Thailand as new source of cost-efficiency location | KPMG | TH

International firms may eye Thailand as new source of cost-efficiency location to centralize their operations

Thailand as new source of cost-efficiency location

KPMG: International firms may eye Thailand as new source of cost-efficiency location to centralize their operations, thanks to its recently implemented International Headquarters measures


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Amid the pressing global economic environment, international firms may eye Thailand as the new source of cost-efficiency location to centralize their operations, thanks to its recently implemented International Headquarters (IHQ) measures, says KPMG in Thailand.

The IHQ, which features a major upgrade from the existing Regional Operating Headquarters (ROH), has put Thailand back to the competitive investment destination competition as the newly introduced measures are up against those implemented in Singapore and Malaysia. In addition, a continued support from the Thai government would make this IHQ a truly successful move.

“The measures put in place in IHQ comprise of several significant issues that trigger multi-national corporations to have a closer look at Thailand. Comparing with the measures and conditions offered by Singapore and Malaysia, Thailand’s IHQ is relatively quite attractive,” said Benjamas Kullakattimas, Partner and Head of Tax, KPMG in Thailand.

Since the beginning of this year when Thailand’s Board of Investment released its new investment promotion policy for those, who wish to set up headquarters in Thailand, international companies started to factor in and were awaited for the Revenue Department ‘s tax incentives. Following the Royal Decree issued in April providing tax incentives for IHQ and the Department Notification detailing procedures and conditions released in May by the Revenue Department, international firms have been seriously contemplating whether they should set up their headquarters in Thailand. In addition, some companies, which have already been granted the ROH, are considering an upgrade to IHQ.

Some key incentives in this IHQ include an exemption and decrease of corporate income tax rate; a reduction of personal income tax rate for non-Thai employees to 15% from the maximum progressive rate of 35%; and the period to enjoy the incentive, which is extended to 15 years.

Some conditions under the IHQ are more flexible than those in the ROH and competitive when compared with Singapore and Malaysia. For example, the number of affiliated foreign company in provision of service criteria has been reduced to at least 1 from 3 entities. In addition, the companies will not be eligible to obtain the incentives only in the year that they fail to meet the requirements. Under the ROH, the penalty for failing to meet the requirement may include the retroactive payment.

“Thai firms are eligible to apply for these incentives under this IHQ as well. Therefore, Thai companies that are expanding in overseas, even the number of overseas office is just one company, can also apply. Another significant benefit for the Thai firms, if they are eligible under this IHQ, is that they could charge their subsidiary for service fee, which is their revenue, while this cost becomes a tax deductable for their subsidiary. By this way, instead of having to wait until their subsidiary distributes the dividends, charging the fee directly to the subsidiary, would allow the firms to realize such fee as revenue instantly. In the meantime, their subsidiary can save some tax expense,” said Benjamas, adding that this IHQ would be more appealing to Thai companies had the personal tax income rate reduction under this scheme extended to Thai executives as well.

As the IHQ also covers Treasury Center, international companies now are taking this into account. In the past, international companies put its plan to set up Treasury Center in Thailand on hold. One of the factors behind this is the lack of attractive tax incentive.

Thailand’s IHQ is another stepping stone, which could pave the way for Thailand to become an efficient business center. To achieve a greater impact, the Thai government and related agencies should consider additional measures that could help fulfill an existing gap in the IHQ and lead the country to where it could ultimately benefit from the transactions arisen from this effort. 

About KPMG in Thailand

KPMG in Thailand is a member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, with more than 1,500 employees.

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