- International Headquarter Office (“IHQ”)
- International Trade Center (“ITC”)
- Board of Investment (“BOI”)
- Special Economic Development Zones (“SEZ”)
To stimulate Thailand’s economic, the Thai government has approved several new tax incentives including the incentives under IHQ and ICT, BOI and SEZ.
Tax Incentives under IHQ and ITC
On April 28, 2015, the Thai Government has passed the new regulations in order to grant tax incentives for IHQ and ITC. The IHQ or the ITC are available not only to new companies but also existing companies. In case of existing companies, the companies need to separate financial documents and records of IHQ or ITC business from the non-IHQ or non-ITC business.
IHQ Conditions: The conditions to receive the tax incentives are as follows:
- Providing support services to at least one subsidiary or affiliate
- Support services must be the services stipulated according to the IHQ regulations g. general administrative services, business planning, business coordination, raw materials and parts procurements, R & D, technical supports, marketing and sale support, financial advisory, financial management, loan services (in THB) and other supporting services as specified by the Revenue Department.
- A subsidiary or an affiliate must be a subsidiary or an affiliate according to the meanings as specified by the regulations.
- IHQ must have at least THB 10 million paid up capital as at the last date of each accounting period
- IHQ must have at least THB 15 million expenses relating to the IHQ businesses and paid to recipients in Thailand for each of its accounting period
- IHQ must obtain the approval from the Revenue Department
IHQ Tax Incentives: The IHQ major tax incentives are as follows:
- 15% personal income tax on the income generated from IHQ business of the expatriates who worked for the IHQ subject to certain conditions.
- 10% corporate income tax on the profit (including royalty fee) generated from the support services to a subsidiary or an affiliate in Thailand for 15 accounting periods
- Exemption on corporate income tax on profit (including royalty fee) generated from supporting services to a subsidiary or an affiliate abroad for 15 accounting periods
- Exemption on corporate income tax on the dividend which the IHQ receives from its subsidiaries or affiliates for 15 accounting periods
- Exemption for the income generated from transfers of shares of IHQ’s subsidiary or affiliate located abroad for 15 accounting periods
- Exemption on corporate income tax (withholding tax) when the IHQ remits dividend to juristic persons abroad only on the dividends incurred from the support services.
- Exemption on corporate income tax (withholding tax) when IHQ remits interests to juristic persons abroad only on the interests on the money that the IHQ borrows for the purpose of grating loan to its subsidiary or affiliate in connection with financial management.
ITC is different from IHQ. ITC can provide services to both its foreign subsidiaries or affiliates and other foreign entities. The ITC’s services are different from those of the IHQ. The ITC’s services mainly relate to goods.
ITC Conditions: The conditions to receive the tax incentives are as follows:
- ITC must provide the services relating to international trade such as procurements of goods, storing of goods before delivery, packaging, transportation of goods, insurance, providing advice and services relating to technic and training of goods, other services as specified by the Revenue Department
- ITC must have at least THB 10 million paid-up capital as at the last date of each accounting period
- ITC must have at least THB 15 million expenses relating to the ITC businesses and paid to recipients in Thailand for each accounting period
- ITC must obtain the approval from the Revenue Department
ITC Tax Incentives: the major tax incentives are as follows:
- 15% personal income tax on the income generated from the ITC businesses of the expatriates who work for ITC subject to certain conditions
- Exemption of corporate income tax on the profit generated from the income on procurement and sell of goods abroad, provided that the goods are not import to Thailand or import to Thailand as in transit or transshipment goods.
- Exemption of corporate income tax on the profit generated from the income of providing the ITC services received from foreign juristic persons for 15 accounting periods.
BOI Tax Incentives
Recent Development: On September 15, 2015, the Thai cabinet approved new investment incentive which would grant up to 13 year corporate income tax holiday plus 90% corporate income tax rate for 10 years after expiration of five year period of 50% corporate income tax reduction. This new incentive would apply only to targeted industries such as those using high technology or promoting R & D activities. According to the BOI, this new incentive together with its specific conditions would be available in 2016.
Current Tax Incentives: Under the BOI current investment scheme, which has been in effect since January 1, 2015, the BOI has cancelled the previous cap rule on the amount of corporate income tax so exempted for certain types of investments (the “Without Cap Industries”). (The previous cap rule is that amount of a corporate income tax so exempted must not be more than investment capital). Some of the Without Cap Industries include creative product design and development center, manufacturing airframe, airframe parts and major aircraft appliance, microelectronic design, embedded system design, embedded software, energy services, science and technology parks, software parks and R & D.
The major tax incentives can be divided into two categories, (1) Normal Tax Incentives and (2) Merit-based Incentives.
Normal Tax Incentives: The Normal Tax Incentives may include all or either one of the followings:
- Corporate income tax holiday from three years to eight years (with or without the Cap depending on types of industries)
- Exemption of withholding tax on dividend paid to shareholders who are juristic persons during the tax holiday period
- Exemption of import duty on machinery
- Exemption of import duty on raw or essential materials used in manufacturing export products
Merit-based Incentives: The Merit-based Incentives are additional incentives to the Normal Tax Incentives. This means that the industries, which are entitled to receive the Normal Tax Incentives, would also be eligible for the Merit-based Incentives. The Merit-based Incentives are as follows:
- Merit-based Incentives for specific industries: some industries can receive additional corporate income tax holiday from one to three years but not exceed eight years in total (subject to revenue and expenses conditions) if such industries have investments or expenditures on R & D, IP acquisition/licensing fees for commercializing technology developed in Thailand, advanced technology training, development of local supplier and products & packaging design.
