Foreign digital companies no longer beyond the reach of Thai authorities amid additional regulations on onshore and offshore platforms

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As much of the world continues to work from home due to recurring COVID-19 restrictions, software as a service, as well as online digital service platforms (cloud services and streaming platforms) have found their way. in daily business life. and schools. As a result, digital platforms have grown tremendously over the past year, with some of them becoming household names, such as Zoom. The fact that many of these companies have tax-efficient offshore facilities has prompted regulators around the world to introduce legislation to tax these entities, and Thai regulators are joining 60 other countries implementing a ‘digital tax’.

In an update released earlier this year, we discussed how the Tax Code amendments will require foreign companies providing digital services in Thailand to pay 7% VAT if they report annual income from Thailand. over 1.8 million THB (around 60,000 USD). If a digital platform employs less than five people and reports sales of less than THB 1.8 million, it may fall under the small business exemption. This means that the large overseas-based digital platforms, namely Google, Line, Netflix, Facebook, Zoom and Apple, will be required to pay 7% VAT on any income received or payment made from September 1, 2021, effective date of the changes.

This also means that tax reporting obligations will begin from the tax month of September 2021, with the first deadline falling on October 25, 2021. The main amendments to the Tax Code also include an obligation for digital platform operators to overseas to remit the VAT due on the basis of income to the Revenue Department. In particular, operators of digital platforms abroad cannot offset their VAT by the costs incurred in their operations because they are located outside the country. In addition, VAT taxpayers will now be able to directly receive an official VAT invoice and apply VAT payments and credits to their accounts, reducing the time normally required for this process.

According to the director general of the revenue department, Ekniti Nitithanprapas, 20 large foreign operators have expressed their intention to register as VAT taxpayers in Thailand before the regulations come into force soon. As mentioned earlier this year, VAT registrations and submissions can be done online through the Ministry of Finance website, although it may be advisable to assign a Thai employee or agent based in Thailand to report the VAT on behalf of the company, as the website is currently only available in Thai.

As the entry into force of this regulation draws closer, it is essential that businesses that fall under the definition of an overseas digital platform provider are prepared to comply with the provisions of the Amendments.

Other regulations to be enacted

The amendment to the Tax Code is not the only regulatory change that foreign digital service providers should be aware of. According to the Electronic Transactions Development Agency (“EDTA”), a draft royal decree on the regulation of digital platforms is underway. It will apply to digital platform operators who directly offer goods and services to customers in Thailand or act as intermediaries between buyers and sellers, whether or not 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 via a computer network, whether an agreement is concluded or not digitally. While the definition can be considered broad, ETDA provided several examples in a public hearing, including global commercial digital markets like Amazon, internet search engines like 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 comply with under the draft decree will largely depend on the size and level of risk associated with the platform operator. Although the draft decree does not provide specific definitions and provisions, it will generally subject large-scale digital platforms to several requirements, including controls over terms and conditions, service charges and prices, as well as other expenses to ensure transparency and fairness. The draft decree should also contain provisions on the listing or valuation of goods or services, feedback mechanisms, dispute mediation, advertisements, product reviews and opt-out mechanisms. More importantly, the draft decree also addresses the use of personal data and the verification of the user’s identity.

It should also be noted that, just like the amendment to the Tax Code, the draft royal decree will have extraterritorial applicability, meaning that digital platforms based abroad will still be subject to future regulation if they offer services to clients based in Thailand. Even if the provision of services to customers based in Thailand is not explicitly stated, display content in whole or in part in the Thai language, register under the top level domain of “.th”, offer payments in baht Thai, issuing invoices in Thailand- customers based and / or having local persons or entities providing support services in Thailand would subject companies to the provisions of the draft decree. If they have not already done so, foreign digital platforms would also be required to appoint a local representative in writing, giving the representative the power to inform the authorities of the functioning of the website or platform. This is one area where Silk Legal can help you.

In terms of penalties and responsibilities, the draft decree should punish those who fail to comply with its provisions with a prison term of up to one year and / or a fine of up to THB 100,000. . Violators will also be subject to penalties for violating other relevant laws prescribed by the Electronic Transactions Commission or ETDA, with officials having the power to prohibit operators from providing services until they comply. fully to the requirements.

Conclusion

While the changes to the Tax Code are expected to be promulgated on September 1, 2021, the draft decree is still under review and was recently announced at a public hearing that took place on July 15, 2021. Comments from participants to the public hearing should be submitted to the Electronic Transactions Commission to help it finalize the decree.

Nevertheless, questions remain as to how the provisions of the decree will be applied and how cross-border mechanisms will be put in place to ensure compliance with the forthcoming regulation. EDTA should also explore ways to ensure compliance with existing laws in order to avoid conflicts with the mandates and regulations of other governing bodies. Nevertheless, it is prudent for digital platform operators abroad to review their internal policies with legal experts in this field in anticipation of the application of these regulations.


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