Tax Incentives under the International Headquarters (IHQ) Scheme in Thailand

The growing economic importance of the Southeast Asian markets and the emergence of the ASEAN Economic Community (“AEC”) continues to encourage major foreign direct investment in the region. As part of a integrated investment strategy, investors usually face the question where to set up regional headquarters to serve as a service hub for affiliates in the region.
In the past, Singapore and Malaysia have been well-established players in this field. Both countries offer investment promotions for the set-up of headquarters. In addition, Hong Kong has been widely used as a holding entity due to its favourable tax system.
The Thai Board of Investment (“BOI”) has recently adopted the investment promotion scheme for setting-up international headquarters (“IHQ”) to strengthen Thailand’s position as a regional hub in ASEAN.

An IHQ is a company registered in Thailand providing to its associated enterprises or branches in Thailand or abroad
- Management,
- Technical,
- Financial or
- Support services.
In order to qualify for tax privileges that would be granted up to 15 years, an IHQ must fulfil the following criteria:
- Registered and fully paid-up capital of at least THB 10 million,
- Annual expenses in Thailand of at least THB 15 million, and
- Provision of services to at least one associated enterprise outside of Thailand.
An IHQ meeting the aforementioned criteria will be granted the following tax privileges after registration with the Revenue Department:

“Out-Out”	“In-In”	“In-Out”
Sales Income (goods delivered outside Thailand - “out-out” transaction)	Management, technical and support („MTS“), service fees, interest, royalties (paid within Thailand)	MTS, service fees, interest, dividends, royalties, capital gains (from overseas associated enterprises or branch offices)	Sales income (sale of raw material or parts in Thailand to overseas associated enterprises)
Full CIT Exemption	Half CIT Rate (10%)	Full CIT Exemption	Half CIT Rate (10%)
	Special Business Tax Exemption

Exemption from withholding tax for payments to companies established abroad and not doing business in Thailand on:
- Dividends paid to the IHQ’s corporate shareholders abroad (provided such dividends are paid out of the IHQ’s net profits or income that is exempt from CIT).
- Interest paid to companies abroad (provided such interest is paid on loans that are taken out by the IHQ for the purpose of providing loans to affiliates in Thailand or abroad).
Exemption from specific business tax (currently 3.3% and applicable on any interest derived from a loan extended by a Thai company to another company) on interest income derived from loans to affiliates in Thailand or abroad for its financial management.
Reduced personal income tax of 15% flat for expatriates who work full-time for the IHQ for at least 180 days in each tax year.
An IHQ meeting the aforementioned criteria will be also be granted the following non-tax privileges from the BOI:
- 100% foreign ownership,
- Land ownership, Conclusion
- Exemption of import duty on machinery (only on machinery for R&D and training activities), and
- Eased requirements for obtaining visas and work permits for expatriates.

Thailand is competing with other ASEAN member states, in particular with Malaysia and Singpore, and Hong Kong for foreign investors seeking to establish their regional hub in Southeast Asia.
Singapore, Malayisa and Hong Kong use the socalled “Territorial Tax System”, which levies CIT only on income sourced within the country. Contrary to that, Thailand uses the so-called “Residential Tax System”, which means that companies registered in Thailand have to pay CIT on their worldwide profits. Under the IHQ scheme, Thailand de facto grants an exemption from the Residential Tax System and thereby leverages the advantages of the “Territorial Tax System”.
Compared to Singapore’s and Malaysia’s investment promotions, the IHQ scheme contains straightforward provisions, making investment planning transparent. However, Thailand will have to closely monitor developments in its neighbouring countries with regards to the legal and tax requirements to play out its competitive advantages in the AEC.