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January 7, 2019 Thailand enacts International Business Centers regime to replace existing incentive regimes Executive summaryOn 28 December 2018, Thailand’s International Business Centers (IBC) regime was enacted through Royal Decree and became effective as of 29 December 2018.1 Major developments include a parity of tax incentives on income earned from both local and overseas associated enterprises, a removal of tax incentives earned from international trading activities (i.e., out-out trading2) and an increase in minimum local spending. Tax incentives under the IBC regime replace all previous tax incentives under the Regional Operating Headquarters (ROH) I and II, International Headquarters (IHQ), Treasury Center (TC) and International Trading Center (ITC) regimes. This measure is in response to the Harmful Tax Practices – 2017 Progress Report on Preferential Regimes (Inclusive Framework on BEPS:3 Action 5) in which Thailand’s regional/international headquarters, trading and treasury hub regimes were identified as harmful tax practices. Detailed discussionEntities under the existing ROH II, IHQ, TC and/or ITC regimesEntities that were previously granted incentives under ROH II, IHQ, TC and/or ITC regimes remain eligible for these tax incentives under the existing conditions until their current status expires (up to 15 years for an IHQ/ITC), while those with ROH I status (which does not have a time limit) can only enjoy the incentives until the end of the accounting year 2020. Alternatively, these entities (except an ITC) may choose to convert their status to an IBC if they meet the conditions. Tax incentives at the corporate level
Incentive period
Tax incentive at an individual level
Requirements (must meet all of the following conditions):
Claw-back rule
Comparative chartDownload the PDF file to see the Comparative chart. Note: i. A qualifying IBC is entitled to reduced CIT rates of 8%, 5% or 3%, provided it meets the minimum annual local spending requirements of THB60 million, THB300 million or THB600 million, respectively. However, there is no minimum local spending requirement to a reduced 8% CIT rate for an ROH I that converts to an IBC; while an ROH II and IHQ that convert into an IBC are required to have minimum local spending of at least THB15 million per accounting year to be entitled to the reduced 8% CIT. Further detailed conditions and application procedures under the IBC regime are expected to be released shortly. Endnotes 1. See EY Global Tax Alert, Thailand introduces International Business Center regime to replace existing incentive regimes, dated 16 October 2018. 2. Defined as procurement of goods outside of Thailand from a company and sale to another company without transporting such goods into Thailand. 3. Base Erosion and Profit Shifting. 4. Knowledgeable and experienced employees. For additional information with respect to this Alert, please contact the following: EY Corporate Services Limited, Bangkok
Ernst & Young LLP, Thai Tax Desk, New York
Ernst & Young LLP, Asia Pacific Business Group, New York
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