Keywords: Mazars, Thailand, Tax, IHQ, BOI, Regional Operating Headquarters, ROH, Corporate Income Tax, Withholding Tax, Personal Income Tax
09 July 2015
The IHQ incentives are available to Thai incorporated limited companies only. The IHQ must have at least 10 million baht of registered capital fully paid up, and the projects under the IHQ programme must be approved by the Board of Investment (BOI) of Thailand. Also, the IHQ must supervise affiliate companies in foreign countries, or its foreign branches in at least one country. This is one of the requirements that are less stringent than the ROH regime, as the ROH regime requires the ROH to provide services to its affiliate companies in foreign countries, or to its foreign branches in at least three countries.
The business activities qualifying for the IHQ incentives include the following:
- general management, business planning and coordination;
- procurement of raw materials and components;
- product research and development;
- technical support;
- marketing and sales promotion;
- personal management and training;
- business advisory services, such as financial management, marketing, and accounting systems;
- economic and investment analysis and research;
- credit management and control;
- operating a treasury centre; and
- other services as approved by the BOI.
Under the IHQ incentives, a foreign wholly owned Thai incorporated limited company can operate in Thailand without having to obtain a foreign business license. Other advantages include being permitted to own land for an office, and to bring in as many expatriates as required by the business operations, with a relaxation of the Thai-to-foreigner employment ratio.
Tax incentives are available under the IHQ programme. The IHQ certificate holder can apply to the Revenue Department to obtain various IHQ tax incentives, such as the following:
1. Corporate income tax
The following income will be exempt from Thai corporate income tax:
a) income received from the provision of management or technical services, supporting services, or treasury centre services to its associated enterprises incorporated under foreign law;
b) royalties or dividends received from its associated enterprises incorporated under foreign law;
c) capital gains derived from the sale of shares in overseas associated enterprises under the rules, procedures, and conditions designated by the Director-General of Revenue; and
d) income received from buying and selling goods aboard without importing such goods into Thailand (Out – Out), and income from international trade services provided to foreign companies and received in or from a foreign country.
The following income will be subject to a Thai corporate income tax rate of 10%, reduced from the normal rate of 20%:
a) income received from the provision of management or technical services, supporting services, or treasury centre services to its associated enterprises incorporated under Thai law; and
b) royalties received from its associated enterprises incorporated under Thai law.
Please note that only that income which does not exceed the sum of the tax-exempt overseas income described above will be subject to the reduced tax rate.
Please also note that, as a condition for obtaining the corporate income tax privileges listed above (whether full exemption or 50% exemption), the annual operating expenses that the IHQ pays to Thai recipients must not be less than 15 million baht. These corporate income tax incentives are valid for 15 accounting periods, starting from the date following that on which the Revenue Department grants the incentives. If the IHQ fails to meet any of the qualifications in any accounting period, such as the operating expenses paid to Thai recipients being less than 15 million baht, the entitlement to the tax incentives will be suspended for that accounting period.
2. Withholding tax
The following income paid out to foreign companies not conducting business in Thailand will be exempt from Thai withholding tax:
a) dividends paid from the net profits arising from the activities which are subject to the corporate income exemption described above; and
b) interest on loans borrowed for re-lending to associated enterprises for financial management.
3. Personal income tax
A flat personal income tax rate of 15%, reduced from the normal maximum progressive rate of 35%, will apply to the employment income of an expatriate employee of the IHQ, subject to the following conditions:
a) the employee must be present in Thailand for at least 180 days in a calendar year;
b) the employee must have obtained a valid work permit from the Ministry of Labour as a skilled or expert worker; and
c) the average monthly employment income of that employee must not be less than 200,000 baht.
4. Specific business tax
Interest received from loans provided to associated enterprises for financial management will be exempt from Thai specific business tax.