Incentives lure Japanese investors to Thailand

“About 10 of our clients have inquired about the advantages of setting up an ROH in Thailand,” Angkana Meeploy, vice president of Bank of Tokyo-Mitsubishi UFJ, said.

The tax and other privileges approved by the Cabinet recently have caught investors' attention, said Angkana, who heads the Asian business division in the bank's corporate advisory department based in Singapore.

Japanese investors have production bases in Thailand, particularly in the automobile and electronics industries. U.S. investors also are interested in the ROH scheme, as U.S. and Japanese investors had lobbied the government to provide more promotions, she said.

Although Singapore allows multinational corporations to bring money in and out much easier than Thailand does, the cost to operate an ROH there is very high, she said.

Foreign investors want to provide services to their subsidiaries in Thailand and Southeast Asia, for which the Thai government offers tax exemptions on offshore services income. Their dividends are also untaxed.

The new ROH privileges also offer 10+5 years of corporate tax exemptions on qualified income. If cumulative operating expenses exceed 150 million baht (US$4.7 million) by the 10th year, the company can apply for a five-year extension of the tax waiver.

ROHs will pay only 10-per-cent tax on domestic services income, interest income and royalty income from domestic research and development, if income from ROH activities is more than 50 percent of total income.

Large Thai corporations are also keen on obtaining ROH status. Some with several subsidiaries overseas are expected to apply soon, Angkana said.

Conditions for ROH status are as follows:

Minimum paid-up capital of 10 million baht.

Services provided to associated enterprises in foreign countries or foreign branches in at least three countries (having branches in one country in the first year is allowed but the company has to have them in at least three countries within five years).

Minimum operating expenses paid to domestic recipients of 15 million baht annually or minimum foreign investment of 30 million baht.

Must be real operating companies with a physical presence and staff.

By the end of the third year, 75 percent of ROH personnel must be qualified staff, with minimum five specialized professionals and total earnings of at least five executives greater than 2.5 million baht per person per year.

Thailand has a strategic geographical location, well-established manufacturing base and high standard of living. But the country also has tight restrictions on foreign-currency transactions, a language barrier, complex licensing, and restrictions on foreign investment, she said.

Hong Kong and Malaysia are also attractive for ROHs. Hong Kong is a gateway to the mainland Chinese market. It boasts low taxes and a simple tax system and absence of exchange controls.

Malaysia has highly competitive tax incentives, geographical advantages and leverage from shared service centers and hi-tech industries, she added.

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