The money you receive for your goods or services as a deposit is not an income per Thai accounting law. A deposit received is treated as a liability on your books because it is an unearned income. Once you have delivered the goods or rendered the services, the deposit amount has become “earned”. Thus, it will be moved from being a liability in the statement of financial position to income in the profit and loss statement. However, per tax laws, the value added tax incurs when you receive money or when you deliver goods, whichever comes first. When you receive a deposit, you need to issue a tax invoice and submit the output VAT on the deposit in the VAT return of the month that you receive the deposit.
Deposits received is a reason why your total income reported in the accounts is different from the total income reported in the VAT returns throughout the accounting period. After you close the year’s accounts, your accountant should prepare a reconciliation of the revenues per books against the total revenues reported in the VAT returns of the same period. The Thai Revenue Department may ask to see it.
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In Thailand, when a VAT registered company is in the business of selling goods (wholesale or retail), the value added tax (VAT) point occurs when you deliver the goods or when you get paid whichever comes first. VAT point determines when to issue a tax invoice. For more clarification:
When you deliver goods, even when you have not received payment, you need to issue a tax invoice.
If a customer just makes a deposit, though you have not delivered the goods, you need to give them a tax invoice (and a receipt) for the amount you got.
Now, for service businesses, when to issue a tax invoice? The VAT point occurs when you receive payment, whether or not you have rendered the service. So make sure you issue a tax invoice and a receipt for the amount of money you receive. If you just send an invoice to your client asking them to pay you, you don’t have to prepare a tax invoice yet.
Please note that not everyone can register in the VAT system. Some business activities are exempt from VAT. Others can register in the system, but if they have not reached Baht 1.8 M in gross sales, they may choose not to be in the VAT system yet.
If an individual or a company is not registered in the VAT system, they cannot issue a tax invoice and they cannot claim the 7% VAT they pay to vendors.
Contact MSNA Group for tax planning, accounting and tax compliance services.