Tax Newsletter, Issue no.3/2015 Tax incentives for international headquarters (IHQ)

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Tax Newsletter – 14 May 2015
Tax Newsletter,
Issue no.3/2015
Tax incentives for international
headquarters (IHQ)
In this issue:
1. Tax incentives for
international
headquarters (IHQ)
2. Tax incentives for
international trading
centres (ITC)
3. Double Tax Treaty
between Thailand and
Ireland
4. 10Minutes on the
OECD’s BEPS project
For many years, Thailand has had
two regional operating
headquarters (ROH) regimes. The
original regime came into force in
2002 and the second one in 2010.
Tax privileges were granted to
attract multinational companies
(both domestic and foreign) to set
up regional headquarters
operations in Thailand. These
presented opportunities for
establishing an ROH to act as a
holding, services, financing and
licensing company. Registrations
under the second ROH regime are
required to be made no later than
14 November 2015. Registrations
under the original regime have no
time limit.
With effect from 2 May 2015,
regulations regarding an IHQ
regime have been issued to grant tax
incentives to attract firms to
establish IHQs in Thailand. These
new IHQ rules are intended to make
Thailand an attractive investment
centre for multinational companies.
An IHQ is defined as a company
incorporated under the law of
Thailand for the purpose of
providing managerial, technical or
supporting services or financial
management to its associated
enterprises or branches situated in
Thailand or abroad. This includes
carrying on a business as an
international trading company,
which has been approved as an IHQ
under the relevant Royal Decree.
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Tax Newsletter – 14 May 2015
Tax incentives
Note:
Tax incentives available are:
The total income subject to CIT at
the 10% rate must not exceed the
total income from services
(including managerial, technical or
supporting services or financial
management) and royalties which
are exempt from CIT.
 10% corporate income tax (CIT)
on net profit from:
(1) qualifying services provided
to domestic affiliates; and
(2) royalties derived from
domestic affiliates.
 CIT exemption on net profit
from:
Conditions
(1) qualifying services provided
to foreign affiliates;
To qualify for the tax incentives, the
IHQ must meet the following
conditions:
(2) royalties or dividends derived
from foreign affiliates;
(i)
 Expatriates employed by a
The paid-up capital on the last
day of an accounting period
must be at least Baht 10
million.
(ii) Managerial, technical or
supporting services or financial
management must be provided
to foreign affiliates.
(iii) Operating expenses (such as
employee costs, office rental,
utilities, consulting and audit
fees, etc., but excluding
depreciation) of the IHQ
business paid to recipients in
Thailand must not be less than
Baht 15 million in each
accounting period.
 Withholding tax exemption on:
An application must be submitted to
and approved by the DirectorGeneral of the Revenue Department
following which the qualified IHQ
will be granted tax privileges for 15
accounting periods. The IHQ may
choose either:
(3) capital gains from the
transfer of shares in foreign
affiliates under criteria and
conditions prescribed by the
Director-General of the
Revenue Department; and
(4) income from buying and
selling goods abroad without
importing such goods into
Thailand (out - out) and
income from international
trade services provided to
foreign juristic entities and
received either in or from a
foreign country.
qualified IHQ may choose to pay
personal income tax at the rate of
15% on salaries received from the
date on which the IHQ becomes
qualified until the date on which
the IHQ is no longer qualified or
the employment is terminated.
(1) dividends paid to foreign
corporate shareholders from
the income exempt from CIT;
(2) interest paid to foreign
companies not carrying on
business in Thailand on loans
borrowed for re-lending to
affiliates.
 Exemption from SBT on interest
received from loans to affiliates.
 for the tax privileges to start in the
accounting period in which the
application is approved. In this
case, the privileges are available
from the day after the date of
approval or;
 for the tax privileges to start at the
beginning of next accounting
period.
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Tax Newsletter – 14 May 2015
Details of the process for obtaining
approval have not yet been
published. The duration of the
approvals process cannot be
estimated at this stage.
If an IHQ lacks any of the
qualifications in any accounting
period, the right to the tax privileges
will be suspended only for that
accounting period.
Note:
An existing ROH will be able to
submit an application to be an IHQ
and the ROH can be dissolved
without having any impact on the
tax privileges obtained while being
an ROH.
Supporting services
Supporting
following:
services
include
the
 General administration, business
planning and co-ordination
 Procurement of raw materials
and provision of parts
 Research and development
Financial management
Financial management includes the
following:
1. Financial management of a
treasury centre permitted under
the law governing exchange
control;
2. Lending and borrowing of Thai
currency (“Baht”) in the following
cases:
(a) Funds borrowed from Thai
financial
institutions
or
affiliates in Thailand; and
(b) Lending funds obtained from
operations under (1) or (2a), in
Thai currency to affiliates in
Thailand.
International trading
company
‘International
trading
company’
means a company incorporated under
Thai law and engaged in the business
of buying and selling goods, raw
materials and parts, including the
provision of services relating to
international trade to foreign juristic
entities.
 Technical assistance
 Marketing and sales promotion
 Human resource management
and training
Services relating to international
trade
 Financial advisory services
Services relating to international trade
include the following:
 Economic and investment

