The government's schemes to attract foreign direct investment have not met expectations. Tax and non-tax incentives offered to regional operating headquarters (ROHs), international procurement offices (IPOs) and international procurement centres (IPCs) fall short of those offered by neighbouring countries.
So the Investment Promotion Office and the Revenue Department have begun investigating ways to leverage Thailand's advantages. The country is a gateway to Asia and ideally situated for trade with China, Japan, India and Asean. In particular, it provides easy access to the Greater Mekong Subregion's emerging markets.
With the aim of making Thailand the economic hub of Asia from this year onwards, two new incentive packages are on offer to large multinationals that make Thailand their international service or trade hub.
Both new incentive packages were developed from previous IPO and ROH schemes to ease certain conditions such as the requirement for storage of goods in warehouses, computerised stock management and augmented tax incentives for international trade.
The special tax and non-tax incentives under the two packages will be available to companies incorporated under Thai law that have paid-up capital of at least 10 million baht and satisfy special conditions such as:
providing services to at least one foreign related company or branch; and
paying at least 15 million baht in operating expense to recipients in Thailand.
Details are as follows:
International headquarters (IHQs)
This package is aimed at attracting IHQs that are in international trade or provide domestic and international services such as administrative, managerial, research, technical support, marketing, human resources, business advisory and financial management to associated enterprises or domestic or foreign branches.
Fifteen-year tax and ongoing non-tax incentives:
(1) Corporate income tax (CIT) exemption or reduction
This package covers the following revenue streams from associated enterprises:
a. revenue from managerial, technical support or financial management services
b. loan interest revenue
c. royalties
d. dividends
e. revenue from share transfers to foreign related companies
f. revenue of foreign branch offices, meaning there is no requirement to consolidate revenue with the head office of the IHQ for purposes of income tax calculation, and
g. revenue from buying and selling goods outside Thailand.
It also offers a CIT exemption for companies or juristic partnerships established under foreign law and not operating in Thailand on dividends paid to them from the net profit attributed to revenue exempt from corporate income tax and interest on loans acquired for relending to associated enterprises for the purpose of financial management.
For items a through c, the CIT on revenue from associated enterprises in Thailand is halved to 10% only if the total revenue is less than the total revenue received from foreign related companies.
CIT is also halved to 10% on revenue from associated-enterprise export sales of local raw materials and parts for manufacturing.
(2) Personal income tax (PIT) reduction
PIT on expatriate employees' assessable income is fixed at 15%.
(3) Special business tax exemption
Special business tax on loan interest from associated enterprise for financial management purposes is exempted.
(4) Import duty exemption
Import duty on machinery for R&D and training purposes is exempted.
(5) Non-tax incentives
Other incentives included in the package are:
the ability to own land
majority foreign-owned companies can engage in business activities under Thailand's foreign business law, and
less restricted conditions for applying for work permits and visas
International trade centres (ITCs)
This package aims to attract ITCs for goods, raw materials and parts for manufacturing. It has the same requirements as the IHQ package.
Fifteen-year tax and ongoing non-tax incentives:
(1) CIT exemption or reduction
This covers:
CIT exemption on revenue from buying and selling goods outside Thailand
CIT halved to 10% on revenue from related-company export sales of local raw materials and parts for manufacturing, and
CIT exemption on dividends from associated enterprise.
(2) PIT reduction
This offers the same reduction as the IHQ package.
(3) Import duty exemption
This covers machinery, raw materials and parts for manufacturing.
(4) Non-tax incentives
This offers the same incentives as the IHQ package.
Plan ahead
Applications for these packages must be filed with the Board of Investment, Revenue Department and Commerce Ministry. Before doing so, tax and legal structuring and planning, particularly multinational company shareholding restructuring, are recommended to maximise the new package incentives.
This article was prepared by Thiti Siriphairoj, an associate director at PwC Thailand.