Update on significant changes to tax incentives

Keywords: Mazars, Thailand, Tax, Royal Decrees, Ministry of Finance, ROH, IHQ, ITC, IBC, Personal income tax, Tax privileges, Corporate income tax

21 February 2019

The main content of those Royal Decrees is set out below:

1. Royal Decree Number 671 states that tax privileges shall be provided to a Regional Operating Headquarters (ROH) which registers by 10 October 2018. For an existing ROH, incentives can be used until an accounting period commencing on or after 1 January 2020, but not later than 31 December 2020.

2. Royal Decree Number 672 states that tax incentives shall be provided to an International Headquarters (IHQ) which submits an application and obtains approval from the Director-General by 10 October 2018.              

3. Royal Decree Number 673 states that tax incentives shall be provided to an International Trading Centre (ITC) which submits an application and obtains approval from the Director-General by 10 October 2018. 

4. Royal Decree Number 674 sets out tax privileges and conditions for an International Business Centre (IBC) which are summarized below:

Tax privileges

1. Personal income tax

• Income derived by an expatriate who is employed by an IBC shall be subject to withholding tax at a reduced rate of 15%. The expatriate can treat such 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 want to 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 prescribed by the Director-General in order for this reduced rate to be applied.

2. Corporate income tax

• An IBC’s net profit shall be subject to a reduced corporate income tax rate, as follows:
  • Eight per cent of the IBC’s net profit if the IBC makes expenditures of at least 60 million baht to recipients in Thailand in each accounting period
  • Five per cent of net profit for IBC’s income if the IBC makes expenditures of at least 300 million baht to recipients in Thailand in each accounting period
  • Three per cent of net profit for IBC’s income if the IBC makes expenditures of at least 600 million baht to recipients in Thailand in each accounting period

• An IBC shall be exempt from corporate income tax on dividends received from an affiliate.

3. Specific business tax

• An IBC shall be exempt from specific business tax on income from cash management services provided to an affiliate.

The IBC shall be granted the above corporate income tax and specific business tax incentives for a period of 15 accounting periods from the day following the date of approval by the Director-General.

Qualifications

Qualifications that a company must meet to apply to be an IBC and obtain corporate income tax and specific business tax privileges are as follows:

1. It is a company incorporated under Thai law to conduct business providing administrative, technical, support, and cash management services to an affiliate, and has paid-up capital on the last day of each accounting period of 10 million baht or more.

2. It has at least 10 employees who have the knowledge and skills necessary for an IBC and who work regularly for it, except where the company provides only cash management services to an affiliate. In this case, it can have less than ten employees, but not less than five.

3. The company makes expenditures of at least 60 million baht to recipients in Thailand in each accounting period.

4. The company provides administrative, technical, support, or cash management services to an affiliate.

5. The company must comply with the rules, procedures and conditions prescribed by the Director-General.

If a company functioning as an IBC fails to meet any of the qualifications listed above in any accounting period, the benefits will be suspended only for that accounting period.  However, if the IBC fails to meet the qualifications for more than one accounting period, or no longer qualifies as an IBC under Royal Decree Number 674, the Director-General has the right to cancel its IBC status, and terminate tax privileges from the first accounting period.

An ROH1 which wants to convert to an IBC and obtain tax privileges must meet qualifications nos. 1, 2, 4, and 5, and must submit an application and obtain the approval of the Director-General according to the rules, procedures, and conditions prescribed by the Director-General.  If such ROH has an expenditure less than sixty million baht in each accounting period, it shall be subject to the reduced corporate income tax rate of 8%.

An ROH2 or IHQ which wants to convert to an IBC and obtain tax privileges must meet qualifications nos. 1, 2, 4, and 5, and make expenditures of at least 15 million baht to recipients in Thailand in each accounting period.  It must submit an application and obtain the approval of the Director-General according to the rules, procedures, and conditions prescribed by the Director-General.  If an ROH2 or IHQ makes expenditures of at least 15 million baht, but less than 60 million baht to recipients in Thailand in each accounting period, it shall be subject to a reduced corporate income tax rate of 8%.

Tax privileges for a foreign company

A foreign company not conducting business in Thailand shall be exempt from income tax for the following income:

1. Dividends received from an IBC which are paid from revenue that the IBC derived from administrative, technical, support, or cash management services provided to an affiliate, and which are subject to the reduced corporate income tax rate.

Dividends received from a former ROH1, ROH2, or IHQ within one year of the date that the ROH1, ROH2, or IHQ obtained the approval of the Director-General to become an IBC.

2. Interest received from an IBC on loans that the IBC borrows to lend to an affiliate as part of cash management services.