On 10 October 2018, the Thai government announced the cessation of the International Headquarters (“IHQs”) program (which also included Regional Operating Headquarters or “ROHs” and International Trading Centers or “ITCs”) and the creation of a replacement initiative; International Business Centers (“IBCs”).
The move is part the OECD Inclusive Framework for Base Erosion and Profit Shifting (“BEPS“). Under this framework, Thailand has agreed to implement four of the BEPS minimum standards: BEPS Action Item 5 (Harmful Tax Practices), BEPS Action Item 6 (Tax Treaty Abuse), BEPS Action Item 13 (Transfer Pricing Documentation), and BEPS Action Item 14 (Dispute Resolution Procedures).
Comparison of the New IBC and the previous IHQ/ROH and ITC schemes
Tax incentives provided under the New IBC scheme:
- CIT reduction on income from services, royalties and financial managements received from Thai and foreign associated enterprises. The CIT rates are as follows:
- CIT 8% on expenditures of THB 60 million in Thailand;
- CIT 5% on expenditures of THB 300 million in Thailand; and
- CIT 3% on expenditures of THB 600 million in Thailand.
- CIT exemption on dividends from the Thai and foreign associated enterprises.
- Specific Business Tax (“SBT”) exemption on financial management services from Thai and foreign associated enterprises.
- PIT rate of 15% for foreign nationals.
- Exemption on withholding taxes on dividends or interest paid from an IBC.
Conclusion:
Applications for the existing IHQ and ITC schemes will no longer be accepted as of the date of the announcement on 10 October 2018. Any new applications will be under the new IBC scheme. The IBC incentives are likely to be viewed as less attractive than what was previously available under the IHQ scheme. Under the IBC scheme, income including service fees, royalties and capital gains are no longer provided an exemption from CIT in Thailand. The existing Thai IHQ scheme was starting to become popular as an alternative to Singapore and Hong Kong for structuring investments into South East Asia. The need for high annual expenditures by the Thai IBC may deter companies from establishing a regional presence in Thailand. Companies interested in establishing a regional headquarters or treasury office may look to alternative countries to structure their holding and treasury functions.
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This article is written by DFDL Lawyers.
This article was first published on the DFDL website.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.