Procuring goods

Maintaining goods awaiting
delivery

Packaging

Transporting goods

Providing insurance for goods

Providing advice, including
technical services and training
relating to goods

Providing other services as
prescribed by the DirectorGeneral of the Revenue
Department
research and analysis
 Credit management and control
 Any other supporting activities
prescribed by the DirectorGeneral
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Affiliates
‘Affiliates' means companies or
juristic partnerships which have a
relationship with the IHQ with any
one of the following characteristics:
Company/partnership which
(directly/indirectly)
(1) holds at least 25% of IHQ,
(2) is held at least 25% by IHQ,
Tax Newsletter – 14 May 2015
(3) is held at least 25% by a
common parent,
(4) is empowered to control or
supervise IHQ,
(5) is controlled and supervised
by IHQ,
(6) is under the same control and
supervision as the IHQ.
Tax incentives for international trading
centres (ITC)
With effect from 2 May 2015,
regulations regarding an ITC regime
have been issued to grant tax
incentives to attract foreign firms to
establish ITCs in Thailand. These
ITC rules are intended to make
Thailand an attractive investment
centre for multinational companies.
 Expatriates employed by a
qualified ITC may choose to pay
personal income tax at the rate of
15% on salaries received from the
date on which the ITC becomes
qualified until the date on which
the ITC is no longer qualified or
the employment is terminated.
An ITC is defined as a company
established under the law of
Thailand and engaged in the
business of buying and selling
goods, raw materials and parts,
including providing services relating
to international trade to foreign
juristic entities.
Conditions
Tax incentives
The tax incentives available are:
 Exemption from CIT on income
from buying and selling goods
abroad without importing such
goods into Thailand (out-out),
including income from services
relating to international trade
provided to foreign juristic
entities and received in or from a
foreign country.
 Withholding tax exemption on
dividends paid to foreign
corporate shareholders from the
net profit derived from the
income exempt from CIT.
To qualify for the tax incentives, the
ITC must meet the following
conditions:
(i) The paid-up capital on the last
day of an accounting period must
be at least Baht 10 million.
(ii) Operating expenses (such as
employee costs, office rental,
utilities, consulting and audit
fees, etc., but excluding
depreciation) of the ITC business
paid to recipients in Thailand
must not be less than Baht 15
million in each accounting
period.
An application must be submitted to
and approved by the DirectorGeneral of the Revenue Department
following which the qualified ITC
will be granted tax privileges for 15
accounting periods. The ITC may
choose either:
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Tax Newsletter – 14 May 2015
 for the tax privileges to start in
the accounting period in which
the application is approved. In
this case, the privileges are
available from the day after the
date of approval or;
Services relating to
international trade

Procuring goods
 for the tax privileges to start at
the beginning of next accounting
period.

Maintaining goods awaiting
delivery

Packaging

Transporting goods

Providing insurance for goods

Providing advice, including
technical services and training
relating to goods

Providing other services as
prescribed by the DirectorGeneral of the Revenue
Department
Details of the process for obtaining
approval have not yet been
published. The duration of the
approvals process cannot be
estimated at this stage.
If an ITC lacks any of the
qualifications in any accounting
period, the right to the tax privileges
will be suspended only for that
accounting period.
Services relating to international
trade include the following:
Double Tax Treaty between Thailand and
Ireland
Thailand and Ireland signed an
Agreement for the Avoidance of
Double Taxation and the Prevention
of Fiscal Evasion with respect to
Taxes on Income ("DTA") on
4 November 2013. For Thailand,
the DTA came into force on
11 March 2015 and will be effective
from the tax years or accounting
periods beginning on or after
1 January 2016.
Permanent establishment
includes:


