On 26 March 2019, the Cabinet approved draft Royal Decrees revoking all tax benefits granted by the Thai Revenue Department (“TRD”) to the following Board of Investment (“BoI”) regimes:
- Regional Operating Headquarter (ROH);
- International Headquarter (IHQ); and
- International Trading Center (“ITC”)
The revocation of tax benefits covers: (i) the corporate income tax (CIT) exemption for all net income from these activities; and (ii) the reduced personal income tax (PIT) rate of 15% on gross income for expatriate employees. The CIT revocation is effective from 1 June 2019 while the reduced PIT rate is effective only through 31 December 2019.
In addition, any dividend paid by an IHQ to a foreign associated enterprise (“AE”) that does not carry on business in Thailand from income earned before 1 June 2019 and paid within 31 December 2020 is still exempt from any withholding tax. Similarly, any interest accrued on loans received from an AE before 1June 2019 and paid within 31 December 2020 are also exempt from withholding tax. Any payment though from and after 1 January 2021 would be subject to applicable withholding tax (e.g. 10% and 15%).
Notes:
- We have been advised during an informal discussion with a BOI officer that the revocation tax benefits by the TRD does not affect other non-tax incentives provided by the BOI such as majority foreign ownership. This is logical considering that the BEPS Actions that formed the basis for the government’s decision focused on the elimination of “harmful tax practices”
- The exemption from Specific Business Tax (“SBT”) for an IHQ Treasury Centre was not included in the revocation. Thus a Treasury Centre will remain exempt from SBT on any loans made by it to AEs’.
- Companies that are affected by this development may consider applying for International Business Center (IBC). Although there are no CIT exemptions available to an IBC, there are reduced CIT and PIT rates offered depending on the level of expenses incurred by an IBC operation. An application for an IBC must be filed with the BOI, while the award of tax incentives will be provided by the TRD.
Summary of Measures
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Scheme
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Summary of measures
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ROH1 and ROH 2
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- PIT reduction for foreigners working for ROH is available until 31 December 2019.
- CIT reduction and exemption on income derived from provision of services, interest, royalty and dividend received from AEs are revoked from 1 June 2019
- CIT exemption on dividend paid by ROH to foreign AEs not carrying on business in Thailand will be available only for income generated before 1 June 2019 and paid within 31 December 2020.
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IHQ
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- PIT reduction for foreigners working for ITC is available until 31 December 2019.
- CIT reduction and exemption on income derived from provision of services and dividend received from affiliates, gain derived from disposal of shares in affiliates and income from international trading as well as provision of the related services are revoked from 1 June 2019
- CIT exemption on income derived from dividend and interest paid from IHQ to foreign AEs not carrying on business in Thailand will be available only for income earned and interest accrued before 1 June 2019 and paid within 31 December 2020.
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ITC
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- PIT reduction for foreigners working for ITC is available until 31 December 2019.
- CIT exemption on income derived from international trading and related services is revoked from 1 June 2019.
- CIT exemption on dividend paid by ITC to foreign AEs not carrying on business in Thailand will be available only for income earned before 1 June 2019 and paid within 31 December 2020.
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