On 26 December 2018, Thailand published in the Official Gazette the Royal Decree for the implementation of the International Business Center (IBC) regime, which replaces the International Headquarters regime, the Regional Headquarters regime, the Treasury Center regime, and the International Trading Center regime, all of which were found harmful as part of the OECD review in relation to BEPS Action 5.

Qualifying companies under the new IBC regime are eligible for a number of benefits/incentives for a standard period of 15 years, including:

• Reduced corporate tax rates on qualifying support service, treasury center, and royalty income based on meeting annual local operating expenditure thresholds, including:
  • A 3% rate if at least THB 600 million local expenditure per period;
  • A 5% rate if at least THB 300 million local expenditure per period; and
  • An 8% rate if at least THB 60 million local expenditure per period;
• A tax exemption on both domestic and foreign-sourced dividend income from associated enterprises;
• A withholding tax exemption on dividend distributions to non-resident shareholders and on interest payments to foreign beneficiaries in relation to loans for treasury activities;
• An exemption from specific business tax on qualifying treasury center income; and
• A flat personal income tax rate of 15% for expatriate employees.

With respect to royalty income, the regime applies for royalty income from associated enterprises, but only in respect of royalties arising from R&D performed in Thailand. With respect to associated enterprises, an enterprise is considered associated for the purpose of the regime where there is at least a 25% direct or indirect holding in the IBC or the IBC holds at least 25% in the enterprise, or a third party has at least a 25% direct or indirect holding in both.

The conditions to qualify for the IBC regime include:

• The company must be set up under Thai law to provide qualifying support services or treasury services to its associated enterprises;
• The company must have paid-up capital of at least THB 10 million at the end of the accounting period; and
• The company must have at least 10 qualified employees (at least 5 for treasury center).

Where the conditions are not met for one year, including minimum local expenditure and providing the qualifying services, the incentives do not apply for that year. If the conditions are not met in consecutive years, the IBC status may be revoked, and incentives provided in past years recaptured.

For companies that were previously approved for incentives under the prior regimes, those incentives will generally continue to apply until the approval expires, although those with Regional Headquarter status may only apply incentives until 2020. Companies under the prior regimes may also apply to convert to the IBC regime, subject to meeting the conditions. However, for regional and international headquarters, a lower expenditure threshold of THD 15 million is provided for the application of the 8% rate instead of THD 60 million.