Thai Government Gazettes Tax Incentives for International Business Centers

Royal Decree No. 674,¹ which officially enacted the new International Business Center (IBC) incentive, has been officially implemented on 28 December 2018. The incentive comes as a replacement for the former Regional Operating Headquarters (ROH) and International Headquarters (IHQ) schemes were halted in late 2018.

Under the new Decree, an IBC is a company headquartered in Thailand that engages in the following activities either within or outside the Kingdom:²

• Provides services pertaining to administration and technical support;
• Provides services related to money management; and/or
• Provides services that facilitate international trade.

In order to qualify for the IBC incentive scheme, companies must fulfil the following procedures and requirements:³

1. Submit an application to the Revenue Department and receive approval for the IBC tax incentive;
2. Establish a company with a registered capital of at least THB 10 million per financial year;
3. Employ at least 10 members of staff who possess the skills and technical knowledge applicable to the company; or at least 5 employees where the company only provides money management services;
4. Incur operating expenditures worth at least THB60 million per financial year paid to recipients in Thailand; and
5. Comply with regulations, procedures, and conditions specified by the Revenue Department.

Companies that have successfully met the above criteria and received approval from the Revenue Department are entitled to several tax concessions for 15 financial years. These concessions can be broken down into four different tax categories:⁴

Corporate Income Taxes

Corporate income taxes on net profits earned from support services, money management services, and royalties from affiliates in the Kingdom and foreign countries are broken down as follows:

• Annual operating expenditures 60-300 million Baht – 8%;
• Annual operating expenditures 300-600 million Baht – 5%;
• Annual operating expenditure exceeding THB600 million – 3%

Dividend income attained from affiliates in Thailand and abroad are exempt from corporate income taxes.

International Payments Withholding Tax

Interest payments remitted to corporate lenders in a foreign country are exempted from the international payments withholding tax.

Personal Withholding Tax

Income paid to expatriate employees in Thailand are subject to a 15% personal withholding tax.

Remittance Tax on Profits

Dividend payments remitted to corporate shareholders in a foreign country are exempt from the remittance tax.

Specific Business Tax

Income derived from money management services by affiliates in Thailand and abroad are exempted from the specific business tax.

Companies under the ROH and IHQ schemes

While companies under the ROH and IHQ schemes can continue to avail themselves of the additional benefits afforded under the existing schemes, the Decree outlines procedures that will make them eligible for benefits under the IBC scheme.

Word of caution

It is worth noting that companies seeking to enjoy tax concessions under the IBC incentive plan will be subject to rigorous investigation by the Revenue Department. If a company fails to comply with any of the rules stipulated by the government, its tax benefits will be revoked, and it will be required to pay taxes owed at normal rates on top of a penalty and surcharge.

This article only gives a brief summary of the Decree. Specific inquiries about the IBC scheme can be lodged to one of our lawyers using the contact form provided.

[1] Royal Decree Issued According to the Revenue Code Regarding the Reduction and Exemption of Taxes (No. 674) B.E. 2561.

[2] Ibid Royal Decree (No. 674)

[3] Ibid Royal Decree (No. 674)

[4] Ibid Royal Decree (No. 674)