Andrew Jackomos and Paul Ashburn, Senior Partners, BDO Advisory, on tax reforms and incentives affecting investors: Viewpoint

Several key initiatives have been introduced in the past year to promote the development and growth of Thailand’s economy. Attractive tax incentives are offered to investors that partake in these initiatives and should play a significant role in their success.

The current government has also been very active in reviewing proposals for overhauling the current tax legislation as part of a long-term plan for tax reform.

Reform

Thailand has responded to the challenge to compete for investment and trade within ASEAN by cutting its corporate tax rate to 20% and lowering personal tax rates, cutting the highest rate to 35%. Thailand’s general value-added tax (VAT) rate is 7%, and has been kept at that since 1999. The 7% VAT rate was formally extended to September 30, 2016 by Royal Decree No. 592 issued under the Revenue Code.

The Thai Revenue Department has made proposals regarding future tax policies that include keeping corporate income tax, personal income tax and VAT rates at or below their current levels. Reform of property taxes has once again been put on the agenda. House and land tax is currently imposed at the rate of 12.5% on the rental value of commercial properties. The new tax proposed by the Finance Ministry would be calculated on a property’s official appraised value, with the rate of tax imposed depending on the use of the property. The new property tax law would have a much wider scope of application and could lead to a marked increase in property tax collections.

In a push to address economic inequality, an inheritance tax has been introduced. There has been no inheritance tax in Thailand since 1942. The tax applies only to certain assets, such as real estate, deposits, securities and registered vehicles. The first BT100M ($3m) of assets inherited are exempt from tax, as are transfers to spouses. Ascendants (e.g., parents) or descendants are taxed at the rate of 5% and other heirs taxed at 10%. The taxation of gifts has been amended to prevent evasion of the inheritance tax.

Trade Incentives

With the purpose of promoting Thailand as a trade and investment hub and to take advantage of the formation of the ASEAN Economic Community, new incentives for international headquarters (IHQs) and international trade centres (ITCs) have been introduced recently. The incentives have been brought in as an alternative to the existing Regional Operating Headquarters (ROH) scheme. The IHQ and ITC schemes relax some conditions applying to an ROH and expand the tax and non-tax benefits provided. IHQ and ITC companies are entitled to tax benefits for 15 years, which include a tax exemption on qualifying net profits and a reduced personal tax rate of 15% on the earnings of expatriates.

Clusters

The government’s policies to develop the country’s economy include the creation of special economic zones in the form of clusters: concentrations of interconnected businesses and related institutions operating in the same geographic areas. The cluster-based Special Economic Development Zones Policy came into effect on September 16, 2015 and initially targets development of Super Clusters and other targeted clusters. Super Clusters are for businesses using advanced technology and industries of the future, including automotive and parts, electrical appliances, electronics and telecoms equipment, eco-friendly petrochemicals and chemicals, and digital, as well as Food Innopolis and the Medical Hub.

Specific provinces are designated for the location of each cluster type. For example, Chiang Mai and Phuket are designated as the provinces for digital-based clusters. Super cluster businesses will be granted a corporate income tax exemption for eight years, with a 50% corporate income tax reduction for a further five years, and an exemption from import duty on imported machinery. The non-tax benefits include ownership of land to carry on the promoted activity, and consideration is also being given to granting permanent residency to leading specialists.