The Thai Revenue Department (TRD) issued Royal Decree No.586 (RD NO.586) on 28 April 2015 in the latest attempt to encourage companies to consider Thailand for their international headquarters (IHQ), rather than the usual favorites, Singapore and Hong Kong.
The TRD consulted widely with the international community in order to address the main obstacles and constraints under the previous regional headquarter laws. Under the reforms, companies that register as an IHQ can now provide international trading services with foreign associated enterprises, so long as the trade does not involve goods that enter Thailand. An IHQ is also permitted to provide management, financial management, technical services or supporting services to both foreign and domestic associated enterprises. Alternatively, companies can register as an international trading center (ITC), either separately or in addition to IHQ registration, enabling the company to trade with any foreign enterprise.
The new rules also impose less stringent conditions and requirements so that companies can utilize tax benefits over a longer period. Revenue that an IHQ receives from foreign associated enterprises in the form of management service fee payments, interest, royalties and dividends are now exempt from corporate income tax (CIT) in Thailand, while revenue received from domestic associated enterprises will be subject to a reduced CIT of just 10%. Conversely, an IHQ is also exempt from Thai withholding taxes on certain payments made to foreign associated enterprises. As a further sweetener, full-time expatriate employees of the IHQ will be eligible for a flat 15% income tax, rather than the usual progressive rates.
There are significant opportunities for foreign multinational companies operating in the region, as well as for Thai companies that are expanding and investing abroad. With lower labor costs than either Singapore or Hong Kong, abundant resources and a convenient, centralized location, companies should carefully consider the benefits of establishing an IHQ in Thailand. Further to intercompany transactions, there are other issues to be aware of such as the upcoming transfer pricing rules that are expected to be introduced later this year, as well as general anti-avoidance rules.
* The information contained in this legal update is provided for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.