November Is Bangkok Ready to Become a Leading Hub for Regional Operating Headquarters?

November 2010 Is Bangkok Ready to Become a Leading Hub for Regional Operating Headquarters?

2 Advance Introduction With the Thai government proposing new criteria and incentives for companies to establish regional offices in Thailand, there is a great amount of interest regarding the suitability of the country, and more specifically, Bangkok, as a regional office hub for Asia. At present, there are already 108 registered companies receiving privileges from the Board of Investment and Revenue Department. Among the main reasons cited by these companies on why they chose Bangkok as the location for their offices are the criteria to be met to acquire a regional office status, the actual incentives offered, and the attractiveness of the location from a market perspective. Jones Lang LaSalle, in collaboration with DLA Piper, has composed this white paper to provide the guidelines on what defines a regional operating headquarters (ROH), the available opportunities for existing and potential companies, and the associated benefits of locating regional offices in Bangkok. What is ROH? ROH is a corporate entity having specific characteristics and engaging in service business activities. In Thailand, the term ROH varies depending on the types of registration ROH possesses, which will fall under either the Foreign Business Act B.E. 2542 (FBA) or the Investment Promotion Act B.E. 2521 (as amended) (IPA). While ROH under the FBA is a corporate entity registered under the foreign laws or having the characteristics of a foreigner under the definition of the FBA and obtains a business license from the Thai Ministry of Commerce (MOC), ROH under the IPA is a corporate entity registered under Thai laws and obtains approval from the Board of Investment of Thailand (BOI). The benefits derived from both types of ROH differ, and the one under the IPA appears to have greater privileges in terms of non-tax incentives. Why ROH? The FBA regulates the scope of foreign participation in Thai business activities. The FBA prohibits foreigners, unless they are otherwise exempt, from participating in specific business activities and requires certificates or licenses to be obtained before engaging in others. The business activities that fall within the scope of the FBA are divided into three categories and listed in Lists one, two, and three of the FBA. Businesses under List one are closed to foreign investment due to specific reasons. Businesses under List two are businesses related to national safety and security, businesses affecting cultural arts, traditional customs and folk handicrafts, and businesses affecting natural resources or the environment. These businesses are closed to foreign investment, except where permission is obtained from the Minister in charge of the FBA with the approval of the Cabinet.

Is Bangkok Ready to Become a Leading Hub for Regional Operating Headquarters? 3 Businesses under List three are businesses in which Thai nationals are not yet ready to compete with foreigners. These businesses are closed to foreign investment, except where permission is obtained from the Director-General of the Department of Business Development with the approval of the Foreign Business Committees. Most service business activities fall within the scope of List three. It is worth noting that the FBA prohibits foreigners from conducting only certain business activities listed in the abovementioned Lists. It does not forbid foreigners from holding 100% ownership in corporate vehicles. Picture 1 Foreign Incorporated Company Foreign > 50-100% Thailand Picture 2 Thai Incorporated Company Definition of Foreigner under the FBA In the case of a juristic entity, foreigner is defined to mean: 1. a natural person who does not have Thai nationality; 2. a juristic person that is not registered in Thailand; Foreign Thailand 49% 51% 3. a juristic person registered in Thailand that possesses the following characteristics: Picture 3 Thai Incorporated Company a.) a juristic person with one-half or more of its capital held by persons under (1) or (2), or with one-half or more of its capital invested by persons under (1) or (2); b.) a limited partnership or a registered ordinary partnership whose managing partner or manager is a person under (1). Foreign Thailand 49% 51% 4. a juristic person registered in Thailand with one-half or more of its capital held by persons under (1), (2), or (3) who invest in at least onehalf of the total capital of such a juristic person. The following are examples of foreign-structured and most common Thai-structured companies under the definition of the FBA. 49% 51% The corporate structure in Picture 1 above appears to be the most preferable structure for foreign investment. Such that a foreigner takes full control of the corporate vehicle. However, it falls under the governance of the FBA, and as such, the corporate vehicle is restricted from carrying on most of the service businesses.

