International Headquarters (IHQ) and International Trading Center (ITC)
On 16 September 2016, the Revenue Department (“RD”) issued two Director-General Notifications amending the existing regulations on the International Headquarters (“IHQ”) and International Trading Center (“ITC”) schemes. The amendments seek to clarify the treatment of tax losses carried forward from the IHQ and relax the criteria for foreign national employees to qualify for the flat 15% personal income tax rate under both the IHQ and ITC schemes.  In addition, minor changes to the procedures to apply for the IHQ and ITC tax benefits have also been made.
The amended regulations require an IHQ to ring fence the income and tax losses carried forward from the following revenue stream
1) Revenue which qualifies for the corporate income tax exemption, that is, IHQ revenue which is derived from foreign affiliates
2) Revenue which qualifies for a reduced 10% corporate income tax rate, that is, the portion of IHQ income derived from Thai affiliates which does not exceed the IHQ revenue derived from foreign affiliates and
3) Revenue which is subject to the normal corporate income tax rate of 20%, that is, any non-IHQ revenue as well as the portion of IHQ revenue derived from Thai affiliates that does exceed the total IHQ revenue derived from foreign affiliates.
Consequently, based on our interpretation, which is supported by an unofficial discussion with the RD, the tax losses carried forward in each of the above revenue streams are ring-fenced and cannot be utilized against income from any other revenue streams. We understand that the purpose of this amendment is to circumvent companies using the IHQ scheme to take advantage of creative tax planning and avoidance arrangements.
In order to qualify for the flat 15% personal income tax rate under the IHQ and ITC schemes, certain requirements must be met, including that the foreign national must obtain a work permit as a skilled laborer or expert from the Ministry of Labor Department of Employment. In terms of the amended regulations, however, a foreign national can now obtain a work permit directly from the BOI as opposed to the Ministry of Labor Department of Employment. We understand that this was already taking place in practice which is now formally supported by the amended regulations. We therefore do not expect this change to have a significant impact.
Minor changes (such as the format in which files should be uploaded) have also been made to the procedure for applying to the RD for the benefits under the IHQ and ITC schemes. These changes apply to new applications as well as updates or changes to existing applications.
The amendments relating to the tax loss carry forward and work permit criteria are effective retrospectively from 2 May 2015, whereas the procedural changes are effective from 16 September 2016. Taxpayers under the IHQ (including those who have converted from the Regional Headquarter regime to the IHQ) who have already lodged their annual corporate tax returns, should consider how the amended regulations impact on these returns due to their retrospective application. KPMG Thailand would be pleased to assist clients in this regard.
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