Legal requirements for e-commerce businesses in Thailand
Thailand is open for e-commerce business. However, many requirements have to be fulfilled. Ask us for a comprehensive consultancy offer to avoid that the one or other legal aspect is forgotten.
Thailand’s conquest of cyberspace
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. 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.
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. In practice, the foreign venture is set-up as a Company Limited (Co., Ltd.). The business has to be properly registered as business “by electronic media via Internet system”.
2. 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. 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. 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.
5. 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.
6. 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.)
7. 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.
8. 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.
Tax e-invoicing and taxation of e-commerce
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.
Sales and services made by an e-commerce business with a location outside of Thailand might be subject to Thai VAT as well if the goods are delivered into Thailand. However, if the foreign business is not registered for VAT in Thailand, the buyer might be responsible for the VAT payment himself. While VAT on goods can be collected when the goods arrive in Thailand, it’s hard to collect VAT on transactions involving digital products. Whether this results in a legal or just a factual gap in Thailand’s VAT system, is another question.
Thailand’s government seems to start sooner or later an initiative to tax (i) foreign e-commerce to Thailand (F2T), (ii) Thai e-commerce to abroad (T2F) as well as (iii) domestic e-commerce (T2T). The main focus is income taxation, VAT, Excise Tax and customs duties. The taxes could be collected from the foreign or Thai buyer, the foreign or Thai seller or the financial institutions involved. The foreign business either qualifies under the laws as “carrying on business in Thailand” or not.
Fun fact: Under the Thai Revenue Ruling as of September 25, 2006, a tax invoice has to be printed out by the operator and delivered as a paper version to a customer. A pdf to be printed out by the customer himself is not sufficient – although there is no requirement for a real signature and/or company seal on such document.
However, in a Notification of the Revenue Department dated January 23, 2012, the digital sending, receiving and storage of tax invoices had been allowed and since then e-invoicing is possible if very restrictive conditions are met.
Another aspect is the potential tax liability of Thai e-commerce businesses for sales and services abroad, which triggers foreign VAT payment obligations. Delivering to e.g. Ireland with a standard VAT rate of currently 23% might result in an expensive surprise if the tax implications and requirements are simply ignored.
How to connect and combine with offshore opportunities
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.
Experienced professional advice
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.