On 28 December 2018, Thailand published a Royal Decree regarding implementation of the International Business Center (IBC) regime in the Official Gazette and became effective as of 29 December 2018, which replaces the International Headquarters regime, the Regional Headquarters regime, the Treasury Center regime, and the International Trading Center regime.
The new changes are part of the OECD Inclusive Framework for Base Erosion and Profit Shifting (BEPS). Under this framework, Thailand has agreed to implement BEPS Action 5, BEPS Action 6, BEPS Action 13, and BEPS Action Item 14.
Qualifying companies under the new IBC regime are eligible for a number of incentives for a standard period of 15 years, including:
- A reduced corporate income tax (CIT) rate of 8%, 5% or 3% on the net profits from its qualifying service fee and royalty incomes (from R&D) earned from its Thai and overseas associated enterprises (at least a 25% direct or indirect holding), provided that it meets annual local spending requirements of THB 60 million, THB 300 million or THB 600 million, respectively;
- CIT exemption on dividends from the Thai and foreign associated enterprises;
- Specific Business Tax (SBT) exemption on financial management services from Thai and foreign associated enterprises;
- A flat personal income tax rate of 15% for expatriate employees; and
- Exemption on withholding taxes on dividends or interest paid from an IBC.
The conditions to qualify for the IBC regime include:
- Have at least 10 skilled full-time employees (or at least 5 employees if only engaging in treasury services);
- Must be a Thai-incorporated company;
- Have at least THB 10 million paid-up capital at the end of each accounting year;
- Provide qualifying support services or treasury services to its associated enterprises;
- Meet minimum local spending of at least THB 60 million per accounting period unless converted from ROH or IHQ; and
- Obtain approval from the Director General of the Revenue Department.
If an IBC is unable to meet one of the conditions in any accounting year, including minimum local expenditure and providing the qualifying services, it will not be entitled to the tax incentives for that particular accounting year. If the conditions are not met in following years, the IBC status may be revoked, and incentives provided in past years recaptured.
For enterprises that were previously approved for incentives under the previous regimes, those incentives will carry on to apply until the approval expires, although those with Regional Headquarter status may only apply incentives until 2020.
Enterprises under the previous regimes may also apply to convert to the IBC regime, depending on meeting the conditions. However, for regional and international headquarters, a lower expenditure threshold of THD 15 million is provided for the application of the 8% rate instead of THD 60 million.
