Update on International Business Centre

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

3 June 2019

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.

On 2 May 2019, Notification of the Director-General of the Revenue Department No. 13 (“the Notification”) was announced to specify the rules, procedures, and conditions for reducing the corporate income tax rate and setting out the exemption from corporate income tax and specific business tax for an IBC. Those rules, procedures, and conditions are summarized below.

Applying to be an IBC

To be approved as an IBC, a company must submit an application to the Director-General of the Revenue Department, as set out in the Notification, specifying the type of business for which it will request tax incentives. Supporting documents, such as a business plan, details of domestic and foreign affiliates, and details of expatriates requesting a reduction in the personal income tax rate, must be submitted together with the application.

Required activity of an IBC

In order to be entitled to a reduction in its income tax rate and an exemption from income tax and specific business tax, the IBC must perform the following economic or business activities in Thailand:

• Administrative services, technical services, or support services

Certain activities that generate the IBC’s main income as a head office must take place, such as:

- administrative decisions related to affiliates;

- bearing the expenses of a group of companies;

- coordinating economic or business activities of a group of companies; and

- managing shareholding or partnerships in affiliates.

• Cash management services

Certain activities that generate the IBC’s main income as a cash management centre must take place, such as:

- agreeing to loan terms with a lender that is outside the group of companies for extending a loan to affiliates;

- specifying the period and conditions for providing loans to affiliates;

- tracking and improving various agreements; and

- managing risks.

• International trade which has only tax privileges for expatriates

Certain activities that generate the IBC’s main income from international trade must take place, such as:

- the transportation and storage of goods;

- managing inventory and receiving orders; and

- providing consulting or other services related to international trade.

Computation of net profit or loss

The computation of an IBC’s net profit or loss of the IBC must comply with Section 65 bis and Section 65 ter of the Revenue Code, and follow the following procedures:

1. If the IBC conducts both the IBC business and another type of business, the net profit or loss of each business must be computed separately. Any expense which cannot be clearly separated must be allocated in proportion to the income of each business.

The company shall be approved as an IBC only for the business specified in the application effective from the day after the approval date. The IBC may ask to add or subtract activities for its type of business by submitting an application to the Director-General of the Revenue Department, as set out in the Notification.

2. If the IBC has the following IBC-related business income, the IBC must compute the net profit or loss for each type of income separately. Any expense which cannot be clearly separated must be allocated based on each type of income:

- Income from providing administrative, technical, support, or cash management services to an affiliate; and

- Royalty income from an affiliate.

3. If the IBC conducts both an IBC business and another type of business, and has net loss from any business, the net loss must be reported only for that particular business.

4. If the IBC has the following IBC business income, the net loss from any type of income must be reported only for that type of income:

- Income from providing administrative, technical, support, or cash management services to an affiliate; and

- Royalty income from an affiliate.

The IBC must file an annual corporate income tax return together with a balance sheet and profit and loss statement within 150 days from the last day of the accounting period. Details of how the tax incentives were used, as set out in the Notification, must be submitted together with the tax return. A half-year tax return must also be filed within 2 months of the last day of the half-year period of the accounting period.

If the IBC conducts both an IBC-related business and another type of business, the IBC must file a tax return together with a profit and loss statement for each business separately. The balance sheet can be filed together with the tax return of any business. The taxpayer ID number used to file the tax return of each business must be the same.

Personal income tax incentives

• Income that an expatriate employed by an IBC earns shall be subject to a reduced withholding tax rate of 15%. The expatriate can treat the withholding tax as a final tax, and is not required to include such income in his annual personal income tax calculation, provided that the expatriate does not request a refund of this withholding tax or use it (whether in part or in full) as a tax credit.
• An expatriate must meet and comply with the rules, procedures, and conditions set out in the Notification, listed below, in order to qualify for the reduction in the personal income tax rate:

- Must be a permanent employee of an IBC which meets the conditions set out in Royal Decree No. 674, and must work for the following types of businesses:

(i) IBC business

(ii) International trade business

If the IBC conducts other businesses in addition to those listed in points (i) and (ii) above, and the expatriate also  works for those other businesses, the income from the IBC-related business or international trade business, or the total income of both businesses, must not be lower than 70% of the total income of the company.

- Must be listed in the documents setting out details of expatriates requesting a reduction in the personal income tax rate.

- Must stay in Thailand for a total of at least 180 days in a tax year in which he requests a reduction in the personal income tax rate, except the first and last tax years in which the reduction is applied.

- Must obtain a work permit as a skilled person or an expert from the Department of Employment, Ministry of Labour, or be allowed to work in Thailand under the Investment Incentives Act or other acts by the day that he begins working for the IBC.

- Must have average employment income from an IBC of at least 200,000 baht a month, based on the number of months that he stays in Thailand in that tax year.

Converting an ROH or IHQ to an IBC

An ROH or IHQ which wishes to convert to an IBC must submit an application and obtain the approval of the Director-General of the Revenue Department. Such an ROH or IHQ must have operating expenditures related to the IBC business of at least 15 million baht, or have operating expenditures and other expenditures related to the IBC business of at least 60 million baht, whichever is the case, paid to recipients in Thailand in each accounting period in order to qualify for a reduction in the income tax rate and an exemption from income tax and specific business tax. In addition, the ROH or IHQ must meet all of the conditions for being an IBC set out in Royal Decree No. 674.