New scheme makes the country more attractive for regional HQs

THAILAND’S new Regional Operating Headquarters regime has introduced some enhanced benefits, as seen in the accompanying table. Although the new qualifying criteria are more detailed, they are not in all cases more onerous. 

The requirement for how many foreign affiliates you need in your stable is now graduated, although you still have to keep in mind the 50-per-cent rule that survives from the old regime. It only affects expatriate benefits now, not the entire package.

Other requirements include the need to incur local operating costs of Bt15 million annually, or annual “investment spending” in Thailand of Bt30 million. 

There are also average remuneration requirements for the top five employees of Bt2.5 million. 

None of these is going to break the bank for a serious multinational player, and they fall well short of what Singapore is likely to be looking for in order for the Economic Development Board (EDB) to invite you to dinner.

The effective personal tax rate of 15 per cent is reached for income levels of Bt1.4 million, so the rate-cap option will be of significant interest to top earners.

In line with Singapore’s “entry level” RHQ (Regional Headquarters) incentive, Thailand’s new ROH regime also lays down some minimum quality requirements for staff.

By the end of the third year, at least 75 per cent of them have to have graduated from secondary school, a primary vocational institute or the equivalent – again, a relatively attainable target.

Unlike the old regime, however, and in keeping with Singapore’s approach, a sunset clause of 10 years has been introduced, although this can be extended to 15 years, provided the company has incurred cumulative operating expenses of Bt150 million over that 10-year period.

But the sword of Damocles hangs above it all.

 If you fail to meet any of the conditions at any time, you have to hand over not only the tax savings you made from Day 1, but also late-payment penalties. This is an alien concept in the Singapore environment, where if you have tried hard to meet the conditions but have fallen short for genuine reasons, you go back into a lovey-dovey huddle with the EDB and come out waving a “solution”.

In Thailand, you had better be pretty sure you have done your homework and are going to meet the conditions. 

It would be unpopular back home to have to explain to people how you turned an exciting incentive into a fiscal rout.

The new ROH regime looks like a cut-and-paste version of the Singapore RHQ in terms of commitments. 

International trading centres 

However, what it provides, in exchange for what in Singapore are really only entry-level commitments, is considerably more and looks set to challenge the more ethereal IHQ (International Headquarters) scheme. 

The fact that it seems automatically to include interest and royalties rather than just service fees (available to an IHQ but with a lot more effort), exempts that income from its overseas affiliates and gives a 10-per-cent rate for its locals – quite a head start.

But this is not the end of it. Last December, the Cabinet approved further tax and other privileges in the headquarters space, which has now been dubbed the International Headquarters incentive. 

The main thrust of the initiative seems to be to follow Singapore’s suit by combining the incentive (or at least co-marketing it) with a turbocharged international procurement centre known as the international trading centre (ITC).

Under the new ITC scheme, profits from the purchase or sale of goods to or from non-resident affiliates where the goods do not enter Thailand will be tax-exempt (previously 15 per cent), and profits from the purchase or sale of raw materials or parts to foreign affiliates outside of Thailand for manufacture outside Thailand will be taxed at 10 per cent (previously also 15 per cent).

This latest gesture seems to be a move to shadow Singapore’s holistic trend and is clearly a sign that the Thai government is moving on the right path.

There is much more than just tax incentives involved in deciding the most appropriate place to set up a headquarters. 

However, on a standalone basis, Thailand seems to be in good shape with what is on offer so far. 

 

David Sandison is a Grant Thornton international tax specialist based in Singapore.