4 Advance Pictures 2 and 3 Preference Shareholding Structure are well known to foreign investors intending to operate restricted businesses under the FBA. However, the most common problem encountered by foreign investors is how to find a proper Thai business partner so that a Thai company can be incorporated without the risk of being in breach of the FBA (i.e., nominee shareholder ) and having the right to operate restricted businesses. It would be ideal if a foreign investment can be incorporated by a 100% foreign-owned entity and be able to operate service businesses for this, ROH is the answer. -- Training and personnel development; -- Financial management; -- Marketing control and sales promotion planning; -- Product development; and -- Research and development services. The foregoing business activities are classified as services businesses; therefore, they are prohibited under the FBA unless a Foreign Business License is obtained. Aside from the restrictions on business activities above, there are additional conditions for a regional office, which are as follows: -- Must already have at least one established branch office or affiliate in the Asian region; -- Non-revenue generating activities; Two options are available for the ROH company to perform its businesses: (1) obtain the Foreign Business License with the MOC under the FBA; and (2) obtain the BOI privileges. The purpose of the first option is only to enable the ROH company to perform its business activities in Thailand. Meanwhile, the second option not only allows the ROH company to run its business, but it also enables the company to receive non-tax privileges under the BOI, and if qualified, tax privileges under Thai tax laws. ROH under the Foreign Business Act ROH under the FBA is established by a transnational corporation (legal entity set up under foreign law to do business in Thailand) in a country other than the country where it is registered as the head office. The foreigners need not to establish juristic persons in Thailand in order to obtain ROH status. ROH under the FBA is strictly limited to perform the following business activities: -- Communicating, coordinating, and directing the operation of branches and affiliates located in the region on behalf of the head office; -- No authority to accept purchasing order or to make offer for selling or to negotiate for carrying out of business with person or juristic person in the country in which it is established; and -- The head office must be responsible for all expenditures incurred by ROH. ROH under IPA Foreigners who wish to establish ROH under the IPA need to incorporate limited companies in order to obtain ROH status from the BOI. ROH must provide services such as administrative and/or technical to branches and/or subsidiaries in at least three countries. The BOI set forth qualifications for the ROH status as follows: -- Having a registered capital not less than THB 10 million -- Obtain operating licenses from relevant government agencies -- Ratio of liabilities to registered capital should not exceed 3:1 -- Provide services in consulting and management;

Is Bangkok Ready to Become a Leading Hub for Regional Operating Headquarters? 5 If a company obtain the ROH status under the IPA, such company will be entitled to the Non-Tax Privileges which include: -- State guarantee -- Business Protection -- 100% foreign ownership allowance -- Relaxation of restrictions on participation by foreigners by allowing promoted companies to bring in foreign nationals for feasibility studies -- Allowing companies to bring in foreign technicians and experts to work on promoted projects Definition of ROH Business under Thai Tax Laws ROH Business means a business that provides managerial technical or the following supporting services to its associated enterprise or its domestic or foreign branches. 1. 2. 3. 4. 5. General management, business planning, and business coordination Procurement of raw materials and parts Research and development of product. Supporting technical assistance Marketing and sale promotion -- Allowing companies to own land for promoted activities 6. Human resource management and training in the region -- Allowing companies to receive or remit foreign currency abroad, among others Tax Privileges are not available under the IPA, and so, if an ROH company would like to obtain such privileges, the company will have to be qualified in pursuant to relevant tax laws. ROH under Thai Tax Laws Whether or not a company is already incorporated, the tax privileges will be available if such company s business operations fall within the scope of the ROH Business: 7. Financial advisory services 8. Economic and investment analysis and research 9. Credit management and control 10. Any other supporting services as stipulated by the Director-General of the Revenue Department

