The Thai government has offered tax, customs and employment incentives under various schemes for Regional Operating Headquarters (ROHs), International Headquarters (IHQs), Treasury Centers (TCs) and International Trading Centers (ITCs) to attract multinationals looking to set up a regional base of operations in Southeast Asia.   While the success of these incentives is open to debate, the international community has recently concluded that such incentives could erode the tax bases of countries who offer competing incentives in a “race to the bottom” as set out in the OECD’s Inclusive Framework on Base Erosion and Profit Shifting, (the Framework) of which Thailand is a member.

The IBC scheme, which was approved under Royal Decree on 10 October 2018, is meant to address the concerns set out in the Framework by providing less generous benefits than its predecessor schemes.   Multinationals may no longer apply to qualify as ROHs, IHQs or ITCs, and entities that currently enjoy benefits under these schemes may continue to do so under their existing conditions until their current status expires, at which point they will need to apply to become IBCs (although such entities may want to consider other options, such as applying for BOI promotion which offers similar privileges but under different conditions).

The conditions required to qualify as an IBC are more onerous than under the previous schemes.   Applicant musts have paid up capital of at least 10 million THB as under the previous schemes, but annual operating expenditures must be at least 60 million THB for new applicants or at least 15 million THB for ROHs and IHQs that convert to an IBC, and the applicant must have at least 10 employees (or five employees if the applicant will only provide treasury services).

The benefits of qualifying as an IBC are similar to those of the previous schemes, except for the tax treatment of corporate income.  In particular:

1. Corporate Income.  Net income from support services, treasury services and royalty income from affiliates will be entitled to reduced corporate income tax depending on the level of annual operating expenses:  8% if annual operating expenses are within 60-300 million THB; 5% if annual operating expenses are within 300-600 million THB; and 3% if annual operating expenses exceed 600 million THB.
2. Dividends from Affiliates.  Dividend income from affiliates is exempt from corporate income tax.
3. International Withholding Tax.  No withholding tax for interest payments or dividends to corporate recipients outside of Thailand.
4. Specific Business Tax.  No specific business tax for treasury service income derived from affiliates.
5. Expatriate Personal Income Tax.  A flat 15% rate for expatriates employed by the IBC.