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Additional tax incentives package for Regional Operating Headquarters — Orbitax Tax News & Alerts

On 27 October 2010, Royal Decree No. 508 (RD 508) was issued that added another package of tax incentives for Regional Operating Headquarters (ROH). With the advent of RD 508, a company may opt to apply for the old or new package of tax incentives. A company that wishes to apply for the new package is required to notify the Thai Revenue Department within 5 years from the date specified by the Director-General (to be announced later). RD 508 is effective from 28 October 2010 onwards and contains the following tax incentives and conditions:

Tax incentives

-   Reduction of corporate income tax (CIT) from the normal rate of 30% on net profits to 10% on net profits derived by the ROH on the following types of income:
-   services fees charged to Thai affiliates;
-   sub-loan interests received from Thai/foreign affiliates and/or foreign branches; and
-   royalty on R&D performed in Thailand for the Thai/foreign affiliates and/or foreign branches.
-   All the above incentives will be applicable for 10 consecutive accounting years. Such period may be extended for 5 years, provided that certain conditions are fulfilled.
-   CIT exemption on net profits derived from the services provided to the foreign affiliates and/or foreign branches.
-   Reduction of personal income tax (PIT) from the normal progressive rates ranging between 5%-37% to a flat rate of 15% for:
-   8 consecutive years for expatriates at the executive level or high-level specialists (the qualification to be announced by the Revenue Department).
-   4 consecutive years for other expatriates.
Remuneration paid by the ROH to the above-mentioned expatriates in respect of duties carried out offshore will be exempted from PIT.
-   CIT exemption for dividends received by ROHs from Thai/foreign affiliates.
-   CIT exemption for dividends received by a foreign entity (with no PE in Thailand) which are paid out from the net profits derived from "Qualified Incomes" (see the conditions below for the definition of the "Qualified Incomes".

Conditions

-   No less than 50% of ROH's income must be composed of service fees and/or royalties on R&D received from offshore (Qualified Incomes).
-   The ROH must be a Thai company.
-   The ROH must have a paid up capital of no less than THB 10 million at the end of each accounting period.
-   The ROH must provide services to its affiliates and/or branch offices in at least:
-   one foreign country during the 1st and 2nd accounting year;
-   two foreign countries during the 3rd and 4th accounting year; and
-   three foreign countries from the 5th accounting year onwards.
-   The ROH pays a Thai recipient a minimum of:
-   THB 15 million in operating expenditure per accounting year. Assets depreciation, offshore expenses, raw materials costs, royalties, components and packaging costs do not qualify as such expenditure; or
-   THB 30 million in capital expenditure per accounting year. Shares investments do not qualify as such expenditure.
-   The offshore affiliates or branches must actually carry out the businesses described in its objectives.
-   The ROH's employees must have the required level of education as announced by the Director-General of the Revenue Department (to be announced).
-   The ROH notifies the Thai Revenue Department of the claim for tax incentives within 5 years from a date to be specified by the Director-General (to be announced).
-   From the 3rd accounting year onwards, the following conditions must be fulfilled:
-   75% of the employees must have the level of education (to be announced) as required by the Director-General of the Revenue Department.
-   At least 5 employees of the ROH receive remuneration of no less than THB 2.5 million per person per year.