6 Advance To be eligible for tax incentives, not only must the ROH company carry on the ROH Business, but also such ROH company must possess the following criteria (which are shown in a comparison table between the current criteria and the proposed criteria): Eligible Criteria for ROH Conditions Current Criteria New Criteria Ratio of Minimum Income from Services Rendered Overseas Service Recipient Minimum Registered Capital Personnel (new requirement) Minimum Operating Expense (new requirement) Other Not required Affiliates in Thailand and overseas must have performing executives and employees (new requirement) Overseas affiliates must have existing establishment Source: Revenue Department, Ministry of Finance If the above eligible criteria are met, ROH company shall be eligible for the following tax privileges: ROH Tax Privileges Type of Taxable Income Tax Incentives under Current Scheme Tax Incentives under New Scheme Corporate Income Tax on Profit At least 50% of total income derived from services rendered and royalties received from overseas At least three overseas affiliates or branches in at least three countries in the first fiscal year Investment of fully paid up capital of at least THB 10 million Not required Not required Personal Income Tax Income of expatriates Income derived from work performed overseas Corporate Income Tax and Withholding Tax on Dividends Dividends received from its affiliates and paid out to its foreign corporate shareholders not carrying on business in Thailand Corporate Income Tax on Interest Earning Interest earned from loans to its affiliates or foreign branches Corporate Income Tax on Royalties Royalties from Research & Development done by ROH in Thailand received from its affiliates, foreign branches, or related companies/partnerships No minimum income requirement for Corporate Income Tax ( CIT ) incentives on profit from services provided to both Thai an foreign affiliates However, this minimum requirement under the current scheme must be satisfied in order to obtain the tax incentives of the following type of taxable incomes: Interest income (10%) Dividends (exempted) Royalties (10%) Personal income (15%) More flexible scheme permitting the company to render services to overseas affiliates in at least three countries by the end of the fifth year of commencing ROH Business By the end of first year one affiliate By the end of fifth year three affiliates By the end of third year two affiliates Remains unchanged By the end of the third year, at least 75% of the employees must be qualified and skilled staff; and each of the five ROH employees must earn a salary of at least THB 2.5 million per annum Operating expenses for ROH Business in Thailand must exceed THB 15 million per year or, alternatively, its capital expenditure in Thailand must be at least THB 30 million per year A flat rate of 10% for an unlimited period (Normal tax rate: 30%) Capped at 15% for four years Exempted (Normal progressive rate of 0-37%) Exempted for an unlimited period (Normal tax rate: 30% and 10% withholding tax) A flat rate of 10% for an unlimited period (Normal tax rate: 30%) A flat rate of 10% for an unlimited period (Normal tax rate: 30%) Exempted for 10 + 5* years on net profit from services provided to foreign affiliates A flat rate of 10% for 10 + 5* years on net profit from services provided in Thailand No minimum income requirement to obtain this incentive Capped at 15% for eight years Exempted (Applicable only to executives and specialists) Exempted for 10 + 5* years A flat rate of 10% for 10 + 5* years A flat rate of 10% for 10 + 5* years *Additional five years will be applicable only if in the 10th fiscal year, the ROH has accumulated operating expenses of over THB 150 million in total and given that subsequent application is submitted Source: Revenue Department, Ministry of Finance

Is Bangkok Ready to Become a Leading Hub for Regional Operating Headquarters? 7 Comparison of ROH Criteria - Thailand vs. Malaysia and Singapore Conditions 1. Registered Capital 2. Number of Affiliates or Overseas Branches 3. Minimum Domestic Expenditure 4. Qualification of Affiliate 5. Qualifications and number of employees in ROH 6. Scope of Service 7. Revenue Earning Thailand (Current Criteria) THB10 million or more At least three overseas affiliates or branches in at least three countries in the first fiscal year (exclusive of domestic branch) Not required None None Source: Ministry of Finance Setting 10 types of services to be given privilege At least 50% of total income derived from services rendered and royalties received from overseas Malaysia Singapore Thailand (New Criteria) MYR500,000 (THB 5 million) At least three overseas affiliates in at least three countries (exclusive of domestic branch) At least MYR1.5 million/ year (THB15 million) SGD0.2 million (THB 500,000) in the first year and SGD 0.5 million (THB1.25 million) within the end of the third year At least three overseas affiliates in at least three countries in the first fiscal year Operating expenses of at least SGD2 million/year (THB50 million) within end of the third year. (exclusive of expenses that have been paid to overseas, depreciation, royalty, raw materials, consisting equipment, and packaging) Cumulative expenses for the first three years is at least SGD3 million (THB75 million) THB10 million or more (remains unchanged) Operating of at least By the end of first year one affiliate By the end of third year two affiliates By the end of fifth year three affiliates Operating expenses of at least THB15 million/year (exclusive of expenses that have been paid to overseas, depreciation, royalty, raw materials, consisting equipment, and packaging) Or expenses for investment in relation to ROH that have been paid to recipient in Thailand at least THB30 million in relevant year. Having network of moderate-sized companies None Having performing management and staff on site established in overseas, Physical presence in overseas including parent company or head office and affiliates Actual business operation following company s objectives or following what have been informed to the Revenue Department Having at least three 75% of employees must be At least 75% of the employees must be managers or high-level qualified and skilled staff qualified and skilled staff by the end of specialists Must have at least 10 the third year Having company s professional employees within Each of the five ROH employees must network and employ end of the third year earn salary at least 2.5 million Baht per significant number of Average remuneration annum specialists or supporting per head must be at staff least SGD100,000/year PIT will be waived for (THB2.5 million) for top-five income from overseas management within end of the when acquiring approval third year from Ministry of Finance Setting 10 types of Setting 11 types of services to be Remains unchanged services to be given given privilege privilege Providing at least three types of services that have been given privilege None None None

