Thailand Tax Alert: Thai Government Announces New International Business Center (“IBC”) Tax Incentive

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On 28 December 2018, the Thai Revenue Department (“TRD”) announced a new program of tax incentives through the issuing of Royal Decree No.674 (“RD 674”).

Key points of RD 674

Section 3: Definition of IBCs
Section 4, 5 and 6: PIT at 15% for foreign nationals working for IBCs and their required qualifications
Section 7: Reduced CIT rate for IBCs
Section 8-9: Dividend and special business tax exemptions for IBCs
Section 10: Application process and business plan
Section 11: Qualifications to apply for IBCs
Section 12: Tax holidays
Section 13: IBC conditions and compliance requirements
Section 14: Tax privileges for dividends and interest
Section 15: Specific cautions
Section 16-18: ROHs, IHQs and IBCs already in existence

Section 3: Definition of IBCs

The concept of an IBC is a company established under Thai law engaging in the following activities with its associated enterprises located in either Thailand or overseas:

Providing administrative and technical support services;
Providing treasury management services; and/or
International Trading Center activities

“Associated Enterprises” definition:

“Companies are considered related if one company participates directly or indirectly in the management and control of another, or holds at least 25% of the capital/shareholding of the other company”

Section 4, 5 and 6: Tax privileges for foreign nationals and qualifying criteria

The PIT tax rate for foreign nationals is reduced to 15%.

To be eligible for this flat 15% PIT rate, foreign nationals must meet the following qualifications:

Be permanent employees working full-time at an IBC
Have their name included on the list of employees submitted with the IBC application to the TRD
Reside in Thailand for at least 180 days in each calendar year
Have a valid work permit issued by the Ministry of Labor
Earn an annual salary of at least THB 2.4 million (USD 72,730) or THB 200,000 (USD 6,060) per month

Section 7-18:


Tax incentives under the New IBC scheme
Benefits	Section 7: Corporate Income Tax (“CIT”) rates: 1) 8% if expenditure in Thailand is THB 60 million (USD 1.82 million) 2) 5% if expenditure in Thailand is THB 300 million (USD 9.09 million) 3) 3% if expenditure in Thailand is THB 600 million (USD 18.18 million)
	Section 8: CIT exemption on dividends received from Thai and foreign associated enterprises
	Section 9: SBT exemption on income derived from treasury management services
	Section 4-5: PIT of 15% for foreign nationals working for an IBC
	Section 14(1)(a-d): Exemption from withholding taxes on dividends paid by an IBC to foreign companies – Dividends must be paid within 1 year after approval from the TRD to be an IBC Section 14 (2): Exemption from withholding taxes on interest paid by IBCs to foreign companies Interest received from IBCs, only if derived from loans taken out by IBCs to re-lend to associated enterprises for treasury management services
Conditions	Section 11(1): Minimum THB 10 million (USD 303,030) of paid-up capital
	Section 13(2): Minimum THB 60 million (USD 1.82 million) of expenditure paid in Thailand
	Section 11(2): Must have at least 10 employees, or at least 5 employees in the case of IBCs providing treasury management services
	***Section 15: In the event that IBCs cannot comply with the conditions specified in Section 11(1)-(2) and Section 13(2) for more than one accounting period, the TRD will reverse IBC Company status back to the first accounting period when approval was granted
	Section 16-18: Existing IHQs, ITCs and ROHs can be converted into IBCs

Section 10: A Company must submit its business plan together with the IBC application and the list of its associated enterprises to the TRD

Section 12: The Tax Holiday

IBCs can enjoy a tax holiday from CIT for 15 years from the date of approval from the TRD:

– The accounting period during which an IBC application is filed or approval to become an IBC is secured will be counted as the first accounting period.

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This article is written by DFDL Lawyers.

This article was first published on the DFDL website.

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