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Thailand To Offer Sweeping Incentives To Attract HQs

by Mary Swire,, Hong Kong

12 December 2001

After months of shilly-shallying over its attitude towards inward investment, the Thai government yesterday came down firmly on the side of business, offering wide-ranging tax breaks and incentives aimed at motivating foreign firms to establish their regional headquarters in Thailand.

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. It will 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.

Under the new programme, regional headquarters operating in Thailand will qualify for a 10% corporate tax rate, just one-third of the standard rate currently charged. Interest earnings and revenue from research and development in Thailand will also be charged at 10%. Taxes on dividends paid to the headquarters by domestic and foreign subsidiaries will be waived. Taxes on dividends paid by the headquarters to its overseas parent firm are also waived.

Regional operating headquarters can also charge up to 25% of the investment cost for depreciation on fixed assets immediately, with the remainder amortised over 20 years.

Personal taxes for expatriate workers at the regional headquarters will also be waived, so long as salaries are not booked as an expense of the local office. Alternatively, foreigners working at the headquarters can choose to pay a flat rate of 15% personal tax, compared with the current 5-37% structure, if they choose to forgo deductions, for a two-year period.

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.

Supat Limpaporn, the assistant secretary-general of the Board of Investment, said the new measures would supersede existing incentives offered by the investment promotion agency, which have failed dismally, attracting not one applicant since they were announced. He has high expectations for the new incentives, which are indeed generous, although multinationals choose a headquarters base with an eye to stability, language, telecommunications and other factors as well as tax, important though that is.

Mr Supat said that the Board of Investment's one-stop service centre would assist incoming firms by helping to obtain work permits, visas and land deeds.

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