Seven requirements for e-commerce businesses in Thailand
New: Foreign VAT registration. See below at #6
Thailand’s conquest of cyberspace
Thailand is open for e-commerce business. However, many requirements have to be fulfilled. The law firm offers a comprehensive consultancy and support to avoid that the one or other legal aspect is misunderstood or forgotten.
Under the laws of Thailand, electronic commerce is defined as the dispatch and/or receipt of a data message by electronic means to conclude a commercial transaction. The most common form of e-commerce is the online trading of goods and services. It can be separated from business to business (B2B), business to consumer (B2C) and business to government (B2G) transactions, for retail and wholesale, the accommodation industry, manufacturing, information and communication, insurance, arts, entertainment and leisure, and other services.
The digital storm has already arrived: Thailand is deemed to be the fastest growing e-commerce market in Southeast Asia. Following Indonesia, Thailand contains the second biggest economy in the Southeast Asia region, and also ranks second in e-Commerce sales.The cashless e-commerce boom is predicted to disrupt Asia’s retail market. Key market trends are mobile and social commerce (m-commerce).
The top Thai e-commerce websites are Lazada, 11Street, WeloveShopping, Alibaba, Tarad, Zalora, Ensogo, Cdiscount, J.I.B., Central.co.th, iTrueMart and Munkong Gadget.
However, there are still lots of new opportunities for domestic start-ups and foreign entrepreneurs to participate in the Internet economy. According to the Electronic Transactions Development Agency, the e-commerce market in Thailand will reach THB 2.5 trillion in 2016.
Seven legal requirements and implications
As part of the digital economy push, Thailand provides an attractive investment climate for e-commerce, but the legal environment and hurdles have to be carefully taken into consideration. This is true particularly with respect to these aspects:
#1. Corporate structure: In practice, the foreign venture is set-up as a Company Limited (Co., Ltd.). The business has to be properly registered as a business “by electronic media via Internet system”. Details on the corporate structuring at “Company formation in Thailand“.
#2. e-license: A special e-commerce business license has to be applied within 30 days after the business starts. A website or social media page might already qualify as e-commerce if it specifies pricing and payment procedures.
Any organization that handles payment by credit card over a website has to be compliant to specific security requirements. As we experience, Thailand’s central bank (Bank of Thailand) is enforcing increasingly tighter controls on e-commerce providers, to ensure that they are compliant.
#3. OCPB registration: Under the Direct Sales and Direct Marketing Act, certain e-commerce ventures might have, as the case may be, to be registered with the Office of the Consumer Protection Board (OCPB) as a so-called direct sale business.
Whether there is an exemption from this registration requirement if the website is not focussed on customers in Thailand, should be carefully examined. This is also important concerning the consumer rights under the laws in Thailand.
#4. Foreign Business License: E-commerce businesses in Thailand with a foreign majority shareholder need a Foreign Business License. The Foreign Business Act provides for an exception if either retail business or wholesale business is done with a company with a registered share capital of THB 100 million or more. If the enterprise carries out a combination of retail and wholesale business the required equity amounts THB 200 million.
E-marketplaces are BOI-promoted under Section 5.8 in the category Electronics and Electrical Appliances Industry. On such online marketplace products or services are provided by multiple third parties. By processing these transactions, the marketplace operator generates income from Internet transactions (sales, services, commissions, advertisements). The BOI investment promotion does not provide tax holidays and no merit-based incentives but allows 100% foreign shareholding and land ownership in order to carry on the promoted activity as well as other non-tax incentives.
(The promotion would be more beneficial in case of “software development”, but that requires (i) income from selling of software or application’s plus (ii) compliance with BOI’s software development procedures.)
#5. Legal compliance: To carry out e-commerce to customers in Thailand requires that civil and commercial agreements are properly agreed under the Electronic Transactions Act (ETA), the Consumers Protection Act and Thailand’s Civil & Commercial Code.
Under Thailand’s new Computer Crime Act, computer-related crimes can be punished with imprisonment of up to five years or a fine. In addition, the Penal Code is applicable, especially its provisions regarding electronic payments in cyberspace.
#6. Taxation: Customers for Thailand’s e-commerce can be found all over the world. Payment systems are typically located abroad. Tax advantages and lower regulated jurisdictions can be found outside of Thailand as well. A cross-border e-commerce solution has, therefore, attractive benefits.
However, the adjustment of Thailand’s legislation, regulatory framework, and tax system with business activities abroad needs a careful analysis and the knowledge of foreign legal regimes and industry practices.
It makes sense to implement an e-commerce business venture not limited to Thailand but for a broader audience. An affiliated company in an offshore jurisdiction can help to create a tax efficient and most profitable business solution.
Sales and services are subject to 7% VAT. Under the Thai tax system, the e-commerce operator has to collect the VAT amount and must issue a receipt/tax invoice to the customer. Export sales and export services have “generally” a zero percent VAT rate. However, formal requirements like the customs clearance document and certain legal requirements make it hard to take advantage of the 0% tax rate.
Update 17/07/18: The Thai cabinet approved the new e-commerce VAT legislation. Under the amended Revenue Code, foreign-based digital platform operators providing services, including online games, sticker downloads, online advertisements, digital content and online hotel bookings to Thai consumers will soon be liable for VAT. The registration has to be done within 30 days after the law is effective. Business expenses of local operators from buying products or services from these foreign entities without VAT are not tax deductible in Thailand.
#7. Visa/Work permit: A foreigner working online while being physically in Thailand needs a work permit. The standard rules and regulations apply without privileges for online workers who are focussed on non-Thai customers or the foreign headquarters as the only client. “Just doing things discreetly” is pragmatic, but is not – and has never been – a legal solution.
PUGNATORIUS Ltd. is a Bangkok-headquartered specialist provider of bespoke transactional legal and tax advice in the corporate and property legal and taxation industry sectors.
The law firm guides e-commerce businesses through the hurdles of Thailand’s laws and regulations, the application processes as well as the sophisticated design and implementation of sale and purchase agreements and payment methods.
PUGNATORIUS has an extensive know-how regarding the cross-border tax structuring of e-commerce businesses, particularly with regard to European VAT regulations. A proper tax planning is essential to avoid future discussions and unnecessary tax payments.