Thai Law Insights

Is an ROH in Thailand really a tax shelter?

Preeyanuch Sumonwongse

A Regional Operating Headquarters (“ROH”)is a company established under Thai law to provide management services,technical assistance or support activities to its associated enterprises and branches in Thailand or abroad. An ROH business must limit itself to the following scope of business activities: general management, business planning and coordination, procurement of raw materials and parts, research and development of products, technical support assistance, marketing strategy, planning and sales promotion, human resources management and training in the region, financial advisory services, economic and investment analysis and research, credit control and management and any other supportservices as prescribed by the Director General of the Revenue Department, pursuant to the Director General's Notification No.190 (“Notification No.190”)

“Associated enterprise” as stated in the Notification, is defined per the details and criteria in the Royal Decree issued by virtue of the Revenue Code Governing Revenue Reduction and Exemption No.405 (Royal Decree 405), which takes into account shareholding aspector management control aspect; holding at least 25% of the shares or having management control.

Conditions and tax privileges from the Revenue Department

An ROH must comply with the qualifications per the Royal Decree issued by virtue of the Revenue Code Governing Revenue Reduction and Exemption No.508 (“Royal Decree 508”). After registering as a legal entity under the Thai Civil and Commercial Code with the Department of Business Development, an ROH must notify the Revenue Department of its intention to enjoy tax privileges.

Conditions

An ROH must have paid-up capital of more than THB 10 million and must provide services to its associated enterprises or branches abroad under the number of countries namely (a) one country for the first and second fiscal years; (b) two countries for the third and the fourth fiscal years; (c) three countries for the fifth fiscal year and from then on. An ROH must have business expenses of at least THB 15 million per year, excluding royalties and business expenses spent abroad etc.; or expensesfor investment in the ROH, spent in Thailand, of at least THB 30 million.

Tax privileges

An ROH can enjoy essential rights and privileges, including corporate income tax exemption for 10 fiscal years, for income derived from services rendered to its associated enterprises and branches outside of Thailand, and enjoy a 10% reduction ofcorporate income tax for income derived from services rendered to its associated enterprises and branches in Thailand.

Conditions and non-tax privileges from the Board of Investment (“BoI”)

An ROH can apply for BoI promotion to enjoy non-tax privileges per the conditions and privileges set out by BoI regarding an ROH.

Conditions

An ROH must provide services to its associated enterprises or branches abroad in no less than 3 countries, must have at least THB 10 million registered capital, which may be majority or wholly foreign-owned, must obtain an operating license from the relevant authority, and must have a business operating plan and scope of business as defined by Notification No. 190.

Non-tax privileges

An ROH may acquire BoI privileges for exemption on imported machinery, provided that the imported machinery is being used for R&D and training purposes.BoIprivileges can also include long term visa extensions and work permitson a fast-track basis and, the right to occupy land during the promotion period.

These privileges were launched by the Thai government as a channel to encourage more investment in Thailandand to attract investors by providing benefits to proposedcompanies. These privileges are to remain in effect until 2015. It will be interesting to see if the government will extend the present campaign with the same framework of privileges, make minor changesto the present framework,or launch an entirely new campaign to promote the formation of new ROH in Thailand.