Revised International Headquarters Regime in Thailand
Regional Operating Headquarters (“ROH”) provisions were introduced by Thailand’s tax authorities in 2002. The ROH regime was not very successful — despite being overhauled in 2010 — as it was difficult to understand, even more difficult to comply with, and had a narrow scope of permitted activities.
With the impending integration of countries in ASEAN, and with levels of competition increasing as a result, the Thai government has opted to replace the previous ROH regime with new International Headquarters (“IHQ”) provisions that grant tax incentives to a wider range of businesses. In this regard, the old ROH regulations are now obsolete and are no longer available for new applications. For qualifying businesses, attractive tax privileges apply on the corporate level as well as for companies’ foreign employees.
1. IHQ SERVICES
To qualify as an IHQ, the company must provide certain services to related or affiliated companies (intra-group services) as per the following:
1. Management and administrative services.
2. Technical services.
3. Other support services in respect of:
- General administration, business planning and coordination;
- Research and development;
- Technical support;
- Marketing control and sales promotion planning;
- Training and personnel management;
- Corporate financial advisory services;
- Economic or investment research and analysis; and
- Credit control and administration.
4. Cash Management.
2. AFFILIATED COMPANIES
Under the new IHQ regulations, companies are considered to be ‘affiliated companies’ if they are related to one another on a shareholding or control basis:
1. Shareholding Basis
- The Thai IHQ holds at least 25% of the affiliated company’s issued capital; or
- The affiliated company holds at least 25% of the Thai IHQ’s issued capital; or
- The affiliated company holds at least 25% of the Thai IHQ’s and a third company’s issued capital. In this case, the Thai IHQ and the third company are regarded as affiliated companies.
2. Control Basis
- The Thai IHQ has management control over the affiliated company; or
- The affiliated company has management control over the Thai IHQ; or
- The affiliated company has management control over the Thai IHQ and a third company. In this case, the Thai IHQ and the third company are regarded as affiliated companies.
3. QUALIFYING CONDITIONS
|Paid-up Share Capital||Must be at least THB 10,000,000 (Ten Million Thai Baht).|
|Number of Associated Companies or Branch Offices||The IHQ must provide services to associated companies or branch offices incorporated in at least one foreign country. In addition, a subsidiary in Thailand can be serviced as well.|
|Expenditures||Having operating expenses allocated to the IHQ operation of not less than THB 15,000,000 (Fifteen Million Thai Baht) paid to receivers in Thailand per year.|
|Notifying the Revenue Dept. of Operating as an IHQ||Upon commencement of IHQ activities.|
4. IHQ TAX PRIVILEGES
Corporate Income Tax
1. Overseas income exempt for 15 years as per the following:
- Income derived from IHQ services rendered to associated companies incorporated under foreign law.
- Royalties received from associated companies incorporated under foreign law.
- Dividends received from associated companies incorporated under foreign law.
- Income derived from the transfer of shares in associated companies incorporated under foreign law.
2. Local income 10% for 15 years as per the following:
- Income derived from IHQ services rendered to associated companies incorporated under Thai law.
- Royalties received from associated companies incorporated under Thai law.
Specific Business Tax
- Exempt for income derived from loans given to associated companies incorporated under foreign law only for the purposes of cash management.
5. TAX PRIVILEGES FOR JURISTIC PERSONS INCORPORATED UNDER FOREIGN LAW AND NOT CARRYING ON BUSINESS IN THAILAND
1. Exempt from Corporate Income Tax for income received from the IHQ as per the following:
- Dividends paid from the exempted overseas income; and
- Interest (only for interest derived from loans that the IHQ borrows from other sources and extends to associated companies).
6. TAX PRIVILEGES FOR FOREIGN EMPLOYEES
- Personal Income Tax flat rate of 15% from the date the IHQ obtains tax privileges to the date tax privileges of the IHQ are discontinued or the foreign employees stop working at the IHQ.
For more information, contact Mr. Andreas C. Richter at: [email protected].