Thai Law Insights

Caution when choosing shipping agents! Carelessness may cause huge damages!

Nathawadee Thanasiri

Under Thai law, temporary imported goods intended for exhibition of a public character in Thailand and to be re-exported within 6 months from the date of importation are exempt from paying duty fees in accordance with Part IV Category 3 (Chor) of The Customs Tariff Royal Decree of 1987 and are also exempt from VAT in accordance with Section 81 (2) (Kor) of the Thai Revenue Code ("TRC").

Operator who wishes to temporarily import goods for such purposes must enter into a bond contract with the Customs Department to ensure that such goods are re-exported within a specific time. The operator may additionally have to place the security against the customs tariffs with the Customs Department at the sole discretion of the Director-General of the Customs Department. If there is no breach of contract executed with the Customs Department and the goods are re-exported within the stipulated time period, then the security would be returned.

Under normal business practices, the shipping agent is usually the party that declares imported goods at the Customs Department checkpoint. Choosing a knowledgeable shipping agent is important because if the shipping agent declares the imported goods under the wrong category then it may massively result in a loss of benefit of the operator.

A prime example of this is the scenario where goods are imported into Thailand for exhibition at trade shows. These imported goods are exempt from both import duties and VAT per the abovementioned reasons. If the Customs official demands payment of VAT and states that a VAT refund can be claimed at a later date, experienced and knowledgeable shipping agents should negotiate with the Customs official by not complying with the official's instructions. The operator should instead request to make a bond contract with the Customs Department and place a security to ensure that the imported goods would be returned in a specific period. Security placement is more favorable approach to the operator than paying VAT per the official's instruction.

Further, VAT payment per the official's instructions despite being exempt from VAT system is considered as prohibited input tax meaning that if the operator use this prohibited input tax for tax credit, the operator may be fined in the huge amount of the deficient output tax or excess input tax in accordance with Section 89 (4) of TRC.

We can clearly see that it is extremely important to hire a knowledgeable and capable shipping agent because not doing so can result in a large number of adverse consequences. Despite such VAT payment being refundable as the imported goods are exempt from VAT, the process for VAT refund is time consuming. In addition to this, requesting such VAT refund also draws attention to the company and increases the risk that the Revenue Department may conduct a time consuming and unnecessary tax inspection on the entire business operation.