Since Thailand joined the Inclusive Framework of Base Erosion and Profit Shifting (BEPS) in 2017, committing to implement four minimum BEPS standards including BEPS Action 5 on Harmful Tax Practices, Thailand introduced the new scheme of International Business Center (IBC) on 28 December 2018, while applications for the Regional Operating Headquarter (ROH) Scheme 1, International Headquarter (IHQ), and International Trading Center (ITC) closed on 10 October 2018.

The Revenue Department announced on its website that existing ROH1 will be able to utilize the tax benefits until 2020, but existing ROH2/IHQ/ITC can utilize the tax privileges until the completion of 15 accounting periods as granted by the Revenue Department.

However, on 26 March 2019, the Cabinet approved in principle of the three draft Royal Decrees (Bills) on: (i) the termination of ROH tax benefits for ROH1, and ROH2, (ii) the termination of IHQ tax benefits, and (iii) the termination of ITC tax benefits.

Impacts on existing ROHs

  • Corporate income tax exemption and reduction for support service fees, interest, royalties, and dividends derived from affiliates will be terminated as of 1 June 2019.
  • Reduced personal income tax rate for expatriates of ROH2s will be terminated as of 1 January 2020.
  • Withholding tax exemption on the dividends paid by the ROHs to foreign corporate shareholders not carrying on business in Thailand will be terminated. However, the withholding tax exemption on dividends is still available for dividends that are distributed from ROH2's income derived before 1 June 2019 if the dividends are distributed by 31 December 2020.

Impacts on existing ITCs

  • Corporate income tax exemption for out-out trading incomes and international trading service fees derived from foreign entities will be terminated as of 1 June 2019.
  • Reduced personal income tax rate for expatriates of ITCs will be terminated as of 1 January 2020.
  • Withholding tax exemption on the dividends paid by the ITCs to foreign corporate shareholders not carrying on business in Thailand will be terminated. However, the withholding tax exemption on dividends is still available for dividends that are distributed from ITC's income derived before 1 June 2019 if the dividends are distributed by 31 December 2020.

The proposed draft bills would have detrimental effects on the existing ROHs, IHQs, and ITCs. Existing ROHs, IHQs, and ITCs may consider converting to IBCs. Nonetheless, the Revenue Department has not yet accepted the application for IBC tax scheme while awaiting the supplemental rules, which are expected to be issued in April 2019. The concept of the proposed draft bills may cast doubt on the legitimacy of depriving taxpayers of rights and benefits already granted, and lessen attraction of new foreign investors considering Thailand for their regional hub.