The Revenue Department introduced new regulations to clarify VAT calculation methods for organizations that are engaged in both VAT-liable and exempt activities.
The government has recently made amendments to VAT-related regulations mainly affecting businesses engaged in the export and import industry. Value-added tax (VAT) plays a crucial role in Thailand’s tax structure. VAT is imposed on the sale of goods and services at a standard rate of 7%. Certain goods and services including healthcare, educational services, agricultural products, and exported goods are exempt from VAT in Thailand. Businesses must classify transactions accurately to apply VAT correctly and ensure compliance.
When a business engages in both VAT-liable, VAT-exempt, and non-VAT-liable activities, such as domestic sales, export sales, or transactions outside Thailand, it becomes essential to consider VAT apportionment. VAT apportionment ensures that businesses deduct VAT only on expenses related to taxable activities. It also ensures proper treatment of input VAT for exempt and non-VAT-liable transactions.
New Regulations Clarify VAT Allocation Across Different Tax Categories
On the 5th of February 2025, the Revenue Department issued Order No. P.164/2568, introducing new VAT apportionment rules. These changes affect businesses with VAT-liable, non-VAT-liable, and VAT-exempt revenue streams. The amendments clarify how to allocate input VAT across different tax categories to prevent improper deductions. Businesses that are engaged in domestic and international sales must now take a structured approach to VAT apportionment to ensure compliance and accurate tax reporting.
Previously, businesses were not given clear guidelines on how to allocate input VAT for non-VAT-liable activities (e.g., offshore sales). This lack of clarity sometimes led to incorrect or inconsistent deductions. The new rules now provide a clear and structured method for VAT allocation. Businesses must follow these guidelines to ensure that input VAT is deducted only for taxable activities, preventing excessive or incorrect claims.
As per the new regulation, businesses engaged in both VAT-liable, VAT-exempt, and non-VAT-liable activities must now follow a structured approach to input VAT allocation:
Step 1: Identify and separate the portion of input VAT related to non-VAT-liable revenue (e.g., transactions that happened outside Thailand).
Step 2: Remove the input VAT related to non-VAT-liable revenue before allocating the remaining input VAT. This amount is ineligible for deduction.
Step 3: Deduct only the remaining portion of input VAT from output VAT, using the revenue ratio from the previous year to allocate VAT between VAT-liable and VAT-exempt activities.
Example of Business with the VAT-liable and Non-VAT-Liable Sales:
A Thai company earns 80% of its revenue from taxable domestic sales and 20% from non-VAT-liable international sales (where ownership transfer occurs entirely overseas). If the company incurs 1,000,000 THB in input VAT, the allocation must be done as follows:
20% (200,000 THB) is linked to non-VAT-liable international sales and must be removed before further VAT calculations.
The remaining 80% (800,000 THB) is related to taxable domestic sales and can be deducted from the output VAT liability.
Example of a Business with VAT-Liable, VAT-Exempt, and Non-VAT-Liable Revenue Streams:
The company operates in multiple tax categories and the previous year (2024) had a revenue ratio of 50:50 between VAT-liable and VAT-exempt sales. In May 2025, the company has the following revenue streams:
60% from domestic VAT-liable sales (6,000,000 THB).
20% from domestic VAT-exempt sales (2,000,000 THB).
20% from non-VAT-liable international sales (2,000,000 THB).
If the company incurs 1,000,000 THB in input VAT, 20% of the input VAT (200,000 THB) related to non-VAT-liable sales must first be removed. After removing the non-VAT-liable portion, the remaining input VAT (800,000 THB) must be further allocated:
50% (400,000 THB) can be deducted as input VAT for taxable sales.
50% (400,000 THB) is related to exempt sales and cannot be deducted.
Implications for Foreign Companies
These regulatory changes significantly impact businesses engaged in international trade, particularly exporters and companies with mixed revenue streams. Companies must now carefully track revenue sources, allocate VAT correctly, and maintain precise records to ensure compliance as incorrect VAT filings could lead to financial penalties and additional audits.
Furthermore, businesses must expect a reduction in VAT credits. This will affect their cash flow, requiring them to revise financial projections accordingly. To maintain profitability, they may need to review pricing strategies or adjust operational plans particularly if they have both domestic and offshore sales. Proactive preparation is essential to manage these changes effectively.
Recommended Steps for Businesses
1) Identify Business Activities
Businesses must clearly identify and classify revenue streams into the following three categories:
VAT-liable (e.g., domestic sales).
VAT-exempt (e.g., healthcare, education, financial services).
Non-VAT-liable (e.g., transactions outside Thailand).
2) Calculate Revenue Split and Apportion VAT
Once revenue categories are identified, businesses must proportionally allocate VAT based on taxable and exempt sales. This ensures that only VAT associated with taxable revenue is claimed for deductions.
3) Maintain Clear Documentation
Proper record-keeping is essential to support VAT claims and ensure compliance. Businesses must keep invoices, contracts, and tax records well-organized to prevent errors and facilitate audits if necessary.
At BizWings, our expert accountants and CPAs are up to date with the latest regulatory changes affecting Thai accounting and taxation standards to ensure full compliance of our clients. Reach out to us at contact@bizwings.co to streamline your accounting to us and focus on your core business in Thailand.
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