Tax Newsletter, Issue no.3/2015

Transcription

1 Tax Newsletter, Issue no.3/2015 Tax incentives for international headquarters (IHQ) In this issue: 1. Tax incentives for international headquarters (IHQ) 2. Tax incentives for international trading centres (ITC) 3. Double Tax Treaty between Thailand and Ireland 4. 10Minutes on the OECD s BEPS project For many years, Thailand has had two regional operating headquarters (ROH) regimes. The original regime came into force in 2002 and the second one in Tax privileges were granted to attract multinational companies (both domestic and foreign) to set up regional headquarters operations in Thailand. These presented opportunities for establishing an ROH to act as a holding, services, financing and licensing company. Registrations under the second ROH regime are required to be made no later than 14 November Registrations under the original regime have no time limit. With effect from 2 May 2015, regulations regarding an IHQ regime have been issued to grant tax incentives to attract firms to establish IHQs in Thailand. These new IHQ rules are intended to make Thailand an attractive investment centre for multinational companies. An IHQ is defined as a company incorporated under the law of Thailand for the purpose of providing managerial, technical or supporting services or financial management to its associated enterprises or branches situated in Thailand or abroad. This includes carrying on a business as an international trading company, which has been approved as an IHQ under the relevant Royal Decree.

2 Tax incentives Tax incentives available are: 10% corporate income tax (CIT) on net profit from: (1) qualifying services provided to domestic affiliates; and (2) royalties derived from domestic affiliates. CIT exemption on net profit from: (1) qualifying services provided to foreign affiliates; (2) royalties or dividends derived from foreign affiliates; (3) capital gains from the transfer of shares in foreign affiliates under criteria and conditions prescribed by the Director-General of the Revenue Department; and (4) income from buying and selling goods abroad without importing such goods into Thailand (out - out) and income from international trade services provided to foreign juristic entities and received either in or from a foreign country. Expatriates employed by a qualified IHQ may choose to pay personal income tax at the rate of 15% on salaries received from the date on which the IHQ becomes qualified until the date on which the IHQ is no longer qualified or the employment is terminated. Withholding tax exemption on: (1) dividends paid to foreign corporate shareholders from the income exempt from CIT; (2)interest paid to foreign companies not carrying on business in Thailand on loans borrowed for re-lending to affiliates. Exemption from SBT on interest received from loans to affiliates. Note: The total income subject to CIT at the 10% rate must not exceed the total income from services (including managerial, technical or supporting services or financial management) and royalties which are exempt from CIT. Conditions To qualify for the tax incentives, the IHQ must meet the following conditions: (i) The paid-up capital on the last day of an accounting period must be at least Baht 10 million. (ii) Managerial, technical or supporting services or financial management must be provided to foreign affiliates. (iii) Operating expenses (such as employee costs, office rental, utilities, consulting and audit fees, etc., but excluding depreciation) of the IHQ business 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. The IHQ may choose either: for the tax privileges to start in the accounting period in which the application is approved. In this case, the privileges are available from the day after the date of approval or; for the tax privileges to start at the beginning of next accounting period. Page 2 of 9

3 Details of the process for obtaining approval have not yet been published. The duration of the approvals process cannot be estimated at this stage. If an IHQ lacks any of the qualifications in any accounting period, the right to the tax privileges will be suspended only for that accounting period. Note: An existing ROH will be able to submit an application to be an IHQ and the ROH can be dissolved without having any impact on the tax privileges obtained while being an ROH. Financial management Financial management includes the following: 1. Financial management of a treasury centre permitted under the law governing exchange control; 2. Lending and borrowing of Thai currency ( Baht ) in the following cases: (a) Funds borrowed from Thai financial institutions or affiliates in Thailand; and (b) Lending funds obtained from operations under (1) or (2a), in Thai currency to affiliates in Thailand. Supporting services Supporting services include the following: General administration, business planning and co-ordination Procurement of raw materials and provision of parts Research and development Technical assistance Marketing and sales promotion Human resource management and training Financial advisory services Economic and investment research and analysis Credit management and control Any other supporting activities prescribed by the Director- General International trading company International trading company means a company incorporated under Thai law and engaged in the business of buying and selling goods, raw materials and parts, including the provision of services relating to international trade to foreign juristic entities. Services relating to international trade Services relating to international trade include the following: Procuring goods Maintaining goods awaiting delivery Packaging Transporting goods Providing insurance for goods Providing advice, including technical services and training relating to goods Providing other services as prescribed by the Director- General of the Revenue Department Page 3 of 9

