Thailand's HQ Incentives Deemed Inferior To Singapore Regime

by Mary Swire, Tax-News.com, Hong Kong

14 January 2002

Businesspeople attending a KPMG and Dataconsult conference last week in Singapore were told that the tax incentives offered in December by Thailand to international businesses weren't sufficient to tempt them away from Singapore's superior regime.

Analysts said the Thai measures, though a step in the right direction, did not go far enough. They said the measures restricted regional HQs to providing services, and doing research and development, but kept them out of the lucrative manufacturing sector. Firms setting up their regional operational headquarters in Singapore with global responsibility, dubbed Global Headquarters, are totally exempt from corporate tax, whereas the new Thai regime offers a reduction from the 30% headline rate to just 10%.

Within days of the announcement of the measures last month, an unnamed Australian firm applied to set up its regional HQ in Thailand - the only one so far, said Somprasong Khomapat, a director at the country's Board of Investments. The incentives are to be formalised in a royal decree next month.

Speakers at the conference urged Thailand to grant an exemption from capital gains tax, to bring the country in line with its competitors. Secondly, the Thais lag behind in the area of corporate taxation - they allow regional HQs to carry forward losses for only five years, whereas the other three countries allow carry forwards indefinitely, making life easier for companies making losses. A third area of concern is Thailand's value-added tax, which stands at 7 per cent for non-export services, while export services are exempt. In contrast, Singapore is more liberal, allowing an exemption if a service is provided for the benefit of a company outside the country, or a 3 per cent tax if a service is provided to an entity within.

Fourthly, the flat 15% personal income tax rate offered to expatriate staff, although reduced from the headline 37% rate. is available for only two years.

Announcing the new regime last month, Finance Minister Somkid Jatusripitak said the new package was part of the government's aim to balance the country's intake of local and foreign investment. He claimed it would offer the most sweeping incentives in the region to firms to set up regional operating headquarters in Thailand, outstripping incentives on offer in Singapore and Malaysia.

Dr Somkid said the new incentives would apply to both existing regional headquarters in Thailand and new firms, and that the package had been drawn up following consultations with foreign multinationals and trade groups.

Regional operating headquarters must be set up under Thai law, and companies must have a paid-up capital base of at least 10 million baht, with the headquarters offering services to group subsidiaries or branches in no fewer than three other countries. At least half of the headquarters' earnings must be derived from overseas operations, although this requirement will be reduced to one-third for the first three years.

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