Introduction :
The Thai Board of Investment (BOI) introduced the Investment Promotion Scheme for International Business Centers (IBC Thailand) to attract foreign investors and strengthen Thailand’s role in establishing shared-services hubs. IBC promotions offer significant benefits to eligible companies including 100% foreign ownership, reduced Corporate Income Tax Rates and the ability to hire foreign skilled workers.
In this blog post, we will explore the key aspects of the International Business Centers promotion, including its benefits, qualifying criteria, application process, and compliance requirements.
Points clés
- IBC companies are required to engage in specific activities including; General Business Management and Coordination, Sourcing of Raw Materials and Parts, Research and Development of Products, Technical Support, Marketing and Sales Promotion, Human Resources and Training Management, Financial Advisory, Economic and Investment Analysis and Treasury Center Services
- The IBC promotion offers a range of benefits including; 100% foreign ownership, the right to own land, ease to hire foreign experts.
- Tax Benefits include; Reduction of Corporate Income Tax (CIT), Exemption of CIT for Dividends Received from Affiliates, Exemption from Withholding Tax for Payments to Foreign Companies, Reduced Personal Income Tax for Expatriate Employees
What are International Business Centers (IBC)?
The International Business Centers scheme was introduced following Thailand’s membership in the OECD inclusive framework on base erosion and profit shifting (BEPS). The scheme aims to avoid potential sanctions from other OECD member countries and enhance Thailand’s attractiveness as a destination for foreign investors. By establishing an IBC Thailand, companies can benefit from various non-tax and tax incentives provided by the BOI.
What are Objectives of the Investment Promotion Scheme?
The International Business Centers promotion scheme has several objectives, including:
- Attracting foreign investors to establish shared-services hubs in Thailand
- Strengthening Thailand’s position as a regional business centre
- Promoting economic growth and development
- Aligning with international tax standards and regulations
What are the Permitted Activities for IBCs?
IBC companies are required to engage in specific activities to be eligible for the International Business Centers promotion. These permitted activities reflect the strategic objectives of the International Business Centers scheme and contribute to the development of various industries in Thailand. Permitted business activities include:
General Business Management and Coordination
One of the permitted activities for International Business Centers is general business management and coordination. This activity involves overseeing and coordinating the overall business operations of the IBC and its affiliated companies. It includes activities such as strategic planning, resource allocation, and performance monitoring.
Sourcing of Raw Materials and Parts
International Business Centers companies are also permitted to engage in the sourcing of raw materials and parts. This activity involves identifying and procuring the necessary inputs for the production and manufacturing processes of the International Business Centers and its affiliated companies. It includes activities such as supplier selection, negotiation of procurement contracts, and quality control.
Research and Development of Products
Another important permitted activity for International Business Centers is research and development (R&D) of products. This activity involves conducting scientific and technological research to enhance existing products or develop new products. It includes activities such as product testing, prototype development, and innovation.
Technical Support
IBC companies are also allowed to provide technical support to their affiliated companies. This activity involves offering expertise, advice, and assistance in technical matters related to their products, services, or operations. It includes activities such as troubleshooting, maintenance, and training.
Marketing and Sales Promotion
Marketing and sales promotion involves developing and implementing marketing strategies, campaigns, and initiatives to promote the products or services of the IBC and its affiliated companies. It includes activities such as market research, branding, advertising, and sales support.
Human Resources and Training Management
IBC companies are also involved in human resources and training management. This activity includes recruiting, training, and developing employees within the IBC and its affiliated companies. It encompasses activities such as talent acquisition, performance management, and skills development.
Financial Advisory
IBC companies are permitted to provide financial advisory services to their affiliated companies. This activity involves offering expertise, advice, and guidance in financial matters, such as investment strategies, risk management, and financial planning. It includes activities such as financial analysis, budgeting, and investment evaluation.
Economic and Investment Analysis
IBC companies can also undertake the assessment of economic trends, market conditions, and investment opportunities to facilitate strategic decision-making. It includes activities such as economic forecasting, investment risk assessment, and market research.
Treasury Center Services
Another significant permitted activity for IBCs is the provision of treasury centre services. This activity involves managing and coordinating the financial operations of the IBC and its affiliated companies. It includes activities such as cash management, liquidity planning, and financial risk management.
What are the Benefits of an IBC Promotion?
The IBC promotion offers a range of benefits to eligible companies, including non-tax and tax benefits. These incentives aim to facilitate the establishment and operation of international business centres in Thailand.
Non-Tax Benefits
Under the IBC promotion, eligible companies can benefit from a range of non-tax incentives that facilitate their establishment and operation in Thailand. These incentives aim to attract foreign investors and create a favourable business environment for International Business Centers
100 percent Foreign Ownership
One of the key non-tax incentives offered to IBCs is the permission for 100 percent foreign ownership. Unlike some jurisdictions where restrictions on foreign ownership exist, IBCs are allowed to have full foreign ownership in Thailand. This provides investors with greater flexibility and control over their business operations.
Eased Requirements for Visas and Work Permits
IBC companies also enjoy eased requirements for visas and work permits for their expatriate employees. The Thai government recognizes the importance of attracting skilled professionals to support the growth of IBCs. Therefore, the visa and work permit application process for expatriate employees of International Business Centers is streamlined, resulting in faster processing times and reduced administrative burden. Employees and Directors of an IBC business can obtain their visas and work permits from the BOI One Stop Service Center, greatly speeding up the process.
