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Thailand Enacts New Incentives Regimes for International Headquarters and International Trading Centers

Thailand enacted a new tax regime for International Headquarters (IHQ) and International Trading Centers (ITC) under Royal Decree No. 586 on 1 May 2015. The regime replaces the previous regime for Regional Operating Headquarters and International Procurement Centers, relaxing certain foreign ownership and activity limitations. Companies operating under the previous regimes may apply for the new regime incentives without claw back provisions.

Under the regime a company may be considered an IHQ and ITC depending on the qualifying activities it performs. The conditions are essentially the same and the benefits apply based on the activities of the company.

An IHQ is a company that provides management, technical and support services or treasury center services to associated companies or branches overseas. An ITC is engaged in trade and trade-related services.

Tax Benefits

The tax benefits provided include:

  • Tax exemption for 15 years on certain income derived from an overseas associated company or branch, including:
    • Income from providing management, technical, and support services;
    • Income from providing treasury center services;
    • Royalty income;
    • Dividend income;
    • Capital gains from the sale of shares of an associated company;
    • International trade, where the goods are not imported into Thailand (may be brought in as in transit or transshipment);
    • Trade related services; and
    • Other income generated by overseas branches
  • Reduced 10% income tax rate on certain income derived from an associated company or branch in Thailand, including income from:
    • Income from providing management, technical, and support services;
    • Income from providing treasury center services;
    • Royalty income;
  • Exemption from withholding tax on dividends distributed to nonresidents if paid out of exempt profits;
  • Exemption from business tax and withholding tax on intercompany loans; and
  • A reduced individual income tax flat rate of 15% for expatriate (foreign) employees

Qualifying management, technical and support services include:

  • General administration, business planning and coordination;
  • Procurement of raw materials and components;
  • Research and development of products;
  • Technical support;
  • Marketing and sales promotion planning;
  • Personnel management and regional training;
  • Financial advisory services;
  • Economics or investment research and analysis;
  • Credit control and administration; and
  • Other managerial services

Qualifying treasury center services include:

  • Services of a Treasury Centre as permitted under the Exchange Control Act; and
  • Borrowing from a Thai financial institution or associated enterprises in Thailand and re-lending in Thai currency the amount received from the above permitted activities to associated enterprises in Thailand

Qualifying trade and trade-related services include:

  • Procurement of goods;
  • Maintenance of goods in transit;
  • Packaging of goods;
  • Delivery of goods;
  • Insurance of goods;
  • Advisory and technical support services and training on goods; and
  • Other related services

Conditions

In order to qualify as an IHQ or ITC and obtain the benefits, a company must submit an application to the Director-General of the Thai Revenue Department, and meet the following conditions:

  • The company must be incorporated in Thailand;
  • It must have paid-up capital of at least THB 10 million at the end of each accounting period;
  • It must provide qualifying services to overseas associated companies or branches; and
  • It must incur local operating expenses in Thailand of at least THB 15 million annually

Unlike the previous regime, if a company fails to meet the conditions in a particular year, the benefits will not apply for that year only. Under the previous regime, failure to meet the conditions would result in the benefits being clawed back from the first accounting year.

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