A brief summary of the main articles
of the DTA is as follows:-
Taxes covered

Income tax and petroleum
income tax

A building site, a construction,
installation or assembly project
or supervisory activities where
the time period for the site,
project or activities continue for
more than six months.
The furnishing of services where
activities of that nature continue
for the same or a connected
project for a period or periods
aggregating more than six
months within any twelvemonth period.
A person carrying on activities
offshore in connection with the
exploration or exploitation of
the sea bed and sub-soil and
their natural resources where
such activities continue for a
period or periods aggregating
more than three months within
any twelve-month period.
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Tax Newsletter – 14 May 2015

Dividends

The tax rate on dividends is
10%.
Interest
The tax rate on interest is 15%
except in the following cases:


Elimination of double taxation
Interest paid to financial
institutions is 10%.
No tax is imposed on interest
paid to the Government of
Thailand/Ireland as defined in
the DTA.


Royalties
The tax rates are as follows:

Copyright of literary, artistic 5%
or scientific work

10%
Industrial, commercial or
scientific equipment or any
patent

Royalties as mentioned in
the DTA other than the
above:
15%
Capital gains

Capital gains from the sale of
any property other than those
mentioned above and other than
those mentioned in the DTA will
be taxable in the country of
which the seller is a resident.
Capital gains from the sale of
shares, other than shares quoted
on a recognized stock exchange,
deriving more than 50% of their
value directly or indirectly from
immovable property situated in
one of the countries, may be
taxed in that country.

An ordinary credit will be
granted to eliminate double
taxation. This means that the
credit for the tax paid in one
country against the tax payable
in the other country cannot
exceed the amount of tax as
computed in the other country.
An underlying credit will be
granted where a resident of
Thailand controls directly or
indirectly 25% or more of the
voting power of the company
paying the dividend. The
underlying credit is a credit
granted for the corporate
income tax paid by the company
paying the dividend.
Tax sparing is allowed in the
DTA. The purpose of this
provision is to allow residents to
obtain a foreign tax credit for
the taxes that have been
“spared” under the incentive
programme of the source
country. However, tax sparing in
respect of Irish tax payable is
given for a period of 10 years
only beginning on the date of
entry into force of the DTA.
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Tax Newsletter – 14 May 2015
10Minutes on the OECD’s BEPS project
How is your company addressing the
base erosion and profit shifting
(BEPS)-related rule changes being
recommended by the Organisation
for Economic Cooperation and
Development? The BEPS project is
likely to spur the most significant
adjustments to the taxation of
international business in nearly 30
years. Learn about the preliminary
recommendations, which tax areas
are affected, what it means for
business operations, and how to
begin preparing for the sweeping
changes today.
Learn more from our latest
attachment in pdf file on May 2015
at 10Minutes on the OECD’s
BEPS project.
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Tax Newsletter – 14 May 2015
Contact us
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Structuring
 Prapasiri Kositthanakorn, Partner ext. 1228
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 Compliance Services

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 Indirect Tax (VAT)
 Thavorn Rujivanarom, Lead Partner ext.1444
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 International Assignment
Services
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 Tax Structuring
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 Peerapat Poshyanonda, Partner ext. 1220
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 Japanese Business Network
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 U.S. Tax Desk
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Tel: +66 (0)2 344 1000
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Website: http://www.pwc.com/thailand
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This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
© 2015 PricewaterhouseCoopers Legal & Tax Consultants Ltd. All rights reserved. ‘PricewaterhouseCoopers’ and/or
‘PwC’ refers to the individual members of the PricewaterhouseCoopers organisation in Thailand, each of which is a
separate and independent legal entity. Please see www.pwc.com/structure for further details.
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Tax Newsletter – 14 May 2015
Editors:
Ornjira Tangwongyodying, Partner ext. 1118
E-mail: [email protected]
Seetha Gopalakrishnan, Associate Partner ext. 1011
E-mail: [email protected]
1. The transfer must be between affiliates (as defined) which are public or limited companies, organised under
Thai law.
The affiliated company status must be maintained for not less than 6 months from 31 December 2009.
The registered paid-up capital of the transferee company must not be less than net asset value transferred.
2. The transfer must be completed within 31 December 2009.
3. The assets transferred must be related to the transferor’s type of business and not be a normal sale. The
transferee must use such assets in the same manner or for a related business and the transfer must be made
at market value as at the transfer date.
© 2015 PricewaterhouseCoopers Legal & Tax Consultants Ltd. All rights reserved. ‘PricewaterhouseCoopers’ and/or
‘PwC’ refers to the individual members of the PricewaterhouseCoopers organisation in Thailand, each of which is a
separate and independent legal entity. Please see www.pwc.com/structure for further details.