ROH: Regional
Operating Headquarters
in Thailand
• What are the regulatory
requirements to participate
from this tax schem...
ROH in a Nutshell
• Advantages
✓Personal income tax reduction from up to 35% (formerly 37%) to a flat
rate of 15%.
✓CIT re...
Status quo ante: The need for new ROH
legislation
• Thailand as a high-tax jurisdiction in the region and abroad
✓Hong Kon...
Requirements and key qualifications
• Minimum registered share capital of THB 10 Million (Euro 250,000), fully
paid in.
• ...
Legal and tax advice and assistance, part I
• Advice on the decision to register for ROH with the existing corporation or
...
Legal and tax advice and assistance, part III
• Risk management with respect to ongoing obligations under the ROH
legislat...
How to Adjust Your
Company to Meet ROH
Requirements
The establishment of a Regional
Operating Headquarters (“ROH”) is
enjo...
European ASEAN Business Centre (EABC) 69
P
PUGNATORIUS Ltd.
29th Floor, Central World Tower
999/9 Rama I Road, Pathumwan
B...
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Regional Operating Headquarters in Thailand - von Rechtsanwalt und Steuerberater in Bangkok, Thailand

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ROH - Regional Operating Headquarters 2010 • What are the regulatory requirements to participate from this tax scheme? • What are the benefits and tax savings of a ROH in Thailand? • What are the next steps to getting things done? • Which legal and tax advice is required to optimize the ROH structure?

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Regional Operating Headquarters in Thailand - von Rechtsanwalt und Steuerberater in Bangkok, Thailand

