In Thailand, the government grants special privileges to certain types of business entities in order to incentivize their creation. One such type of business entity is the Regional Operating Headquarters (ROH), which benefits from a number of tax incentives.
There are, however, some requirements that must be met before a company can be categorized as an ROH. First, the company must be incorporated in Thailand. Second, the company must conduct business in Thailand by providing support services to its associated companies and/or branches, wherever they may be.
Two Schemes of ROH
ROHs are allowed to provide managerial, technical, or supporting services to their associated enterprises or their domestic or overseas branches. At present, there are two schemes of ROH. ROHs under both schemes are permitted to provide the same scope of services, but merely the requirements and tax benefits will differ.
ROHs can be divided between the 2002 scheme (known as the “old scheme”) and the 2010 scheme (known as the “new scheme”). The old scheme was relatively unsuccessful due to its onerous requirements, which forced prospective ROH companies to provide support services to their associated companies and/or branches in at least three countries in their first fiscal year. Additionally, the incentives under the old scheme paled in comparison to other jurisdictions in the region, such as Singapore and Hong Kong.
Therefore, in light of these drawbacks, a revised, new scheme of ROH was implemented by the Cabinet in 2010, with more favorable requirements and incentives. For example, the revised requirements allow prospective ROH companies to meet the above support-services requirement within five fiscal years. Additionally, as shown in the table below, corporate income tax on profits from services provided to foreign affiliates was 10% under the old scheme, but is exempted under the new scheme.
However, while some requirements under the new scheme are more flexible than before, additional requirements have been added to the new scheme, such as the operating expense requirement, which forces the ROH to spend at least THB 15 million annually. Additional requirements include the skilled employee provision, whereby at least 75% of the total employees of the ROH must have specified skills or knowledge from the third accounting period onward. Also, tax incentives under the new scheme are limited to 10 years, whereas under the old scheme, there was no time limit. But when comparing the old and new schemes, the new scheme provides slightly better tax incentives and removes some difficult criteria, even though it introduces some new conditions that a company needs to fulfill.
From 2002 to 2010, it was reported that only around 80 companies were registered as an ROH in Thailand. To date, the number stands at 122 companies. This is very low compared to countries such as Malaysia and Singapore that have around 600 and 1600 companies registered respectively. This large discrepancy may be due to some incentives being unable to compete with those offered by other countries in the region, such as the out-out transaction of the affiliates still not being exempt from tax in Thailand.
Does Thailand Have What It Takes to Be an ROH Hub?
In terms of its business environment, Thailand has many attractive qualities such as its strategic location, skilled labor force, and relatively low wages and other operating costs. Situated in the center of Southeast Asia, Thailand can serve as a regional distribution center due to the government’s long-term plans to develop the country’s transport infrastructure, including its roads and railways. The country’s information technology infrastructure, while still lagging behind some of its neighbors, is also continuing to improve.
Although the tax incentives offered by Thailand’s ROH regime are not as attractive as those offered by some other countries in the region, Thailand’s Board of Investment (BOI) has introduced a number of other incentives alongside the ROH system to attract foreign investors. For example, certain businesses promoted by the BOI will be granted tax exemptions, tariff exemptions, permission to own land, permission to establish a foreign majority-owned company, or permission to conduct businesses usually reserved only for Thai nationals. Also, the Industrial Estate Authority of Thailand (IEAT) offers similar privileges to companies with facilities situated in an industrial area run by the IEAT, including import duty and VAT exemption on machines and equipment, as well as components that are necessary for the manufacture of goods or for commerce, including any material to be used for the construction, assembly, or installation of a factory or building. Materials imported for manufacturing goods or for commerce are also exempted from import duty and VAT. Moreover, products, by-products, and any other things arising from the manufacture within the IEAT area will be exempted from export duty and VAT.
Therefore, the BOI and IEAT incentives can efficiently support foreign businesses in Thailand in fields that are not covered by the ROH regime.
In sum, Thailand’s ROH regime is continuing to evolve in an attempt to position the country as an attractive base for regional operations. With the ROH scheme complemented by the array of incentives offered under other programs, foreign investors can view Thailand as a viable option to serve as a base for their business in Southeast Asia.