8 Advance Comparison of ROH Tax Privilege - Thailand vs. Malaysia and Singapore A. Corporate Income Tax (CIT) Taxable Revenue 1. Revenue from Qualifying Service a. Overseas portion b. Domestic portion 2. Dividends received from its affiliates and paid out to its foreign corporate shareholders not carrying on business in Thailand 3. Interest earned from loans to its affiliates or foreign branches Thailand (Current Incentives) a. A flat rate of 10% for an unlimited period b. A flat rate of 10% for an unlimited period Exempted for an unlimited period 10% for an unlimited period Malaysia Singapore Thailand (New Incentives) a. Exempted for 10 years b. Exempted for part not exceeding than 20% of revenue from qualifying services. Normal tax rate for the rest. A flat rate of 15% for three years and additional two years if the company is able to follow regulations of registered capital, minimum expenses, and conditions of employment within the third year of operation. Exempted for 10 + 5* years on net profit from services provided to foreign affiliates A flat rate of 10% for 10 + 5* years on net profit from services provided in Thailand In case that the company meets condition requirements and has cumulative domestic proceeding expense more than THB150 million in the tenth accounting period, will be able to request for extension of privilege for maximum of five years for each accounting period New Incentives Based on income proportion from servicing ROH and income from Royalty in R&D from affiliates in overseas to total income of the company > = 50% < 50% Exempted for 10 years None Exempted Normal rate (30%) Exempted for 10 years Normal rate (0-15%) 10% Normal rate (30%) 4. Royalty 10% for an unlimited period Exempted for 10 years Normal rate (0-15%) 10% Normal rate (30%) 5. Progressive depreciation Yes None None Normal rate Normal rate *Additional five years will be applicable only if in the 10th fiscal year, the ROH has accumulated operating expenses in total of over THB 150 million and given that subsequent application is submitted Source: Ministry of Finance B. Personal Income Tax (PIT) Tax Incentives for Specialist or High Level Management Thailand (Current Incentives) Malaysia Singapore Thailand (New Incentives) Income from working in overseas Exempted Exempted but subject to approval Exempted Exempted Income from working for domestic ROH Capped at 15% for four years Normal rate (0-28%) Normal rate (0-18%) Capped at 15% for eight years Source: Ministry of Finance

Is Bangkok Ready to Become a Leading Hub for Regional Operating Headquarters? 9 Regional Operating Headquarters in Bangkok and Thailand The existing ROH companies, which can provide services as described in the previous section, operate in various industries. The most common industries represented with ROH facilities and registered in Thailand are: Table 1: Type of Industries and Major ROH Companies Ranking Industries Companies 1 Automobile and Parts Asian Honda Motors Ford Services (Thailand) General Motors Southeast Asia Operations Nissan Motors (Thailand) Toyota Boshoku Asia Toyota Motor Asia Pacific Engineering and Manufacturing 2 Food and Beverages Beverage Partner Worldwide Asia Cadbury Southeast Asia Coca-Cola Southeast Asia Services Nestle ROH (Thailand) Pepsico Services Asia 3 Chemicals PTT Chemical International (Asia Pacific ROH) Solvay Asia Pacifc Clariant (Thailand) Caretex ROH (Thailand) Travel and Tourism Amadeus Asia AAPC (Thailand) Accor Group Diethelm Travel Management Agoda Services 4 Energy and Petroleum Chevron Asia South ExxonMobil 5 Logistics NYK Roro (Thailand) Global Procurement Services Source: Revenue Department, BOI, Jones Lang LaSalle Research, October 2010 Location and Type of ROH Facilities Companies with ROH in Thailand require different types of facilities per function, whether they be service and operationally oriented. Among all the ROH in Thailand, 94 companies have their facilities located in Bangkok, Nontaburi, and Samutprakarn. The remaining 14 companies, mostly in the manufacturing sector, have office premises in either industrial estates/parks or low-rise office buildings located in Chonburi, Ayutthaya, Chiangmai, and Prachuap Khirikan provinces. Foreign ROHs that have obtained privileges from the BOI can own land and property similar to other non-roh foreign and Thai companies. In Bangkok and at its vicinity, 73% of the ROHs occupy commercial high-rise office buildings. The other 27% own or lease low-rise office premises located in various parts of Bangkok and its vicinity these are not recognized in the commercial office stock as these premises can be used for a variety of purposes.