  1. 1. ROH: Regional Operating Headquarters in Thailand • What are the regulatory requirements to participate from this tax scheme? • What are the benefits and tax savings of a ROH in Thailand? • What are the next steps to getting things done? • Which legal and tax advice is required to optimize the ROH structure?
  2. 2. ROH in a Nutshell • Advantages ✓Personal income tax reduction from up to 35% (formerly 37%) to a flat rate of 15%. ✓CIT reduction from 20% (formerly 30%) to 0% or 10%. ✓Additional tax and non-tax advantages. • Requirements ✓Three associated companies worldwide - but 5 years transition period. ✓Registered share capital THB 10 Mio. and annual expenses of THB 15 Mio. ✓Additional requirements have to be carefully examined. ROH: Timeline since 2002 • August 16, 2002: Old ROH legislation „to encourage more foreign direct investment to Thailand“. • February 10 2010: ROH (Closed) Forum with MOF, RD, BOI and BOT. • May 24, 2010: Deputy Finance Minister Pradit Pataraprasit's speech to about 300 participants at the ROH Open Forum. • June 2, 2010: Thai cabinet released its resolution to improve ROH legislation („with the aim of achieving the best tax incentives in the region“). • July 2010: According to unconfirmed newspaper reports, six multinational companies expressed interest - the Japanese automakers Nissan and Toyota, the Japanese electronics firm Hitachi, the German conglomerate Siemens, the US chemical firm Dow Chemicals and Siam Cement. • Expected for August 2010: Enactment of new ROH legislation promised to be retroactively and effective as from June 1, 2010. • Published in the Royal Gazette on November 8, 2010.
  3. 3. Status quo ante: The need for new ROH legislation • Thailand as a high-tax jurisdiction in the region and abroad ✓Hong Kong 16,5% CIT ✓Singapore 17% CIT ✓Thailand 20% CIT ✓Vietnam 25% CIT ✓China 25% CIT ✓Germany 30-33% CIT (average) • Unattractive old ROH legislation in Thailand ✓Tough and inflexible requirements. ✓More than 50% of income has to be generated from ROH activities. ✓Bad marketing of the ROH opportunities by the government in 2002. Source: OECD Tax Database Key benefits of the new ROH legislation • Reduction of corporate income tax rate from 20% (in 2013, 2014) to 0% for offshore profits. ✓derived from affiliates abroad • Reduction of corporate income tax rate from 20% (in 2013, 2014) to 10% for onshore profits. ✓derived from Thailand • Reduction of personal income tax rate for ROH senior management expatriates from 35% (progressive) to 15% (flat). ✓Conditions apply. ✓Limited to eight years • Additional tax and non-tax benefits available.
  4. 4. Requirements and key qualifications • Minimum registered share capital of THB 10 Million (Euro 250,000), fully paid in. • Minimum annual expenses in Thailand of THB 15 Million (Euro 375,000), or total investment of THB 30 Million (Euro 750,000). Conditions apply. • Services for at least one affiliated company outside Thailand in first fiscal year, later at least three affiliated companies within five years • Minimum number and salary for expatriates ✓50% test requirement ✓Senior management test requirement • Additional requirements for tax benefits on interest payments, dividends and royalties ✓50% test requirement ✓Documentation requirement Limitations • ROH advantages restricted to a broad scope of permissible services ✓administrative ✓technical and ✓other support services. • Non-qualified services are subject to normal taxation rules. • Non-qualified services do not negatively effect the registration of a ROH. • No requirement that 50%+ of the total income has been generated by ROH activities. • ROH qualified and non-qualified areas can exist in one company. In that case a separate accounting has to be maintained („unbundling“).
  5. 5. Legal and tax advice and assistance, part I • Advice on the decision to register for ROH with the existing corporation or to set-up a new legal entity • Advice how to beneficial and tax-efficient split the existing business into ROH and non-ROH area • Set-up and monitoring of the unbundling ✓in separate payroll ✓and in a separate accounting cycle • Adjustment of medium sized enterprises to ROH requirements ➡For details please see our article in the Legal Newsletter of the German- Thai Chamber of Commerce: “How to Adjust Your Company to Meet ROH Requirements” Legal and tax advice and assistance, part II • Optimization of the tax benefits, above all ✓Review and adjustment of the group’s transfer pricing policy ✓Review of the managements’ employment agreements to (1) adjust scope of local responsibility, (2) to relocate employees to Thailand and (3) to adjust remuneration scheme within the group. ✓Review of supply chain, group financing, etc. for tax optimization purposes. • Tax driven separation and allocation of ✓staff, ✓assets ✓and contracts • Statement by local tax advisor that ROH requirements are fulfilled.
  6. 6. Legal and tax advice and assistance, part III • Risk management with respect to ongoing obligations under the ROH legislation ✓Is the business in-line with existing ROH legislation? ✓Change in law requires adjustment of business? ✓Ongoing advantageousness of the ROH structure ✓Alternative solutions offer greater benefits? • Implementation of a comprehensive ROH risk management system ✓Risk identification ✓Risk analysis ✓Risk evaluation ✓Risk steering www.PUGNATORIUS.com
  7. 7. How to Adjust Your Company to Meet ROH Requirements The establishment of a Regional Operating Headquarters (“ROH”) is enjoying a certain amount of hype in discussions between German entrepreneurs and their tax advisors. The excitement is not wholly undeserved since having a ROH in Thailand offers real tax advantages, which have not been seen in recent years. The main benefits are on the one hand the reduction of the expat manager’s personal income tax burden from a progressive rate of up to 37% to a flat rate of 15% for the next eight years and on the other hand, a tax holiday on the profits generated offshore by the ROH for a period of 15 years. In addition, other tax and non-tax advantages and benefits apply as well. The prerequisites to registering a ROH have been widely discussed in the local newspapers and tax publications and there is no need to repeat this information here. It is far more interesting to know to what extent the rules offer useful and practical benefits to medium-sized companies. Is it fact or just a preconception that this new scheme is appropriate for big corporations, but is out of reach of smaller enterprises? First, a minimum registered capital of THB 10 millions should not be a deal I S S U E N O . 3 | S E P T E M B E R 2 0 1 0 P. 3 breaker. German entrepreneurs traditionally prefer a smaller equity investment to finance growth by shareholders’ loans. However, this type of thinking is in principle tax- driven, since interest payments are, unlike dividends, tax deductible. However, since the tax burden is under the ROH scheme dramatically reduced, this should more than compensate for the disadvantages of equity financing. Another key qualification for ROH status is the need for at least three affiliated companies located outside of Thailand which are to be serviced by the ROH. However, companies will be offered a comfortable transition period of five years. During the first business year of this period the ROH will need only one operating company abroad. Other conditions of ROH status relate to the annual expenses incurred within Thailand and the income to be derived from the services provided to the associated companies. Without a doubt, a total investment of THB 30 million or annual expenses of THB 15 million are not insignificant. However, an entrepreneur well advised in tax matters knows there are ways and means to structure a group ROH- efficiently, to concentrate assets from a book-keeping perspective in Thailand and to pool and channel payments diligently and beneficially at the same time. The ROH rules will allow for a minimum number of specialized professionals and top executives as well as minimum salaries. These requirements may potentially be a hurdle even for bigger corporations, since the ROH services can normally be provided by a small number of qualified staff. However, before this condition can be condemned as the death knell at a ROH wake, one should bear in mind that expatriates are taxed at 15% only. A smart staffing plan and remuneration schemes within the group should not result in a situation where the head is too big for the body. When the general decision to go ahead with the establishment of a ROH is made, the current overall tax structure should be reviewed and subjected to new scrutiny. The transfer pricing policy of the group companies will have to be examined and adjusted as well as the supply chains, group financing and employment structures. Under the ROH structure a big corporation might actually be smaller, smarter and more efficient. For a medium-sized company this will not be an option, but actually a necessity. Dr. Ulrich Eder Rechtsanwalt und Steuerberater
  8. 8. European ASEAN Business Centre (EABC) 69 P PUGNATORIUS Ltd. 29th Floor, Central World Tower 999/9 Rama I Road, Pathumwan Bangkok 10330, Thailand Tel: 0066 22072647 Fax: 0066 22072657 E-mail: lawyers@pugnatorius.com Website: www.pugnatorius.com EABC Representative Dr. Ulrich Eder Rechtsanwalt, Steuerberater, Managing Director lawyers@pugnatorius.com Company Profile PUGNATORIUS is an independent law office based in Bangkok, Thailand. We provide international corporations, investors and law firms with premium legal and tax services relating to Thailand, Southeast Asia and offshore jurisdictions. We are specialized to guide foreign clients through the red-tape requirements, legal hurdles and international tax structuring of their foreign investments, trade operations, real estate developments or other business in Thailand and Southeast Asia. Products & Services ExpertadviceinforeigndirectinvestmentsinThaimanufacturing and service sectors and real estate developments. Gateway to investments in Myanmar and utilization of Thailand as investment hub for the ASEAN region. Implementation of cross- border tax planning strategies for overall tax mitigation and risk management. International tax advice and individually tailored tax planning solutions for corporate and private clients with the inclusion of offshore jurisdictions. Corporate asset protection and advanced financing solutions. Senior Management 1. Dr. Ulrich Eder, German lawyer and tax counsel, Managing Director

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