Tax Incentives for ROH, IHQ, and ITC Cancelled

Keywords: Mazars, Thailand, Tax, ROH, IHQ, ITC, IBC, Corporate Income Tax, Personal Income Tax, Revenue Department, Government Gazette

4 April 2019

In our technical update for January 2019, we reported that several Royal Decrees were published in the Government Gazette on 28 December 2018. The gist of these Royal Decrees was that tax incentives and tax privileges would be provided to an IHQ, an ROH, and an ITC which had submitted an application and obtained approval from the Director-General by 10 October 2018.

However, without any advance notice from the government, the Thai Cabinet approved three Royal Decrees on 26 March 2019 cancelling all tax incentives provided under the ROH, IHQ, and ITC regimes, effective 1 June 2019 for corporate income tax incentives, and effective 1 January 2020 for personal income tax incentives. As a result of these decrees, the following tax incentives for ROH, IHQ, and ITC regimes will be cancelled:

Cancelled as of 1 June 2019

• The reduction in the corporate income tax rate and the exemption from corporate tax for income from the provision of services to affiliated companies, as well as for interest, royalties, and dividends received from affiliated companies;
• The exemption from corporate income tax for gains derived from the disposal of shares in affiliated companies;
• The reduction in the corporate income tax rate and the exemption from corporate tax on income from trading activities and the provision of services related to international trade;
• The exemption from withholding tax on interest paid by the Treasury Centre to the foreign affiliate; and
• The exemption from withholding tax for dividends paid to foreign shareholders, except for dividends paid out of profits derived before 1 June 2019, provided that the dividends are paid by 31 December 2020.

Cancelled as of 1 January 2020

The reduction in the personal income tax rate applicable to foreigners working in ROH 2010, IHQ, or ITC entities.

Entities currently operating under the ROH, IHQ, or ITC regimes can switch to the new International Business Centre (IBC) regime if they meet the conditions. In our technical update for January 2019, we set out the tax privileges and conditions for the new IBC.

However, it is currently not possible to apply to become an IBC. The Revenue Department plans to open online applications for the new IBC regime sometime this month (April 2019), which leaves potential applicants a very short amount of time in which to prepare and submit their applications to transition to the new IBC regime before 1 June 2019. 

Although the government has announced that it will enact various laws and regulations clarifying issues related to the new IBC regime, the Ministry of Finance has not yet announced when that will occur.

While this sudden termination of all tax incentives comes as a surprise, it also shows quite clearly that the Thai government takes seriously the Inclusive Framework on Base Erosion and Profit Shifting (BEPS), which Thailand joined in 2017, and that Thailand is committed to implementing the minimum BEPS standards, including Action 5 on Harmful Tax Practices, and that Thailand is eager to avoid being labelled a tax haven and being blacklisted as a result.

In addition, as it appears that the Thai government is seeking to end harmful tax practices, the question arises: What approach will it take in regard to many other tax incentives still applicable, including those offered by the Board of Investment, which include an eight-year tax holiday?

We will continue to keep you informed of any further developments in regard to Thai tax issues.