VAT Compliance alert: New input VAT deduction rules for sales outside of Thailand

Key amendments

Clause 3: Restriction on input tax deduction 

VAT registrants engaged in the sale of goods outside of Thailand are not entitled to deduct input VAT from output VAT when calculating VAT. This restriction is imposed under Section 82/5(6) of the Revenue Code. Previously, businesses making transactions outside the scope of VAT in Thailand could average input VAT for deduction purposes, but this provision has now been repealed by Paw 164.

Clause 3/1: Input VAT allocation for businesses conducting activities that are both subject to VAT and outside the scope of VAT 

Under Paw 89, VAT registrants conducting activities that were both subject to VAT and outside the scope of VAT could utilize 100% of shared input VAT without allocation. However, Paw 164 mandates that input VAT must first be allocated based on the proportion of income from activities outside the scope of VAT, with only the remaining portion available for activities subject to VAT. This change effectively reduces the amount of input VAT that VAT registrants can claim, affecting businesses with mixed operations.

Example  

In the tax month of May, Company A, a VAT registrant, generated sales revenue of THB 16,000,000 from domestic transactions in Thailand. Company A also earned THB 4,000,000 from international sales, where both the sales agreement and delivery took place outside of Thailand, accounting for 20% of the company’s total revenue. Company A had input VAT of THB 1,000,000 that could not be classified by type of business.  

Under Paw 89 

Company A is not required to allocate input VAT, as the full amount is eligible for offset against output VAT.  

Under Paw 164 

Company A must initially allocate 20% of input VAT in proportion to the revenue derived from transactions outside the scope of VAT (THB 200,000). Subsequently, Company A will be entitled to deduct the remaining THB 800,000 from output VAT in its VAT calculation for that tax month. 

Thus, as a result of the change made by Paw 164, Company A loses the right to claim input VAT of THB 200,000.

Clause 3/2: Input VAT allocation for businesses with multiple tax categories (subject to VAT, not subject to VAT, and outside the scope of VAT) 

Under Paw 89, businesses engaged in activities subject to VAT, not subject to VAT*, and outside the scope of VAT could fully deduct input VAT related to transactions outside the scope of VAT, while input VAT for activities subject to VAT and not subject to VAT had to be apportioned on a pro-rated basis. 

Under Paw 164, input VAT must first be allocated in proportion to income from activities outside the scope of VAT, and this portion is unclaimable. Only the remaining balance can be used for businesses subject to VAT and not subject to VAT. This amendment reduces recoverable input VAT for VAT registrants and increases compliance burdens. 

*This refers to VAT-exempt businesses which may or may not be subject to Specific Business Tax. 

Example  

Company A, a VAT registrant, sells fresh chicken, both domestically and internationally. In 2023, its revenue was split evenly between exports (subject to 0% VAT) and domestic sales of fresh chicken meat (exempt from VAT).  

In May 2024, Company A generated: 

• THB 6,000,000 from exports (subject to 0% VAT), 
• THB 10,000,000 from domestic sales of fresh chicken meat (exempt from VAT), and 
• THB 4,000,000 from sales of fresh chicken produced, sold and delivered directly to overseas customers (outside the scope of VAT), accounting for 20% of total revenue. 

During this period, Company A incurred THB 1,000,000 in input VAT, which is initially unallocated.  

Under Paw 89  

Company A does not need to allocate input VAT for transactions outside the scope of VAT since the full amount can be used to offset output VAT. However, for businesses subject to VAT and not subject to VAT, input VAT must be apportioned on a pro-rated basis. 

Under Paw 164 

Company A must initially designate 20% (THB 200,000) of the input VAT corresponding to the revenue generated from the business activities which are outside the scope of VAT. Subsequently, the remaining input VAT of THB 800,000 should be averaged based on the percentage of income from the previous year, with the income for 2023 calculated at a ratio of 50:50. Consequently, Company A was entitled to deduct only the average of input VAT of THB 400,000 calculated from the percentage of income to be set off against output VAT for the May 2024 VAT calculation.  

Impact of the change on businesses  

This change imposes stricter input VAT allocation rules, reducing businesses’ ability to recover VAT fully for mixed transactions. Companies engaged in international trade or operating across multiple tax categories must now evaluate their VAT reporting and allocation methods carefully to ensure compliance. To mitigate potential financial impacts, businesses should review their accounting systems and consider seeking professional tax advice.  

In addition, we would like to point out that Paw 164 takes effect immediately. We assume that this will affect tax filings starting from the February 2025 tax period onwards. However, it is not retroactive, meaning it does not apply to tax periods before February 2025.