Tax Newsletter, Issue no.2/2015

Transcription

1 Tax Newsletter, Issue no.2/2015 Tax incentives for setting up international headquarters (IHQ) and international trading centres (ITC) in Thailand In this issue: 1. Tax incentives for setting up international headquarters (IHQ) and international trading centres (ITC) in Thailand 2. Interesting rulings On 23 December 2014, the Thai Cabinet approved the following tax incentives and conditions of IHQ and ITC according to the proposal of the Ministry of Finance. Subsequently, on 10 March 2015, the Cabinet approved certain amendments thereto. However, no details of the amendments are yet available. IHQ An IHQ is a company incorporated under the law of Thailand for the purpose of providing managerial services, technical or supporting services or financial management to its associated enterprises or branches, whether situated in Thailand or abroad, including carrying on business in the manner of an international trading company. The following are the key conditions that an IHQ must meet to enjoy tax privileges under this proposal: (i) The paid-up capital on the last day of an accounting period must be at least Baht 10 million. (ii) Services must be provided to associated enterprises established under foreign law or foreign branches of the associated enterprises in at least one country. (iii) Operating expenses paid to recipients in Thailand must not be less than Baht 15 million in each accounting period. An application must be submitted to and approved by the Director- General of the Revenue Department following which the qualified IHQ will be granted tax privileges for 15 accounting periods. In the case where it appears that the IHQ lacks any of the qualifications in any accounting period, the right to be entitled to the tax privileges will be suspended only for that accounting period.

2 The key tax privileges include the following: Exemption from corporate income tax on certain income, such as that from IHQ services provided to associated enterprises abroad, interest on loans received from associated enterprises abroad from financial management, dividends or royalties received from associated enterprises abroad, capital gains from the transfer of shares in associated enterprises abroad, income from buying and selling goods abroad without importing such goods into Thailand (Out - Out) including income from international trade services provided to foreign juristic entities and received in or from a foreign country. Reduction of the corporate income tax rate from 20% to 10% on certain income, such as that from IHQ services provided to associated enterprises in Thailand, interest on loans received from associated enterprises in Thailand from financial management and royalties received from associated enterprises in Thailand. (Note: Total income from providing IHQ services including interest on loan and royalties subject to reduction corporate income tax rate must not exceed total income from providing IHQ services including interest on loan and royalties exempted from corporate income tax.) Withholding tax exemption on dividends paid from the net profit arising from qualified income to foreign corporate shareholders. Withholding tax exemption on interest paid to foreign companies not carrying on business in Thailand on loans borrowed for relending to associated enterprises for financial management A flat rate of 15% personal income tax on the assessable income of an expatriate employee of an IHQ. Exemption from specific business tax on interest received from loans to associated enterprises for financial management. A Regional Operating Headquarters (ROH) already established and entitled to tax privileges will be able to submit an application for the tax privileges of an IHQ and to dissolve the ROH without having any impact on the tax privileges obtained while being an ROH. ITC An ITC is a company established under the law of Thailand and engaged in the business of buying and selling goods, raw materials and parts, including providing services relating to international trade to foreign juristic entities. To enjoy the tax privileges under this scheme, an ITC must meet the following key conditions: (i) (ii) There must be a paid-up capital on the last day of an accounting period of at least Baht 10 million. There must be associated enterprises or branches abroad in at least one country. An application must be submitted to and approved by the Director- General of the Revenue Department following which the qualified ITC will be granted tax privileges for 15 accounting periods. Page 2 of 6

3 In the case where it appears that the ITC lacks any qualifications in any accounting period, the right to be entitled to the tax privileges will be suspended only for that accounting period. The key tax privileges offered include the following: Withholding tax exemption on dividends paid from the net profit derived from qualified income to foreign corporate shareholders A flat rate of 15 % personal income tax on the assessable income of an expatriate employee of an ITC. Exemption from corporate income tax on income from buying and selling of goods abroad without importing such goods into Thailand (Out-Out), including income from international trade services provided to foreign juristic entities and received in or from a foreign country. Interesting rulings Is a cumulative preference shareholder required to recognize a dividend as taxable income on an annual basis regardless of whether or not a dividend has been declared? (Gor Kor 0702/3968 dated 16 June 2014) Facts Thai Co holds cumulative preference shares in UK Co with the right to receive a dividend from taxable profit at the rate of 8% per annum. UK Co records the shares issued as a liability and accrues for the dividend as interest payable while Thai Co records the shares as an investment. Thai Co has been questioned by the Revenue Department as to why it has not recorded the accrued dividend receivable on such shares for the accounting periods ended 2007 and According to Thai Co, it has invested in the preference shares of UK Co, whereby the dividend is recorded as taxable income when it is declared. Since Thai Co has never been informed or received evidence of the dividend declaration from UK Co, it is not required to recognize such dividend as taxable income for the periods in question. Decision of the Revenue Department The Revenue Department took the view that the cumulative preference shares are equity and not a liability. Hence, the shareholder is required to record the dividend as taxable income only when the dividend has been declared by the company. Page 3 of 6

4 Expenditure determined on and payable out of quarterly profit not tax deductible (Gor Kor 0702/4203 dated 20 Jun 2014) Facts The Company pays an incentive bonus in cash to its staff based on the quarterly profit. In addition, if there is no profit in any quarter, no payment will be made. Decision of the Revenue Department The Revenue Department ruled that such a payment is a non-deductible expense under Section 65 ter (19) of the Revenue Code even though it is not paid out from the net profit as of the fiscal year-end. How to record interest on loan acquired for the purpose of purchasing land? (Gor Kor 0702/4191 dated 19 June 2014) Facts In 2008, Thai Co received a loan from a bank to purchase land. In 2009, Thai Co began constructing a factory on the land which was completed in How should the following expenses be treated in the corporate income tax computation? i. Interest on loan for purchase of land incurred before the construction of factory ii. Interest on loan for purchase of land during the construction of factory iii. Interest on loan for purchase of land after the construction of factory Decision of the Revenue Department The Revenue Department expressed the view that the interest on the loan under (i ) and (ii) above were incurred before the asset became ready for use and therefore should be recorded as capital expenditure, while the interest under (iii) was incurred after the asset became ready for use and would be tax deductible. Page 4 of 6

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6 Editors: Ornjira Tangwongyodying, Partner ext Seetha Gopalakrishnan, Associate Partner ext The transfer must be between affiliates (as defined) which are public or limited companies, organised under Thai law. The affiliated company status must be maintained for not less than 6 months from 31 December The registered paid-up capital of the transferee company must not be less than net asset value transferred. 2. The transfer must be completed within 31 December The assets transferred must be related to the transferor s type of business and not be a normal sale. The transferee must use such assets in the same manner or for a related business and the transfer must be made at market value as at the transfer date PricewaterhouseCoopers Legal & Tax Consultants Ltd. All rights reserved. PricewaterhouseCoopers and/or PwC refers to the individual members of the PricewaterhouseCoopers organisation in Thailand, each of which is a separate and independent legal entity. Please see for further details.