- Merit-based Incentives based on locations: industries which are located in rural areas
of 20 provinces as specified by the BOI, may receive additional three years corporate income tax holiday but not exceed eight years in total or receive 50% reduction of corporate income tax for five years after the tax holiday is expired.
- Merit-based Incentives for industries in Industrial Areas: industries which are located in industrial estates or promoted industrial zones, may receive additional one year corporate income tax holiday but not exceed eight years in total. This incentive is not available for industries with conditions specifying that the industries must be located in industrial estates or promoted industrial zones.
The BOI also grants non-tax incentives which include (1) to bring in expatriates for studying investment opportunities, (2) to bring in skill and expert expatriates to work in the investment project without the normal requirement relating to paid - up capital and ratio of expatriates vs Thais workers, (3) to own land and (4) to take out or remit money abroad in foreign currencies.
Special Economic Development Zones (“SEZ”)
This year, the Thai government has established the SEZ in the specific areas of five provinces which locate near all of the neighboring countries, Myanmar, Laos, Cambodia and Malaysia. The purposes of the SEZ are to ease investors in distributing their products to the neighboring countries and to use unskilled workers from the neighboring countries. The government also grants attractive tax incentive packages for the investments in the SEZ.
SEZ Locations: The first five SEZ are located in specific areas of five provinces, Tak (near Myanmar), Trat (near Cambodia) Mukdahan (near Laos), Sa Kaeo (near Cambodia) and Songkhla (near Malaysia). The government plans to spend up to THB 10.5 billion to develop infrastructure for these SEZ. The other five SEZ would be later developed in the areas of other five provinces, Chiang Rai, Nong Khai, Nakhorn Phanom, Kanchanaburi and Narathiwat provinces.
Tax Incentives: The tax incentives can be divided in three categories, (1) tax incentives for the Targeted Industries, (2) tax incentives for BOI normal Industries and (3) tax incentives for Non-BOI Industries.
Tax incentives for the Targeted Industries: The Targeted Industries are (1) certain types of agriculture and agricultural products, (2) ceramics products (except earthenware and ceramic tiles), (3) certain types of textile and garment, (4) manufacture of furniture or parts, (5) manufacture of gems and jewelry or parts including raw materials and prototype, (6) manufacture of medical device or parts, (7) certain types of automotive, machinery and parts, (8) certain types of electronic and electrical appliances (9) certain types of chemical, paper and plastics (10) manufacture of medicine (11) container yards, inland container depots (ICD), distribution center and international distribution center (IDC), (12) industrial zones, industrial estates, Gem Jewelry industrial zones and Logistic parks and (13) certain types of businesses that support tourism. The tax incentives for the Targeted Industries are as follows:
- Eight years corporate income tax holiday (the tax amount so exempted will be capped by the investment capital)
- Five years corporate income tax reduction of 50% from the date of expiration of the tax holiday period in No.1
- Double deduction of costs of transportation, electricity and water supply for 10 years from the date in which revenue is generated
- Deduction of 25% of investment costs on the installation or constructing of facilities used from the date in which revenue is generated
- Exemption of import duty of machinery, raw and essential materials
- Employment of foreign unskilled workers
- BOI non-tax incentives
To receive the tax and non-tax incentives, investors must invest in the Targeted Industries in correspondence with the specific SEZ locations as specified in the SEZ regulations.
Tax Incentives for BOI Normal Industries in SEZ: If industries are not the Targeted Industries but they are BOI eligible industries, investors can receive the followings incentives:
- Another three years corporate income tax holiday from the normal BOI corporate income tax holiday but in total not exceed eight years (the tax amount so exempted will be capped by the investment capital)
- If investors have already received eight years corporate income tax holiday under BOI normal incentives, the investors are entitled to receive 50% corporate income tax reduction after the tax holiday is expired for additional five year period.
- The other incentives are the same as those of the Targeted Industries.
Tax Incentives for Non-BOI Industries in SEZ: If industries are not the Targeted Industries and Non-BOI industries but the industries are located in the SEZ, such industries would enjoy the reduction of corporate income tax from the normal rate of 20% to 10% for 10 accounting periods.
Application Deadline: According to the current regulations, applications to receive the SEZ incentives must be submitted to relevant government authorities within 2017.
There are many types of tax incentives available in Thailand. The IHQ and ITC grant tax incentives not only to IHQ and ITC juristic persons but also to the expatriates who work for the IHQ and ITC. For the BOI, the Thai government grants the maximum eight years corporate income tax holiday and without cap rules on the amount of tax so exempted for certain industries plus additional tax incentives under the Merit-based Incentives. The government also plans to grant more tax incentive to the industries using high technology or promoting R & D activities. The SEZ also grants additional tax incentives to the Targeted Industries, BOI Normal Industries and even to the non-Targeted Industries and non-BOI Normal Industries. Since Thailand locates in the center of South East Asia Region and provides attractive tax incentives, it is certain that Thailand can give more benefits to investors.
Author: Chackarin Umpote, Partner, Asian Legal and Tax Strategies Limited.
Disclaimer. The purpose of this article is to provide general information and shall not be deemed as legal advices. The information in this article bases on the current regulations which may be further amended by the relevant authorities. ALT shall not be responsible for any claims and damages in using the information in this article.
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