Businesses should be aware that Thailand’s International Business Centre (IBC) regime came into effect last December, replacing three prior headquarter incentive regimes – International Headquarters (IHQ), Regional Operating Headquarters (ROH 2010) and International Trading Centre (ITC). This change was in response to an Organisation for Economic Co-operation and Development (OECD) review of Thai tax regimes conducted last year.
IBC will continue offering a number of tax incentives to businesses, in line with the Thai government’s aim to promote Thailand as a regional hub. Although the IBC incentives are less attractive than those provided under the previous regimes.
The Revenue Department (RD) indicated earlier this year that current beneficiaries of the prior headquarter regimes could continue to enjoy tax benefits until the original incentive period granted to the business elapsed.
However, the Thai Cabinet subsequently approved three draft Royal Decrees cancelling all tax incentives provided under these prior headquarter regimes with effect from 1 June 2019 for corporate income tax incentives and 1 January 2020 for personal income tax incentives. Incentives under ROH 2002 will continue until the end of 2020.
The basis of such cancellation is for Thailand to be compliant with the OECD agreed timelines and prevent punitive countermeasures being applied by other countries.
Current beneficiaries of these prior regimes can convert into IBC before 1 June 2019 provided the relevant conditions are satisfied and an application for conversion is made to the RD. No corporate income tax incentives will, however, be available for ITC.
The IBC regime appears to encourage current beneficiaries of the old schemes to convert, as it provides a reduced minimum annual expense requirement of THB 15 million in case of conversion, as opposed to minimum annual expense of THB 60 million for new applicants.
On 2 May 2019, the RD released an IBC application form that must be submitted in hard copy to the Large Business Tax Administration Office. There is currently no online application process for IBC.
The RD has stated that the timeframe for approval of IBC applications will be 30 working days for new applicants. A shorter timeframe will apply to conversion cases. Conversion applications must be submitted and approved before 1 June 2019 to avail of the reduced minimum annual expense requirement.
While the RD has been active in providing updates on IBC, given this is new legislation, there will inevitably be elements of ambiguity surrounding the transition to IBC and the mechanics of how the new regime shall apply to current beneficiaries of the existing regimes. It is important that the RD continues to provide clarification on IBC in order for taxpayers to make informed decisions.
Notwithstanding this ambiguity, 1 June 2019 is around the corner. Therefore, it is critical that beneficiaries of the prior headquarter regimes contemplate the availability of IBC, take action as soon as possible, and keep abreast of any further developments. Otherwise, businesses could suffer a loss of relevant tax incentives in the ‘limbo period’ of not being in a headquarter regime.
Of course, businesses which do not currently avail of any headquarter regime should also consider the applicability and merit of IBC.
As developments are occurring at a rapid pace, we stress the gravitas of businesses closely monitoring the situation.