10 Advance Bangkok as a Regional Office Location Bangkok remains the center of finance, commerce, culture, and education in Thailand and increasingly the Southeast Asian region. After pulling through the Asian financial crisis more than a decade ago, as well as recovering from the political turmoil and global economic challenges over the past few years, Thailand has proven far more resilient with a sound financial system and more prudent businesses. Since 1989, the amount of Grade A office space in the CBD of Bangkok has increased 10 times to total 1.25 million sqm, while the number of luxury apartments and condominiums has increased 37 times to 25,600 units. Despite concerns for the real estate sector due to the political turmoil and the global financial crisis, private sector developments continue to rise to accommodate the needs of modern businesses and cosmopolitan residents. The evolving infrastructure and real estate development is gradually reshaping the city. Extensions of the successful Bangkok Mass Transit System skytrain (BTS, 28.7 km) and Mass Rapid Transit underground train systems (MRT, 20 km) are well underway. The Airport Link, which began operation in August of this year, offers high-speed transportation between Suvarnabhumi Airport (opened in 2006) and a city terminal in central Bangkok. Existing Commercial Office Demand for ROH Commercial office demand, generally high-rise (eight-stories and above), in Bangkok Metropolitan Area (BMA) currently totals 6.64 million sqm with total supply of 8.0 million sqm, accounting for an 83.0% occupancy rate. Office demand from existing ROH is approximately 189,000 sqm, comprising 2.8% of the total demand in Bangkok s office market. Of the 69 companies which have ROH facilities in commercial office buildings, 43% are located in the central business district (CBD), which includes the Sathorn, Silom, Surawongse, Si-Phraya, Rajdamri, Wireless, Langsuan, and Ploenchit Roads. In terms of quality, 54% of the companies have office premises in prime-grade buildings. However, the amount of space occupied outside the CBD is significantly higher as illustrated in Figure 1. Regardless of the locations, the companies with ROH prefer occupying primegrade office buildings, which accounts for 79% of the total space occupied by these companies. Figure 1: ROH office demand in Bangkok Number of Company Area (Thousand sqm) 40 150 35 125 30 25 100 20 75 15 50 10 5 25 0 CBD Non-CBD 0 CBD Non-CBD Prime Non-Prime Source: Revenue Department, BOI, Jones Lang LaSalle Research, October 2010

Is Bangkok Ready to Become a Leading Hub for Regional Operating Headquarters? 11 Availability of Office Space for ROH Having a new set of incentives for both Thai and foreign companies establishing regional offices in Thailand should boost demand for office space in Bangkok, particularly for prime-grade office buildings, as mentioned. This type of space, also referred to as Grade A, is what most MNCs and prominent domestic companies tend to locate. The typical prime-grade office buildings should be relatively new and well-maintained with high specifications such as large, column-free floor plates, ample car parking space, proximity to mass-transit BTS or MRT station, a grand lobby, efficient and zoned lifts, chilled water air conditioning systems, and equipped with fire safety and security system. Buildings that lack most of these features are classified as non-prime. Currently, Bangkok offers an abundance of choice in terms of location and quality. Of the total office supply, 1.36 million sqm of office space remains vacant across all grades and locations in Bangkok. Among prime-grade office space in the CBD, about 240,000 sqm is still available, representing a 19.5% vacancy rate from the total supply of 1.25 million sqm. Approximately 190,000 sqm of prime office space remains vacant outside of the CBD, while 230,000 sqm and 700,000 sqm of non-prime office space are currently available within the CBD and outside the CBD, respectively. In addition to the total current vacant space available in Bangkok, new supply of approximately 148,000 sqm is currently under construction and scheduled for completion between 4Q10 and 2012. Another 245,500 sqm of office space has been proposed and is in the pipeline, possibly entering the market by 2012 or 2013. Among the future supply, Sathorn Square and Park Ventures are prime-grade office buildings which will offer superior specifications (including securing LEED certification) than the existing stock prime-grade buildings. Currently under the design phase, American International Assurance also plans to build two high-specification office buildings in Bangkok. Office Rents Among eleven cities surveyed, Bangkok offers the second-lowest office rents after Jakarta. Grade A office space currently averages THB 635 or USD 20.6 per sqm per month in the CBD of Bangkok. Comparing Bangkok to other cities that also provide operating headquarters incentives, Kuala Lumpur is the most competitive city to Bangkok as the average gross rent is relatively the same at USD 21.2 per sqm per month. Singapore, which is one of the most popular destinations for regional office and financial hub, ranks the third highest, costing 3.5 times the Bangkok rents. The most expensive city for occupiers to lease quality grade office premises is Hong Kong, which is a financial center and a gateway for investment to mainland China, with an average gross rent as high as USD 142 per sqm per month. Table 2: Bangkok Office Supply and Vacancy Figure 2: Office Rents across Cities Hong Kong Mumbai Singapore Shanghai Ho Chi Minh City Beijing Seoul Taipei Kuala Lumpur Bangkok Jakarta 21.2 20.6 17.7 26.2 BMA CBD Non-CBD All Grades Prime Non-Prime Prime Non-Prime Total Supply (million sqm) 8.00 1.25 1.56 1.39 3.80 Vacant Area (million sqm) 1.36 0.24 0.23 0.19 0.70 Vacancy Rate (%) 17.0% 19.5% 14.8% 13.3% 18.5% Source: Jones Lang LaSalle Research, October 2010 38.4 51.2 50.4 56.9 0 20 40 60 80 100 120 140 160 USD psm pm Source: Jones Lang LaSalle Real Estate Intelligence Services, October 2010 Remark: Office rents are in gross terms represent each city s occupancy cost for prime-grade office buildings located in the CBD area. 75.7 71.1 142.0

