In 2017, Thailand joined the Inclusive Framework of Base Erosion and Profit Shifting (BEPS) committing itself to implementing four minimum BEPS standards, namely: BEPS Action 5 on harmful tax practices, BEPS Action 6 on treaty shopping, BEPS Action 13 on transfer pricing documentation, and BEPS Action 14 on mutual agreement procedures. As part of BEPS Action 5 on harmful tax practices, Thailand is required to review and monitor tax incentive schemes.

On 10 October 2018, the Cabinet approved concepts of four draft Royal Decrees: (i) the Royal Decree on Regional Operating Headquarter (ROH) consisting of ROH1 and ROH2, (ii) the International Headquarter (IHQ), (iii) the International Trading Center (ITC), and (iv) the International Business Center (IBC). Even though the Royal Decrees have not been issued, in practice, new applications for ROH1, IHQ, and ITC are closed on 10 October 2018 (the same day as the Cabinet Resolution).

Based on the news and information available, impacts to the existing ROHs, IHQs, and ITCs under the Royal Decrees in (i) to (iii) above are as follows:

  • Existing ROH1s will be eligible for tax incentives until 2020 with a potential of additional conditions on the royalty income. ROH1s may opt to convert to an IBC.
  • For ROH2s (for which registration is no longer available), the existing ones would be eligible for tax privileges until completion of the approved period (10 or 15 accounting periods). Additional conditions on the royalty income should also potentially be imposed on ROH2s. ROH2s may opt to convert to an IBC.
  • Existing IHQs would still be eligible for tax privileges until completion of 15 accounting periods. The IHQs may opt to convert to an IBC.
  • Existing ITCs would still be eligible for tax privileges until completion of 15 accounting periods.

With regard to the newly introduced IBC under the fourth Royal Decree, an IBC should be able to provide support services functions and/or financial management services under a treasury center license from the Bank of Thailand. Summarized below are the IBC criteria and tax incentives based on the news and information available. These may be subject to change upon consideration by the Council of State and the National Legislative Assembly.

Tax incentives

  • Reduced corporate income tax (CIT) rate to 8%, 5%, or 3% based on expenditures in Thailand of Baht 60 million, Baht 300 million, and Baht 600 million, respectively.
  • Exemption on CIT for dividend received from an affiliate.
  • Exemption on specific business tax (SBT) for income from a treasury center function.
  • Reduced personal income tax (PIT) rate to 15% for expatriates working for an IBC.
  • Exemption on withholding tax for offshore affiliates receiving dividend or interest paid from an IBC.

Criteria

  • Registered share capital of at least Baht 10 million.
  • Minimum expenditure in Thailand of at least Baht 60 million in each accounting period.
  • Employs at least 10 people (or 5 people if the IBC performs only treasury center function).
  • Existing ROHs and IHQs that wish to convert to IBCs are exempt from the minimum expenditure condition.

The tax incentives under the IBC scheme may not be as beneficial as compared to the IHQ scheme. Service fees, royalties, and capital gains from offshore affiliates will no longer be eligible for CIT exemption under the IBC scheme. The high amount of expenditure required for an IBC may also be an obstacle for new applicants of an IBC. However, the reduced CIT rate of an IBC is likely to apply to both domestic and foreign affiliates, this may be beneficial to the company having domestic affiliates.

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