Company B had the right to deduct only the average amount of the input tax based on the percentage of income from the VAT business of Baht 400,000 to offset against the output tax when calculating VAT for the May 2024 tax month.

Conclusion

- Baht 200,000 (1,000,000 x 20%) is the input tax (from out-of-scope of VAT) that CANNOT be claimed as offset against output tax.
- Baht 800,000 is the remaining input tax that must be allocated to average the input tax based on the percentage of income for the previous year (i.e., income in 2023 was calculated at a ratio of 50:50). 
- Therefore, Baht 400,000 (800,000 x 50%) was the input tax for the Non-VAT business that CANNOT be claimed as offset against output tax.
- Only Baht 400,000 (800,000 x 50%) in input tax (VAT) CAN be claimed as offset against output tax for the relevant tax month.