The benefits of changes to Thailand's legal framework

In 2015, Thailand introduced two new programmes to help make it an economic hub of Asia and boost its competitiveness under Royal Decrees No. 586 and 587: the International Headquarters and International Trading Centre.

These programmes are comprised of incentive packages offered by the Revenue Department and the Board of Investment (BoI).

International Headquarters

Thailand defines an international headquarters (IHQ) as a company incorporated in Thailand that provides any of a long list services to its branches or associated enterprises in Thailand or elsewhere.

The services include managerial services, business planning and coordination, procurement, research and development, marketing and sales, human resources, and certain financial management services such as borrowing or lending in the local currency, the Thai baht.

Associated enterprises are defined as companies or juristic partnerships that: a. own, or are owned by, the IHQ directly or indirectly through shares representing not less than 25% of total capital; b. have the power to control or supervise operation or management of the IHQ; or c. are subject to the IHQ’s control or supervisory operations and management. Additionally, associated enterprises include companies or juristic partnerships that are also under the power or control of entities in clause “b”.

Revenue Department’s IHQ Incentives

The incentives offered by the Revenue Department are quite attractive.

However, the incentives are subject to the following conditions for any given accounting year:

  • Management or other services must be provided by the IHQ to an associated enterprise organised pursuant to the laws of a foreign country;
  • The paid-up capital of the IHQ must be at least BT10m ($301,000) on the last day of each accounting year; and
  • Total operating expenses paid by the IHQ to recipients in Thailand must be at least BT15m ($452,000) per accounting year. Qualifying IHQs are eligible for the following corporate income tax (CIT) incentives for 15 years: Income exempted from CIT includes:
  • Income derived from managerial services or technical services, supporting services, or financial management services to associated enterprises established under foreign laws;
  • Royalties received from associated enterprises incorporated under foreign laws;
  • Dividends received from associated enterprises established under foreign laws;
  • Capital gains received from the sales of shares in associated enterprises established under foreign laws; and
  • Income derived from the purchase and sales of goods overseas, on condition that such goods not be imported into Thailand except for the purpose of transit or trans-shipment under Thai Customs law; and
  • Income derived from providing international trade-related services to juristic persons established under foreign laws, on condition that such income be received from or in a foreign country. Income granted a reduction in the CIT rate from 20% to 10% includes:
  • Income derived from managerial services or technical services, supporting services or financial management services to associated enterprises established under Thai laws;
  • Royalties received from associated enterprises established under Thai laws;
  • The revenues entitled to CIT reduction must not be greater than the same types of revenues entitled to CIT exemption received from associated enterprises established under foreign laws.

The Revenue Department has also reduced the personal income tax and withholding rates for gross income and taxable benefits paid to expatriate IHQ employees to 15%, has exempted from specific business tax the gross receipts received from lending to associated enterprises, and has granted final CIT exemptions for dividends and interest paid to foreign companies and juristic enterprises with no operations in Thailand by the IHQ on loans that are lent in turn by the IHQ to associated enterprises.

BOI IHQ Incentives

Subject to the conditions that the IHQ supervise at least one branch or associated enterprise outside Thailand and have paid-up capital of at least BT10m ($301,000), the following incentives are available from the BoI:

  • • Visa and work permit privileges for highly skilled personnel and experts;
  • • Permission to own land;
  • • Exemption of import duties on machinery for research and development and training activities; and
  • • Exemption of import duties on raw materials and parts used in the production of export goods.

International Trading Centre

International trading centres (ITCs) are Thai companies that purchase and sell goods, raw materials and parts or that provide international trading related services to juristic persons incorporated under foreign laws. International trading-related services include:

  • Procurement of goods;
  • Warehousing and inventory services prior to delivery;
  • Packaging services;
  • Transportation of goods;
  • Insurance on goods;
  • Advisory, technical and training services on goods;
  • Any other services stipulated by the director general of the Revenue Department.

The Revenue Department’s ITC Incentives

For 15 accounting years, an ITC is entitled to a CIT exemption on:

  • Income from the purchase and sale of goods outside of Thailand; and
  • Income from the provision of international trade-related services to foreign juristic persons that is received in or from a foreign country.

The personal income tax rate is also reduced to 15% on gross income and taxable benefits paid to expatriate employees. Finally, dividends derived from the ITC’s CIT-exempt income to a foreign company without Thai operations are exempt from final income taxation. These incentives are conditioned on the ITC having paid-up capital of at least BT10m ($301,000) on the last day of each accounting year.

The other condition is that the total operating expenses paid by the IHQ to recipients in Thailand must be a minimum of BT15m ($452,000) per accounting year.

BOI ITC Incentives

The BoI offers the same incentives on the same conditions to ITCs as it does to IHQs. OTHER INCENTIVES AVAILABLE FOR BOTH IHQS AND ITCS: The Department of Business Development of Thailand’s Ministry of Commerce has agreed to reduce the timeframes for the consideration of applications for foreign business certificates and licences from 30 days to 15 days for companies promoted by the BoI and from 60 days to 30 days for companies not promoted by the BoI. In addition to this, the Bank of Thailand, the country’s central bank, has also agreed to relax foreign currency restrictions for both IHQs and ITCs.

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The Report: Thailand 2016

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