Right to Own Land
Another significant non-tax incentive for IBCs is the right to own land. In general, foreign-owned companies face restrictions on land ownership in Thailand. However, IBCs are granted the right to own land for the purpose of their operations. This ensures that IBCs have the necessary resources and infrastructure to carry out their business activities effectively.
Special Investment Protection
IBCs receive special investment protection under the Thai Investment Act. This protection provides them with a secure and favourable business environment, ensuring that their investments are safeguarded. It also offers additional legal and regulatory benefits, such as dispute resolution mechanisms and protection against expropriation.
Tax Benefits
One of the key advantages of the IBC promotion is the availability of tax privileges for eligible companies. These tax privileges are designed to provide financial incentives and support to IBCs, making Thailand a competitive destination for foreign investment.
Reduction of Corporate Income Tax (CIT)
IBCs can benefit from a reduction in corporate income tax (CIT) based on their annual expenses paid in Thailand. The reduction in CIT is applicable to income derived from services provided to affiliates in Thailand and overseas. The specific reduction rate depends on the amount of annual expenses paid in Thailand.
Exemption of CIT for Dividends Received from Affiliates
IBCs are exempt from CIT on dividends received from their corporate shareholders abroad. This exemption applies to dividends paid out of the IBC’s net profits and income that qualify for CIT reduction. The exemption of CIT on dividends received ensures that IBCs can distribute profits to their shareholders without incurring additional tax liabilities.
Exemption from Withholding Tax for Payments to Foreign Companies
IBCs are also exempt from withholding tax on certain payments made to foreign companies. Specifically, IBCs are exempt from withholding tax on dividends paid to their corporate shareholders abroad, as long as the dividends are paid out of the IBC’s net profits and income that qualify for CIT reduction.
In addition, IBCs are exempt from withholding tax on interest payments made to foreign companies. This exemption applies to interest payments on loans taken out by the IBC for the purpose of providing loans to affiliates in Thailand or abroad.
Exemption from Specific Business Tax on Income from Financial Management Services
IBCs engaged in financial management services are exempt from specific business tax on the income derived from these services. This tax exemption applies to income generated from activities such as financial advisory, credit management and control, and financial management services of the treasury centre.
Reduced Personal Income Tax for Expatriate Employees
Expatriate employees working for an IBC can benefit from a reduced personal income tax (PIT) rate of 15% flat. This reduced PIT rate applies to expatriate employees who meet certain criteria, including being a permanent employee of a qualified IBC and working for the IBC or its international trade business.
To qualify for the reduced PIT rate, the expatriate employee must also meet requirements related to the composition of the company’s income, residency in Thailand, work permit, and minimum assessable income.
What are the Qualifying Requirements for an IBC Promotion?
To be eligible for the International Business Centers promotion, companies must meet certain qualifying criteria set by the BOI. These criteria include requirements related to registered and paid-up capital, employment, and permitted activities. Meeting these criteria is essential for companies seeking to benefit from the incentives provided under the IBC scheme.
Registered and Paid-up Capital Requirements
Under the IBC promotion, companies must have a minimum registered and fully paid-up capital of at least THB 10 million.
Employment Criteria
IBC applicants must employ a minimum number of skilled employees to qualify for the promotion. The specific employment criteria are as follows:
At least 10 skilled employees for IBCs engaged in general business management, business planning, business coordination, sourcing of raw materials and parts, research and development of products, technical support, marketing and sales promotion, human resources and training management, financial advisory, economic and investment analysis, or treasury centre services.
For IBCs providing only financial management services, a minimum of 5 skilled employees is required.
What are the Compliance Requirements for IBCs?
As with any business operation, IBCs are required to comply with all relevant Thai laws and regulations as well as the requirements required by the BOI.
Reporting Obligations
IBC companies have reporting obligations to the Thai Revenue Department. They are required to submit various tax returns, financial statements, and supporting documents on a regular basis. These reports provide the Thai authorities with the necessary information to assess the tax liabilities and compliance of IBCs.
Recordkeeping Requirements
IBC companies are required to maintain proper accounting records and supporting documents for their financial transactions. These records must be kept in accordance with Thai accounting standards and tax regulations. IBCs must retain these records for a specified period to allow the audits and inspections by the Thai authorities to be completed.
By maintaining accurate and complete records, IBCs ensure transparency and facilitate the audit process. It allows the Thai authorities to verify the accuracy of reported financial information and assess the compliance of IBCs with tax laws and regulations.
Monitoring and Enforcement by the Thai Authorities
The Thai authorities actively monitor and enforce compliance with tax laws and regulations. They conduct audits, inspections, and investigations to ensure that IBCs meet their tax obligations. Non-compliance can result in penalties, fines, or other legal consequences.
By following these compliance requirements, IBCs mitigate the risk of penalties and legal issues.
Nos réflexions
The potential benefits of securing an IBC BOI promotion should always be considered for a company who qualifies for the promotion. The comprehensive package of incentives and exemptions the BOI offers can significantly enhance a company’s competitiveness and performance in the Thai market.
For companies looking to establish a regional hub in Asia, an International Business Centers promotion from the BOI could be a hugely valuable option. IBC promotions allow for full foreign ownership and provide a variety of incentives which provide significant opportunities for companies. BOI promotions also make it significantly easier to obtain a work permit and visa for foreign employees, reducing a burden which is problematic for many companies. IBC promotions also offer attractive benefits for employees who work for promoted companies. The flat rate for the personal income tax makes Thailand an attractive proposition for talented staff. This coupled with Thailand’s excellent standard of living, makes Thailand an excellent alternative to Hong Kong or Singapore.
