International Business Center
Seven steps to Thailand’s new International Business Center (IBC) regime
The new IBC International Business Center is a compilation and combination of the IHQ International Headquarters and the ITC International Trading Center. The new IBC regime follows the allegation that the previous regime qualifies as harmful tax practice under the BEPS rules. The IBC scheme requires a combined application process with Thailand’s BOI and Revenue Department.
On an international level, IBC stands for an International Business Corporation, which is set-up in a tax neutral jurisdiction with the restriction to do business outside of its jurisdiction only. This IBC should not be confused with the new Thai IBC regime.
A brief history of time of the IBC/IHQ/ITC/ROH
To fully understand the new tax and investment incentive regime on the International Business Center, it is helpful to be aware of the ever-changing legislation and regulatory framework in the previous years:
2002: Regional Operating Headquarters I (Royal Decree 405)
2010: Regional Operating Headquarters II (Royal Decrees 508)
2015: International Headquarters (Royal Decree 586)
2015: International Trading Center (Royal Decree 587)
10/10/1018: Suspension of new applications for tax benefits under the IHQ and ITC regimes
23/11/18: Eligible R&D activities have to be performed in Thailand only (Royal Decree 666)
11/12/18: International Business Center (Regulation No. Sor. 6/2561) to retire the International Headquarters as well as the International Trading Center scheme and replace it by the International Business Center.
28/12/18: Royal Decree No. 674 on taxation of the IBC with long-term tax holidays, a reduced flat rate for personal income taxation, and certain other tax benefits.
Seven criteria for the IBC 2018 – to be applied with BOI and RD
#1. Promoted activities: Organizational administration and management, business planning and business coordination, procurement of raw materials and parts, research and development, technical support, marketing and sales promotion, human resources and training, financial advisory, economic and investment strategic analysis, credit management and control, treasury center, international trade activities, and other services to be announced later by the Revenue Department.
#2. Required registered capital: THB 10 million, to be provided on the date the IBC obtains BOI investment promotion.
#3. Required human capital: Typically ten highly skilled employees, in exceptional cases it is sufficient to employ five.
#4. Minimum annual expenditure of no less than THB 60 million.
#5. BOI non-tax incentives: Main advantages of an investment promotion by the BOI are
- Eligibility to purchase and own land for the IBC
- Exemption from certain import duties levied on R&D equipment
- Permission to remit funds abroad in foreign currencies and
- Easements on permits for foreign employees.
#6. Revenue Department: Main tax benefits are as follows:
- Corporate income taxation is set at 0% for a duration of 15 years (tax holidays).
- Tax exemption for dividends and special business tax exemption for associated enterprises
- Special business tax exemption on income derived from treasury management services.
- Flat personal income tax rate of 15% for foreigners with a minimum monthly salary of THB 200,000 if residing in Thailand for at least 180 days per year and other criteria are met.
#7. Grandfathering of the old IHQ/ITC schemes, if certain requirements and qualifications are met. Alternatively, the existing IHQ, ITC or ROH schemes can be terminated and replaced by the new IBC model, without being penalized for
The BOI will publish more details soon and it makes sense to wait for such additional input, as well as the tax guidelines by the Thailand Revenue Department before significant investments in this scheme are done. To keep informed about further developments, contact the law firm.
Professional service offer from Bangkok
Corporate and investment structures are one of the law firm’s areas of competence, long-standing experience, and unique market reputation. To prudently apply for the IBC scheme with BOI and RD requires an in-depth analysis of the financial data of the headquarters and its affiliated enterprises, the cross-border value-added chain, and a deep understanding of the tax implications and tax structuring opportunities.
Apart from the IBC scheme, the law firm’s typical corporate assignments cover these seven areas:
- Advice on corporate structuring
- Company formation services
- Special business licensing
- Company acquisitions and disinvestments
- Corporate due diligence examination
- Corporate restructuring
- Legal opinions and professional statements
The terms for assigning PUGNATORIUS Ltd. are described at “Legal advice and assistance on corporate and investment laws.”