4 Affiliates Affiliates' means companies or juristic partnerships which have a relationship with the IHQ with any one of the following characteristics: Company/partnership which (directly/indirectly) (1) holds at least 25% of IHQ, (2) is held at least 25% by IHQ, (3) is held at least 25% by a common parent, (4) is empowered to control or supervise IHQ, (5) is controlled and supervised by IHQ, (6) is under the same control and supervision as the IHQ. Tax incentives for international trading centres (ITC) With effect from 2 May 2015, regulations regarding an ITC regime have been issued to grant tax incentives to attract foreign firms to establish ITCs in Thailand. These ITC rules are intended to make Thailand an attractive investment centre for multinational companies. Expatriates employed by a qualified ITC may choose to pay personal income tax at the rate of 15% on salaries received from the date on which the ITC becomes qualified until the date on which the ITC is no longer qualified or the employment is terminated. An ITC is defined as 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. Tax incentives The tax incentives available are: Exemption from CIT on income from buying and selling goods abroad without importing such goods into Thailand (out-out), including income from services relating to international trade provided to foreign juristic entities and received in or from a foreign country. Withholding tax exemption on dividends paid to foreign corporate shareholders from the net profit derived from the income exempt from CIT. Conditions To qualify for the tax incentives, the ITC must meet the following conditions: (i) The paid-up capital on the last day of an accounting period must be at least Baht 10 million. (ii) Operating expenses (such as employee costs, office rental, utilities, consulting and audit fees, etc., but excluding depreciation) of the ITC business 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 ITC will be granted tax privileges for 15 accounting periods. The ITC may choose either: Page 4 of 9

5 for the tax privileges to start in the accounting period in which the application is approved. In this case, the privileges are available from the day after the date of approval or; for the tax privileges to start at the beginning of next accounting period. Details of the process for obtaining approval have not yet been published. The duration of the approvals process cannot be estimated at this stage. If an ITC lacks any of the qualifications in any accounting period, the right to the tax privileges will be suspended only for that accounting period. Services relating to international trade Services relating to international trade include the following: Procuring goods Maintaining goods awaiting delivery Packaging Transporting goods Providing insurance for goods Providing advice, including technical services and training relating to goods Providing other services as prescribed by the Director- General of the Revenue Department Double Tax Treaty between Thailand and Ireland Thailand and Ireland signed an Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income ("DTA") on 4 November For Thailand, the DTA came into force on 11 March 2015 and will be effective from the tax years or accounting periods beginning on or after 1 January A brief summary of the main articles of the DTA is as follows:- Taxes covered Income tax and petroleum income tax Permanent establishment includes: A building site, a construction, installation or assembly project or supervisory activities where the time period for the site, project or activities continue for more than six months. The furnishing of services where activities of that nature continue for the same or a connected project for a period or periods aggregating more than six months within any twelvemonth period. A person carrying on activities offshore in connection with the exploration or exploitation of the sea bed and sub-soil and their natural resources where such activities continue for a period or periods aggregating more than three months within any twelve-month period. Page 5 of 9

