Seven requirements for e-commerce businesses in Thailand
Ecommerce – Thailand’s conquest of cyberspace
Starting on Sept 1, 2021, overseas businesses providing online services in Thailand will be required to register for the 7% value-added tax (VAT) liability if their annual income exceeds THB 1.8 million (roughly US$ 60,000 p.a.). Overseas e-service businesses must register at the Thailand Revenue Department to submit their VAT filing and remit a monthly VAT payment to the tax authorities. The process is available under a pay-only system without having to prepare tax invoices and input tax reports. Ask the Bangkok investment law firm PUGNATORIUS Ltd. for support and assistance to get the registration and regular filings done!
Thailand is open to e-commerce business. However, many requirements have to be fulfilled. The Bangkok law firm offers a comprehensive consultancy and support to avoid that the one or other legal aspect is misunderstood or forgotten.
Classification of ecommerce: 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 between 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. Social commerce through Instagram and Facebook, as well as activities on Craigslist and eBay, are classified to be Consumer-to-Consumer (C2C). Direct-to-customer (DTC) strategies cover other fields of conversational commerce.
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). Vertical e-commerce and horizontal ecommerce websites have their particular characteristics.
Seven legal requirements and implications for Thailand’s e-commerce industries
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 in Thailand as a business “by electronic media via Internet system”.
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 to THB 200 million.
BOI investment promotion: E-marketplaces are BOI-promoted under Section 5.8 in the category Electronics and Electrical Appliances Industry. On such an 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 neither provides tax holidays nor 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 BOI 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.
#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 with 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 focused on customers in Thailand, should be carefully examined. This is also important concerning consumer rights under Thailand’s consumer protection legislation.
E-Payment law: Under the new e-payment law, each financial institution will be required to report transactions of customer accounts that receive either more than 3,000 money transfers a year or at least 400 money transfers with a total value of at least THB 2 million a year to Thailand’s Revenue Department.
#4. Payment systems have specific compliance requirements. The Use of PromptPay enables digital payments with a mobile phone number or a Thai ID card number. Standardized QR codes allow interoperable money transfer across financial service providers and platforms, whether Visa, Mastercard, or UnionPay. Other payment systems include Alipay, Applepay, and cryptocurrencies like Bitcoin or Dash.
#5. Legal compliance: To carry out e-commerce to customers in Thailand requires that civil and commercial agreements are properly agreed upon under the Electronic Transactions Act (ETA), the Consumers Protection Act, and Thailand’s Civil & Commercial Code. The Electronic Transactions Development Agency (ETDA) of the Ministry of Digital Economy and Society is the watchdog and consumer central point of contact. Consumer protection involves organizations such as the Office of the National Broadcasting and Telecommunications Commission, the Food and Drug Administration, the Thai Industrial Standards Institute, the Consumer Protection Police Division, the Technology Crime Suppression Division, and consumer protection civil groups. 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.
VAT: 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.
E-Business Tax Law: Under the new e-business tax legislation, foreign-based online platform operators earning income in Thailand that generate annual sales of more than THB 1.8 million from Thai businesses are required to register for VAT payment and are subject to 7% VAT. This includes online games, sticker downloads, online ads, digital content, and online hotel bookings.
#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 focused 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.
Turnkey e-business formation: The law firm offers a complete establishment of the e-commerce business at a flat price.
Tax planning: PUGNATORIUS has extensive know-how regarding the cross-border tax structuring of e-commerce businesses, particularly with regard to European VAT regulations. Proper tax planning is essential to avoid future discussions and unnecessary tax payments.
Top Thai e-commerce websites are Lazada, 11Street, WeloveShopping, Alibaba, Tarad, Zalora, Ensogo, Cdiscount, J.I.B., Central.co.th, iTrueMart and Munkong Gadget, 11street, HomePro, Central. and JD Central, Se-ed, Power Buy, Advice, Chilindo, JIB, Shopee Thailand, Shopify Thailand, Tesco Lotus and Big C, Kaidee, PantipMarket. Electronic Transactions Development Agency (ETDA), Electronic Government Agency (EGA), Ministry of Digital Economy and Society, Office of Small and Medium Enterprise Promotion, Ministry of Commerce, Ministry of Industry, and Ministry of Finance. Thai E-Commerce Association (TECA), Thailand E-Logistic Association (TELA), Thailand E-Payment Association (TEPA).