New business tax regime now in force

In 2017, Thailand joined the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS) project. The BEPS project was designed to revise the international tax rules to align them to developments in the world economy, and ensure that profits are taxed where economic activities are carried out and value is created.
The proposed action plans to be undertaken are intended to introduce coherence in the domestic tax rules that affect cross-border activities, reinforce substance requirements in the existing international standards, improve transparency and strengthen tax treatment for business that do not take aggressive positions. 
By signing up for this inclusive framework, the Thai government has committed itself to implementing the BEPS minimum standards, of which one of the major action plans is combating harmful tax practices. In response to this, the Revenue Department has introduced a new regime in which the international business centre (IBC regime) replaced the previous regional operating headquarters (ROH) and international headquarters (IHQ) regimes. With effect from October 10, 2018, the Revenue Department ceased accepting new applications under ROH/IHQ and suspended all submitted applications.
On December 28, 2018, Royal Decree No 674 was issued to introduce the tax incentives available under the new IBC regime. The key notable items are as follows:
Conditions

A Thai company incorporated for the purpose of providing supporting services, technical assistance or treasury centre functions to its affiliates;
Paid-up capital on the last day of each accounting period of at least Bt10 million;
At least 10 knowledgeable and skilled personnel working fulltime for the IBC, or at least five if the IBC acts only as a treasury centre.

Key tax incentives
Reduction in the corporate income tax rate on qualifying income as follows: 
8 per cent if the IBC incurs expenditure of at least Bt60 million paid to recipients in Thailand in the accounting period
5 per cent if the IBC incurs expenditure of at least Bt300 million paid to recipients in Thailand in the accounting period
3 per cent if the IBC incurs expenditure of at least Bt600 million paid to recipients in Thailand in the accounting period;
Exemption from tax on dividends derived by the IBC from affiliates;
Exemption from withholding tax on dividends paid by the IBC to a non-resident company out of profits derived from income subject to the reduced rate of tax; 
Exemption from withholding tax on interest paid by a treasury centre on borrowing that is re-lent to affiliates;
Exemption from specific business tax on income received by a treasury centre;
Personal income tax rate of 15 per cent for expatriate employees working for the IBC.
When compared with the previous ROH/IHQ regimes, it is interesting to note that the IBC regime does not apply different tax rates to offshore and onshore income. As a consequence, there is no requirement for services to be provided to a minimum number of offshore affiliates, nor is there any limit on the amount of onshore income that would qualify for the reduced rate.
In addition, the expenditure required to qualify for the reduced tax rates has been significantly increased. This reflects that a clearer substance is required through the annual expenditure and number of staff working full time for the IBC. 
Notwithstanding this, in a case in which an existing ROH/IHQ converts to an IBC, it can enjoy the reduced tax rate of 8 per cent subject to certain conditions being fulfilled even though it meets the minimum expenditure requirement of Bt15 million in each accounting period. 
The tax benefits under the IBC regime will be granted for 15 accounting periods. If the IBC does not meet the rules and conditions prescribed in the royal decree, or does not otherwise qualify as an IBC in any accounting period, the benefits will be revoked on a year-by-year basis.
On the other hand, if the company does not meet the conditions for more than one accounting period, or has none of the characteristics for operating as an IBC, the tax benefits will be terminated with effect from the first accounting period.

Contributed by ORAWAN PHANITPOJJAMARN, an associate partner for legal and tax services at PwC Thailand.