Incoterms and Tax: A Commonly Misunderstood Point

Accounting and corporate income tax recognize revenue on the same delivery date under Incoterms, but VAT is based on an entirely different point. Here's the difference, explained with examples.

Businesses engaged in international trade are usually familiar with terms like FOB, CIF, and EXW, the Incoterms that govern how goods are delivered internationally. But many people mistakenly assume that the point at which Incoterms define "delivery" is the same point used to recognize tax liability across the board. In reality, different taxes are triggered at different points.

What Are Incoterms, and What Do They Define?

Incoterms are international trade terms that define three main things between buyer and seller: the point of delivery, the point at which risk transfers from seller to buyer, and who is responsible for costs and customs formalities at each stage. Common terms have different delivery points, for example:

• EXW (Ex Works) the seller delivers the goods at their own factory or warehouse, the earliest possible delivery point.
• FCA (Free Carrier) the seller delivers the goods to the carrier designated by the buyer, at an agreed location.
• FOB / CFR / CIF the seller delivers once the goods have been loaded on board the vessel.
• DAP / DDP the seller delivers when the goods arrive at the destination specified by the buyer.

The Key Point: Accounting and Corporate Income Tax Share the Same Point, But VAT Does Not

This is the point business owners most often get confused about, because these two categories of tax recognize income at clearly different points.

Accounting Revenue = Corporate Income Tax Revenue

These two are based on the same point, because Section 65, second paragraph, of the Revenue Code requires companies to use the "accrual basis" when calculating income for corporate income tax purposes, and this accrual basis is the same principle as the accounting accrual basis. So whenever revenue is recognized in the accounts at the Incoterms delivery point (for example, the date the goods are loaded on board for FOB/CIF/CFR), corporate income tax recognizes revenue at that exact same point.

VAT: A Different Point Entirely

The point at which VAT liability arises for exports is not based on Incoterms or the accounting accrual basis, it follows a separate customs process instead, under Section 78(4)(a) of the Revenue Code, which provides:

For exports, VAT liability arises upon payment of export duty, the posting of a guarantee for export duty, or the arrangement of a guarantor for export duty, except where no export duty is payable or an export duty exemption applies, in which case liability is deemed to arise on the date the export customs declaration is issued under the customs law.

In short, accounting and corporate income tax move together, but VAT follows its own separate customs-based timeline.

So Where Do Incoterms Actually Affect Tax?

Incoterms directly affect both accounting revenue recognition and corporate income tax, because they define the point at which goods are considered delivered and risk transfers to the buyer.

In practice, for exports under FOB, CIF, or CFR terms, the exporter is considered to have delivered the goods to the customer (and can recognize revenue for both accounting and corporate income tax purposes) once the goods have been loaded into the vessel's hold. This is usually taken as the date matching customs Status 0409 (goods-release inspection status), unless a bill of lading (B/L) from the shipping line is available, in which case the B/L date is used as the delivery date instead.

For EXW or FCA terms, where delivery happens earlier (at the factory or an agreed domestic location), the revenue-recognition point for both accounting and corporate tax purposes is correspondingly earlier as well.

Summary of the Difference

A Worked Example

ABC Co., Ltd. sells goods to an overseas customer under CIF terms. The goods are loaded onto the vessel on 20 August (confirmed by a B/L), but the customs process and export duty payment are completed on 22 August.

• For accounting and corporate income tax purposes, the company recognizes revenue from the sale starting 20 August, based on the B/L date, since that is considered the delivery date under CIF terms, both of these use the same date.
• For VAT purposes, liability to pay VAT (even at the 0% export rate) arises on 22 August, the date the export duty was paid, separate from the two items above.

As you can see, the date revenue is recorded (accounting + corporate income tax) and the date VAT liability arises differ by two days. That might seem trivial, but if it happens to straddle a tax month boundary (for example, delivery at month-end but customs clearance completed early the following month), it affects both the accounting/corporate tax period in which revenue is recorded and the VAT period for which Form PP 30 (ภ.พ.30) must be filed correctly, and the two may not line up.

Why This Matters

• Recognizing revenue in the wrong period, for both accounting and corporate income tax purposes. Using the wrong date can make the financial statements inaccurate and affect the net profit calculation for corporate income tax in that accounting period.
• Filing VAT in the wrong month. If you mistakenly assume the VAT liability point follows the same Incoterms date as accounting and record it in the wrong month's output tax report, you could face an additional tax assessment along with surcharges.
• Inconsistent documentation. Tax invoices issued and customs documentation should reference dates that match the correct rule for each type of tax, not simply use the same date across the board without checking.

Summary

Incoterms such as FOB, CIF, and EXW define the point of delivery and the transfer of risk between buyer and seller, which directly affects both accounting revenue recognition and corporate income tax, since both follow the same accrual basis. However, they do not determine the point at which VAT liability arises for exports, since the law bases that on a separate customs process, the date export duty is paid or the date the export customs declaration is issued. Exporters should therefore consider VAT separately from accounting and corporate income tax, to ensure revenue is recorded and tax is filed in the correct period under the actual rules for each. If you are not sure which date applies to your business in a specific case, it is worth consulting an accounting and tax professional to set up the right system.