ROH in Thailand Many of the world’s leading corporations are seeing their businesses thrive after entering Thailand’s Regional Operating Headquarters (ROH) scheme, launched eight years ago. In August 2010, the Thai government handed out attractive new incentives, aiming to supercharge the program’s popularity and make companies with regional headquarters here even more competitive. “This represents the most generous ROH incentive program offered in the entire region,” Deputy Finance Minister Pradit Phataraprasit said of the expanded benefits package. As of August, some 89 ROHs had already been established in Thailand. The expectation is that the new package will enable Thailand to rival Singapore as the top ROH hub in Southeast Asia. Among the ROH incentives granted by the Revenue Department, Ministry of Finance, qualifying companies that set up regional operating headquarters in the country are entitled to a 10-year corporate income tax (CIT) rate of 0% on the portion of income derived from their overseas operations. A rate of just 10% is levied on income from their domestic operations. A five-year extension on the corporate tax exemption is possible under certain conditions, meaning that the CIT benefits can be granted for a total of 15 years under the expanded program.
Ideal ROH Location
Thailand is an ideal spot for regional headquarter, with its central location in Asia, sturdy economic foundation, outstanding expatriate services, and excellent business and transportation infrastructure. Nestlé is among the nearly 90 multinationals that realize this and have established ROHs in Thailand. Nophadol Siwabutr, Corporate Affairs director of Nestlé (Thai) Ltd., said there are “significant benefits” to the program. “It helps make our organization more competitive. We are able to locate important regional service functions in Thailand and to provide those services to our other offices in the region cost-effectively because of the significant tax breaks,” he remarked. According to Sathit Limpongpan, permanent secretary of the Ministry of Finance, many companies that already maintain extensive operations in Thailand but do not yet have an ROH here are expressing an interest in possibly joining the scheme to reap the advantages. Sathit said these include
Japanese automakers Nissan and Toyota, the Japanese electronics company Hitachi, the German conglomerate Siemens, the US company Dow Chemicals, and Siam Cement of Thailand. To qualify for the special tax benefits and privileges, the ROH Company needs to have a minimum of 10 million baht in paid-up capital. It must also serve associated companies or branches in one other country in the first year, two other countries in the third year and three other countries in the fifth year. The ROH should have annual expenses within Thailand of at least 15 million baht, or have invested at least 30 million baht per year in the country. After the first three years of being under the program, the ROH Company must have at least 75% of its total employees be skilled staff, according to the criteria set by the Director-General of the Revenue Department, and have at least 5 employees, each of whom receives at least 2.5 million baht in annual remuneration. In addition, a personal income tax rate of only 15% will be applied for eight years on income earned by the company’s expatriate employees in Thailand, if the income generated from services provided to overseas companies is at least 50% of the company’s total revenue. Another advantage of entering the program is that the dividends received by the ROH from its associated companies are tax exempt. Likewise, exemption applies to the dividends paid out of the ROH’s net profits to its companies incorporated abroad and not carrying on business in Thailand. Enhancements to the ROH scheme now also allow new and existing companies to qualify as a treasury center to further reduce their cost and improve convenience. As part of this, the Bank of Thailand is making foreign currency dealings of regional headquarters easier. ROH companies can transfer, lend or borrow with their overseas affiliates in foreign currency rather than being restricted to convert into Thai baht. In addition, no approval is required for foreign currency deposit for money borrowed from domestic commercial banks, foreign deposit, and investment abroad, if the sum is under US$500 million. “These new terms make it easier for ROH companies to operate by reducing bureaucratic and regulatory encumbrances” Pradit told the media.
Functions that typically may qualify under the ROH plan include business management and administration; procurement of raw materials, parts and finished products; R&D work; technical support; marketing and sales promotion; human resources training; business advisory services; investment feasibility studies and analyses; and credit management. Supportive Government
Government support of investment in Thailand is strong. Policies complement the countryâ€™s inherent strengths as a strategically located business hub and a center for production and regional outsourcing. Besides helping to facilitate the ROH scheme, the BOI assists investors in optimizing their business activities through a range of other programs and operations. These include matchmaking services for locating quality suppliers of parts and components to reduce sourcing costs and putting investors in touch with product design centers and international distribution centers. Serving as a focal point for businesses when dealing with the government, the One Start One-Stop Investment Center (OSOS) in Bangkok also makes investment in the country easier by bringing together under one roof representatives of 10 different ministries. Opened in November 2009, the OSOS offers assistance on applications for business licenses, factory certification, environmental impact assessments, and many other matters. The One Stop Shop for Visa and Work Permit Services is now also located at the center. Positive responses are being accorded to the ROH plan from all sides. Even economists, for example, are noting that the program benefits Thailandâ€™s economy by generating higher domestic consumption through expatriates purchasing big-ticket products. The ROHs also create new jobs for the Thai people from the increased activities related to conducting regional business.