Why is Thailand the ideal hub for International Business Centers (IBCs)

What exactly is an IBC? 

An International Business Center in Thailand offers a unique legal framework for multinational corporations to efficiently coordinate overseas operations. As defined by the Board of Investment, an IBC primarily aims to “provide services to associated firms located abroad as well as within the kingdom, covering international trade and beyond.” Administered under Thailand’s Revenue Code alongside related notifications, the modern IBC program consolidates and streamlines the functions of its predecessors – the Regional Operating Headquarters and International Headquarters models. Chief among its advantages, the IBC establishes a tax-beneficial entity for managing a company’s far-reaching regional and global activities from an Asian hub in Thailand. While streamlining compliance, the structure retains the necessary autonomy to skillfully pilot subsidiaries situated around the globe.

Government agencies supporting IBCs in Thailand and the advantages they offer :

Here’s a detailed list of the benefits offered by the Board of Investment (BOI) and the Revenue Department (RD) for International Business Centers (IBCs) in Thailand:

• Benefits offered by the BOI:

• Majority or 100% Foreign Ownership:
  • IBCs can be entirely foreign-owned, providing greater flexibility and control over their operations.
• 100% Foreign Shareholding:
  • IBCs are permitted to have full foreign shareholding, facilitating easier investment and management by foreign entities.
• Right to Own Land:
  • IBCs are granted the right to own land in Thailand, a privilege that is typically restricted for foreign entities.
• Visa and Work Permit Privileges:
  • IBCs can access streamlined processes for obtaining visas and work permits for foreign employees, simplifying the relocation and employment process.
• Exemption of Import Duty on Machinery:
  • IBCs benefit from exemptions on import duties for machinery used in research and development (R&D) and training services within the IBC project, reducing operational costs.

• Benefits offered by the Revenue Department (RD):

• Corporate Income Tax (CIT) Benefits:
  • 8% CIT if the IBC incurs an expenditure of 60 million baht paid to recipients in Thailand.
  • 5% CIT if the expenditure reaches 300 million baht.
  • 3% CIT if the expenditure totals 600 million baht.
  • CIT Exemption on Dividends received from associated enterprises in Thailand or overseas.
• Specific Business Tax Exemption:
  • Exemption on gross receipts from providing financial management services to associated enterprises within Thailand or abroad.
• Withholding Tax Benefits:
  • Exemption on dividends paid by the IBC to foreign companies or juristic partnerships not conducting business in Thailand.
  • Exemption on interest paid by the IBC on loans to associated enterprises in Thailand or overseas, provided these loans are used for financial management services.
• Personal Income Tax Benefits:
  • A reduced personal income tax rate of 15% for expatriate employees working under the IBC structure.

These detailed incentives make Thailand an appealing location for multinational corporations seeking to establish their regional headquarters or expand their global operations

Moreover, incorporated businesses bypass the need for a standard Foreign Business License. Instead, they automatically receive a Foreign Business Certificate acknowledging eligibility. The main difference between an FBL and FBC comes forth: the license demands foreign enterprises proactively secure approval to infiltrate protected areas, granted considering the enterprise’s credentials and worthiness. Contrarily, the certificate corroborates a company’s ability to function in Thailand, often awarded to those already excused under agreements or stimulation programs. Meanwhile, smaller startups seeking the license find the uphill battle steeper yet remain hopeful as the opportunity for prosperity lures them forward against trials. 

What are the approved activities for an IBC?

The IBC regime allows companies to involve in a wide-ranging variety of international business activities. These activities are generally focused on servicing the needs of associated enterprises, which are typically subsidiaries, affiliates, or branches of the parent company. 12 activities under the IBC framework are approved:

General Business Management, Business Planning, and Business Cooperation: This activity involves overseeing the overall operations of associated enterprises, ensuring alignment with corporate strategies. It also includes coordinating business planning efforts and fostering cooperation among different entities within the corporate group.

Procurement of Raw Materials and Parts: Companies under the IBC regime manage the sourcing and acquisition of raw materials and parts needed by associated enterprises, ensuring supply chain efficiency. This function is essential for maintaining consistent production and operational continuity across the group.

Research and Development of Products: IBCs are authorized to conduct research and development activities aimed at innovating and improving products for associated enterprises. This supports the group’s competitive edge by driving product enhancements and new product development.

