Government efforts to draw company HQs bearing fruit

 

A package of new regulations and incentives unveiled by the current government and designed to draw companies to establish their regional headquarters in Thailand has been steadily succeeding as more firms have chosen to set up headquarters, international trade centers and regional treasury centers in the Kingdom during the past two years than in the previous 15 years combined, according to the Nikkei Asian Review.

The Thai government “has been keen to improve the country’s international image and its place in global ‘ease of doing business’ rankings, both for Thai companies and for foreign investors,” Nikkei wrote. “One of the regime’s initiatives in this area was the promulgation in May 2015 of a new package of incentives for multinational companies to establish international headquarters (IHQs), international trade centers (ITCs) and regional trade centers (RTCs) in the country.”

This package of incentives, combined with a tax regime, has been succeeding in attracting more companies to decide in favor of Thailand. From 2000 through 2014, about 150 companies chose to establish their regional headquarters in the Kingdom. But from May 2014 through June 2016 “Thailand’s Board of Investment received 55 applications for new IHQs and 148 for ITCs, which must be approved by the Finance Ministry. The central bank has approved licenses for a score of RTCs. The ITC licenses have proven particularly attractive to Japanese companies, which have accounted for about 80 percent of applications for this type of license, according to BOI officials,” Nikkei wrote.

BOI officials said the main reason companies are choosing to locate their IHQs and ITCs in the Kingdom is that many already have manufacturing operations in the country. But changes in regulations have also played a role.

“Previously the Thai government did not allow Japanese companies to engage in wholesaling – as a foreign company this was restricted – so Japanese companies had to set up a joint ventures before the ITC policy,” Junichiro Haseba, director of the investment cooperation department at the Japan External Trade Organization in Thailand told Nikkei.

“But if they have an ITC they can sell [wholesale.] So it fits a big need. With an ITC they can import and sell the mother company’s products, not only the mother company’s product but other products also,” Haseba said.

Among the new incentives for companies setting up headquarters and trade centers is that Thailand-based ITCs do not need to pay taxes on profits from the purchase and sale of goods outside of the kingdom. In the past, these transactions were taxed at a rate of 15 percent. Another enticement for IHQs is a 15 percent tax ceiling on expatriate salaries.  Several executives said that would help draw talent to Thailand.