Significant changes to tax incentives

Thailand has been a participant in the inclusive framework on base erosion and profit shifting (BEPS) since 2017. Participating in the inclusive framework means that Thai laws must be reviewed by other member countries to ensure that they are adequately prepared.

Keywords: Mazars, Thailand, Tax, BEPS, OECD, ROH, IHQ, ITC, IBC, Royal Degree, Ministry of Finance, Revenue Department

13 November 2018

As a result of preferential tax regimes being reviewed in regard to Action 5, ‘Harmful Tax Practices’, the Thai tax regimes in regard to regional operating headquarters, international headquarters, and international trading centres were designated preferential tax regimes in a BEPS progress report on harmful tax practices recently published by the Organization for Economic Co-operation and Development (OECD). Therefore, Thailand must amend or cancel these tax regimes.

On 10 October 2018, the Cabinet approved four draft Royal Decrees proposed by the Ministry of Finance. Those Royal Decrees are as follows:

1. Royal Decree on a Regional Operating Headquarters (ROH) consisting of ROH1 and ROH2;

2. Royal Decree on an International Headquarters (IHQ);

3. Royal Decree on an International Trading Centre (ITC); and

4. Royal Decree on an International Business Centre (IBC).

The purpose of these draft Royal Decrees is to cancel the tax regimes listed above in points 1 through 3, and to promote the establishment of an IBC instead. These draft Royal Decrees will be submitted to the office of the Council of State for consideration and further action.

Currently, there are not many details of the draft Royal Decrees available. Based on the information at hand, the consequences are likely to be as follows:

a) For an existing ROH1, incentives can be used until 2020, and it can choose to convert to an IBC. The Revenue Department stopped accepting applications for new ROH1 from 10 October 2018.

b) For an existing ROH2, incentives can be used until the approved period (10 or 15 accounting periods) ends, and it can choose to convert to an IBC. The Revenue Department stopped accepting applications for new ROH2 from 15 November 2015.

c) For an existing IHQ, incentives can be used until the 15 accounting periods end, and it can choose to convert to an IBC. The Revenue Department stopped accepting applications for new IHQs from 10 October 2018.

d) For existing ITCs, incentives can be used until the 15 accounting periods end. The Revenue Department stopped accepting applications for new ITCs from 10 October 2018.

e) Tax privileges and conditions for an IBC are likely to be as follows:

Tax privileges

▪ The corporate income tax rate will be reduced to 8%, 5%, or 3%, based on expenses in Thailand of THB 60 million, THB 300 million, and THB 600 million, respectively.

▪ The IBC will be exempt from corporate income tax on dividends received from an affiliate.

▪ The IBC will be exempt from specific business tax on income from cash management.

▪ The personal income tax rate for an expatriate working for an IBC will be reduced to 15%.

▪ A foreign company receiving dividends or interest from an IBC will be exempt from withholding tax.

Conditions that must be met

▪ The IBC must have registered capital of at least THB 10 million.

▪ The IBC must have expenses in Thailand of at least THB 60 million each accounting period.

▪ The IBC must employ at least 10 people (or 5 people if the IBC provides only cash management services).

Please note that these consequences may be subject to change.

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