Technical Support: Providing technical assistance to associated enterprises is a key function under the IBC, ensuring that operational issues are resolved swiftly. This support helps maintain the quality and performance of products and services offered by the group.

Marketing and Sales Promotion: IBCs can engage in marketing and sales promotion activities to boost the visibility and market share of products and services across international markets. These efforts are crucial for driving revenue and brand recognition for associated enterprises.

Human Resources Management and Training: The IBC framework allows for the management and development of human resources within associated enterprises, including recruitment, training, and talent development. This ensures that the workforce across the group is skilled, motivated, and aligned with corporate goals.

Financial Advisory Services, Economic and Investment Analysis and Research: IBCs can offer financial advisory services, including economic and investment analysis, to help associated enterprises make informed decisions. This activity supports the financial health and strategic growth of the group.

Credit Management and Control: Managing credit risk and ensuring proper control mechanisms are in place is another approved activity under the IBC regime. This function helps maintain the financial stability of associated enterprises by minimizing the risks associated with credit transactions.

Financial Management Services of the Treasury Center: IBCs can operate as Treasury Centers, managing the group’s financial resources, cash flow, and investment strategies. This centralization of financial management supports efficient resource allocation and risk management across the group.

International Trade Business: Engaging in international trade, including the export and import of goods and services, is a key activity for IBCs. This function allows associated enterprises to expand their market reach and optimize global supply chains.

Money Lending Services to Associated Enterprises: IBCs are authorized to provide financing to associated enterprises within the group, supporting their operational and expansion needs. These money lending services are crucial for maintaining liquidity and fostering growth within the corporate structure.

Other Supporting Services: The IBC regime also allows companies to offer a variety of other supporting services, such as IT, legal, and administrative support, to associated enterprises. These services ensure that all aspects of the business operate smoothly and efficiently.

What conditions must a company meet to qualify as an IBC?

To be recognized as an IBC, a company must meet specific criteria set forth by the Thai government. First, the company must exist as a Thai limited liability entity. Nevertheless, you must yet know that obtaining the several advantages offered by the BOI and the RD depends on each government agency:

Conditions to obtain BOI advantages:

• Minimum Paid-Up Capital: The IBC must have a paid-up registered capital of at least 10 million baht.
• Employment Requirements: The IBC must employ at least 10 skilled Thai nationals, or 5 if the IBC operates only as a Treasury Center.
• Engagement in Promoted Activities: The IBC must be involved in one or more promoted activities, such as international trade or providing loans to associated enterprises, to qualify for BOI incentives.

Conditions to obtain RD advantages:

• Minimum Paid-Up Capital: The IBC must have a paid-up capital of at least 10 million baht.
• Employment Requirements: The IBC must employ at least 10 skilled employees, or 5 if acting as a Treasury Center.
• Expenditure Requirements: The IBC must incur a minimum expenditure of 60 million baht within Thailand during the accounting period.
• Ongoing Compliance: The IBC must consistently meet these conditions to maintain eligibility for the RD’s tax incentives; failure to do so may result in suspension or revocation of benefits.

How to apply to be qualified as IBCs in Thailand?

Gaining incorporated business status initially requires several procedural steps.

To begin, the company must officially register as a limited corporation under Thai law and satisfy capital, job, and expenditure minimums. Once these prerequisites are addressed, the company can submit an application to the Revenue Department, detailing proposed operations and furnishing proof of meeting IBC criteria.

The application demands inclusion of a business plan outlining intended functions, plus supporting records like financial statements, capital investment verification, and management structure particulars. The Revenue Department will evaluate the application to confirm the company meets all qualifications and engages in eligible activities.

Should approval be granted, the company will obtain IBC status, allowing advantages from linked tax benefits and simplified rules. It is important to note the company must persistently meet IBC criteria on an ongoing basis, as the Revenue Department may conduct periodic audits to ensure conformance.

Conclusion

Thailand’s IBC regime presents significant benefits for multinational corporations looking to centralize regional operations in a strategic and business-amenable place. By fulfilling necessary conditions and engaging in permitted activities, companies can profit from favorable tax treatment and a streamlined regulatory process. Assistance furnished by government agencies, particularly the BOI and the Revenue Department, further enhances the attractiveness of establishing an IBC in Thailand. For corporations seeking to widen their global footprint, the IBC regime represents a compelling chance to leverage Thailand’s strengths as a regional hub.