6 Dividends The tax rate on dividends is 10%. Interest The tax rate on interest is 15% except in the following cases: Interest paid to financial institutions is 10%. No tax is imposed on interest paid to the Government of Thailand/Ireland as defined in the DTA. Royalties The tax rates are as follows: Copyright of literary, artistic or scientific work Industrial, commercial or scientific equipment or any patent Royalties as mentioned in the DTA other than the above: Capital gains 5% 10% 15% Capital gains from the sale of shares, other than shares quoted on a recognized stock exchange, deriving more than 50% of their value directly or indirectly from immovable property situated in one of the countries, may be taxed in that country. Capital gains from the sale of any property other than those mentioned above and other than those mentioned in the DTA will be taxable in the country of which the seller is a resident. Elimination of double taxation An ordinary credit will be granted to eliminate double taxation. This means that the credit for the tax paid in one country against the tax payable in the other country cannot exceed the amount of tax as computed in the other country. An underlying credit will be granted where a resident of Thailand controls directly or indirectly 25% or more of the voting power of the company paying the dividend. The underlying credit is a credit granted for the corporate income tax paid by the company paying the dividend. Tax sparing is allowed in the DTA. The purpose of this provision is to allow residents to obtain a foreign tax credit for the taxes that have been spared under the incentive programme of the source country. However, tax sparing in respect of Irish tax payable is given for a period of 10 years only beginning on the date of entry into force of the DTA. Page 6 of 9

7 10Minutes on the OECD s BEPS project How is your company addressing the base erosion and profit shifting (BEPS)-related rule changes being recommended by the Organisation for Economic Cooperation and Development? The BEPS project is likely to spur the most significant adjustments to the taxation of international business in nearly 30 years. Learn about the preliminary recommendations, which tax areas are affected, what it means for business operations, and how to begin preparing for the sweeping changes today. Learn more from our latest attachment in pdf file on May 2015 at 10Minutes on the OECD s BEPS project. Get the app to follow more of PwC s insights Our 10Minutes app gives you more content on each issue videos, infographics, and related reading. And our 365 app delivers fresh insights daily. You can customize the app to see only the content you care about from 22 Tax topics, 27 industries, and 9 thought leadership collections like 10Minutes. Install the free standalone 10Minutes app or the new PwC's 365 on the App Store on itunes, now available for ipad and iphone. Page 7 of 9

8 Contact us BOI Siripong Supakijjanusorn, Partner ext Seetha Gopalakrishnan, Associate Partner ext Customs & Trade Paul Sumner, Partner ext Santi Krongsithidej, Director ext Nu To Van, Director ext.1353 Financial Services and Financial Structuring Prapasiri Kositthanakorn, Partner ext Orawan Fongasira, Associate Partner ext Compliance Services Somboon Weerawutiwong, Partner ext Somsak Anakkasela, Partner ext Ornjira Tangwongyodying, Partner ext Prapasiri Kositthanakorn, Partner ext Indirect Tax (VAT) Thavorn Rujivanarom, Lead Partner ext.1444 Somboon Weerawutiwong, Partner ext International Assignment Services Jiraporn Chongkamanont, Director Practice Leader ext Legal Services Siripong Supakijjanusorn, Partner ext Vunnipa ruamrangsri, Partner ext Mergers and Acquisitions Paul B.A. Stitt, Partner ext Vanida Vasuwanichchanchai, Associate Partner ext Accounting and Tax Outsourcing Services Somsak Anakkasela, Partner ext. 125 Prapasiri Kositthanakorn, Partner ext Tax Dispute Resolution Ornjira Tangwongyodying, Partner ext Niphan Srisukhumbowornchai, Partner ext Tax Structuring Thavorn Rujivanarom, Lead Partner ext Ornjira Tangwongyodying, Partner ext Paul B.A. Stitt, Partner ext Peerapat Poshyanonda, Partner ext Prapasiri Kositthanakorn, Partner ext Transfer Pricing Peerapat Poshyanonda, Partner ext Janaiporn Khantasomboon, Partner ext Niphan Srisukhumbowornchai, Partner ext Japanese Business Network Atsushi Uozumi, Partner ext U.S. Tax Desk Greg Lamont, Partner ext th Floor Bangkok City Tower, 179/74-80 South Sathorn Road, Bangkok Tel: +66 (0) Fax: +66 (0) Website: PwC Thailand helps organisations and individuals create the value they re looking for. We re a member of the PwC network of firms in 157 countries with more than 195,000 people. We re committed to delivering quality in assurance, tax and advisory services. Find out more by visiting us at pwc.com/th. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors 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.

9 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.