Input VAT allocation is the process of splitting input VAT on goods or services that are used for both VATable activities and activities that are not subject to VAT.
Let’s start by sorting revenue into the main VAT categories
• VATable activities: this includes activities taxed at 0%, such as exports.
• Activities not subject to VAT: this includes VAT-exempt activities, such as certain agricultural products, as well as activities subject to Specific Business Tax (SBT).
• Out of VAT Scope: revenue from sales or services arising outside Thailand under Section 77/2 of the Revenue Code.
Special treatment: small businesses (SMEs) with annual revenue of no more than THB 1.8 million are generally not required to register for VAT or pay VAT, unless they choose to register voluntarily.
| Revenue category | Example | P.P.30 VAT return | Input VAT treatment |
| 1. Revenue subject to VAT at the standard rate | Sales of goods / provision of services in Thailand | Include | Related input VAT is deductible, subject to the applicable conditions. |
| 2. Revenue subject to VAT at 0% | Export of goods; services performed in Thailand and used overseas, subject to the conditions | Include | Related input VAT is deductible, subject to the applicable conditions. |
| 3. VAT-exempt revenue | Certain agricultural products, education, healthcare, domestic transportation | Include | Related input VAT is not deductible; common input VAT must be allocated. |
| 4. Revenue subject to Specific Business Tax | Interest from banking-like activities; sale of real estate in a commercial or profit-seeking manner | Do not include | Treated as “not subject to VAT” under Notification No. 29. |
| 5. Revenue outside the VAT scope | Goods purchased and delivered overseas, or services performed and used overseas | Do not include | Treated as “not subject to VAT” under Notification No. 29. |
Who needs to allocate input VAT?
The following key conditions need to be met.
| Condition | What it means |
| The business is VAT-registered | Section 82/6 applies to VAT-registered operators. |
| The business has both types of activities | It carries on VATable activities and activities that are not subject to VAT. |
| There is input VAT on shared goods or services | For example, rent, utilities, or central administration costs. |
| The use cannot be clearly separated | If the use can be identified, direct attribution should be applied first. |
| A new building is constructed for taxable and non-taxable uses | Under Notification No. 29, Clause 5, the allocation is based on floor area rather than revenue. |
How many input VAT allocation methods are there?
For practical purposes, the rules in Notification No. 29 can be grouped into three main approaches. The phrase “three methods” is simply a convenient way to explain the rules; it is not a formal definition used in the Notification itself.
Method 1: Direct attribution of input VAT
Use this when the business can demonstrate that an expense relates specifically to one type of activity.
Examples:
• Raw materials for VATable goods
• Advertising specifically for VATable products
• Warehouse rent for a warehouse used only to store VATable goods
• Machinery used on a production line that produces only VATable goods
These cases are not really “input VAT allocation.” They are direct attribution of input VAT under Notification No. 29, Clause 1.
Method 2: Allocation based on the revenue ratio
This is used for common input VAT that supports both types of activities and cannot be clearly separated. Typical examples include:
• Head-office rent
• Electricity for common areas
• Accounting system and ERP costs
• Audit fees
• Consulting fees for services provided across the whole company
• Corporate brand advertising
The main rules are set out in Notification No. 29, Clause 2. In simple terms, the revenue ratio is applied as follows:
✓ Start-up year (before any revenue is generated): use the ratio based on the “estimated revenue” expected from each type of activity.
✓ First year in which revenue is generated: use the ratio based on “actual revenue” generated during that year, or adjust it at year-end based on the actual revenue figures.
✓ Normal years (from the year after revenue first starts): use the ratio based on the “actual revenue of the previous year.” No retrospective adjustment of prior input VAT is required.
Method 3: Allocate construction input VAT by floor area
This method applies when input VAT arises from constructing a building that will be used for both:
• the business’s own VATable activities; and
• other purposes.
In this situation, the floor-area ratio — not the revenue ratio — must be used under Notification No. 29, Clause 5.
For example, assume a 10,000 sq.m. building consists of:
• a 6,000 sq.m. factory producing VATable goods; and
• 4,000 sq.m. of rental space that is VAT-exempt.
If the actual use of the space meets the conditions in Clause 5, the initial portion of construction input VAT attributable to the VATable activity is 60%.
A simple way to look at the formula
| VAT activity ratio = Revenue from VATable activities ÷ (Revenue from VATable activities + Revenue from non-VAT activities − Revenue outside the VAT scope) Deductible input VAT = Common input VAT × VAT activity ratio |
Worked example
Company A earns THB 6,000,000 from goods subject to 7% VAT and THB 4,000,000 from VAT-exempt goods. It also has THB 100,000 of common input VAT that cannot be separately identified.
• VATable activity ratio = 6,000,000 ÷ 10,000,000 = 60%
• Deductible input VAT = 100,000 × 60% = THB 60,000
• Non-deductible portion = THB 40,000. This amount is included in the cost of the asset or treated as an expense, depending on the nature of the item.
The 90% rule is an option, not an automatic rule
This is one of the choices businesses often overlook.
| Previous-year revenue ratio | Optional treatment | Result |
| VATable activities ≥ 90% | Deduct all common input VAT | The amount must not be included in cost or expenses. |
| VAT-exempt activities ≥ 90% | Do not deduct any common input VAT | Include it in the cost of assets or expenses. |
| Both sides are below 90% | Allocate based on the revenue ratio | There is no all-or-nothing option. |
Important point: once a method is chosen, it must be applied consistently unless the Director-General of the Revenue Department approves a change.
Common mistakes businesses make
○ Allocating every input VAT invoice even when some invoices can clearly be linked to a specific activity.
○ Using “profit” as the allocation basis even though the law requires “revenue.”
○ Forgetting that 0% VAT activities are still VATable activities.
○ Assuming the 90% threshold applies automatically, even though it is an “option” and must be applied consistently once chosen.
○ Including every type of revenue in the allocation base. Under Notification No. 29, Clause 4, second paragraph, certain revenue is excluded from the input VAT allocation base, such as returns from bank deposits, bonds or securities, and interest on loans between companies in the same group.
Quick checklist for business owners
| Check in this order | Answer |
| Do you have both VATable and non-VAT activities? | If not, the allocation rule under Section 82/6 does not apply. |
| Can the use of the input VAT be identified separately? | If yes, attribute it directly to that activity. |
| Is the input VAT shared and impossible to separate? | Allocate it based on the revenue ratio. |
| Does either activity reach the 90% revenue threshold? | Check the optional treatment under Notification No. 29, Clause 3. |
| Is the cost related to building construction? | Use the specific rule under Notification No. 29, Clause 5 — not the general revenue formula. |
Relevant laws and guidance
• Revenue Code Section 77/2 — scope of VAT activities
• Sections 80 and 80/1 — standard-rate VAT and 0% VAT
• Sections 81 and 81/1 — VAT-exempt activities
• Sections 82/5 and 82/6 — prohibited input VAT and input VAT allocation
• Section 91/2 — activities subject to Specific Business Tax
• Director-General’s Notification No. 29 — input VAT allocation
• Revenue Department ruling กค 0706/พ./5030 — use of the previous-year revenue ratio, the 90% threshold, and securities income
• Revenue Department ruling กค 0811/พ.02099 — option to allocate using previous-year revenue and adjustment based on actual revenue
• Revenue Department ruling กค 0702/พ.3519 — VAT treatment for approval to allocate input VAT arising from building construction