12 Advance General Market Practices for Office Leasing Table 3: Office Leasing Practices Typical Lease Term Three years (longer terms of six years or more are available in some buildings for large-space users however must be registered at the land department) Frequency of Rent Payable Rent Deposit Security of Tenure Statutory Right to Renewal Basis of Rent Increases or Rent Review Frequency of Rent Increases or Rent Review Service Charges/Management Fees Utilities Car Parking Stamp Duty Local Property Taxes VAT Payable on Rent & Service Charge Subletting & Assignment Early Termination Monthly Three months Only the duration of the tenancy, no guarantee beyond the original lease term No (unless an option to renew is agreed at the outset and specified in the lease) Open market rental value or pre-agreed levels At lease renewal or every three years Usually quoted with rental charge and payable monthly in advance Electricity and Telecommunication consumption are separately metered and payable by each tenant Water consumption is included in the management charges, unless tenants extend the water pipeline into leased premises One parking lot per 100 sqm leased free of charge, additional spaces are provided subject to availability and monthly rental charges Usually payable by the tenant Stamp duty payable is 0.1% of the rental and service charges over the entire lease term Usually landlord (subject to agreement) VAT 7% on service charges and furniture rental Withholding tax 3% for services and 5% for premise and furniture Generally prohibited (subject to landlord approval) Only by break clause Reinstatement Responsibilities Original condition (allowing for wear and tear) Source: Jones Lang LaSalle Research, October 2010 Residential Accommodation and Amenities Bangkok offers a full range residential accommodations meeting an expatriates worker s size, lifestyle, and aesthetic requirements all at relatively low costs. Over the past decade, Bangkok has undergone a transformation with residential development taking advantage of both new mass transit and road infrastructure. While automobile traffic remains an issue in certain areas, commuting across the city is far easier than ever. Furthermore, an evolved residential market has attracted complementary development in key areas, including recreational, dining, shopping, healthcare, and educational facilities. Whether in the CBD or in the suburbs of the city, Bangkok can accommodate the needs of foreign workers in the city, whether they are in the capital for short or long-term assignments. Among the types of accommodation available, apartments, condominiums, townhouses, and single houses are all commonly available for rent on longer term contracts. For shorter term residences, serviced apartments offer more space and function but provide many of the services offered by hotels. As discussed in the office section, there is no single area in which regional office headquarters tend to locate. As such, a foreign worker in Thailand is typically free to choose accommodation on functionality, budget, and taste quite comfortably. For foreign workers and their families, Bangkok provides more than basic infrastructure. Besides high-end shopping malls downtown, most suburban areas are served by modern shopping centers anchored by the likes of international retailers like Tesco Lotus, Max Value, and

Is Bangkok Ready to Become a Leading Hub for Regional Operating Headquarters? 13 Carrefour. Virtually every neighborhood in Bangkok has a 7-11 or similar convenience store outlet. Bangkok has 82 international schools across the city, some with curricula specific to individual nations, e.g., the UK, US Japan, France, and Singapore. With a growing reputation for medical excellence, Thailand also has 12 hospitals accredited by Joint Commission International (JCI), many of which have been recognized not just for quality, but for affordability as well. Beyond the city limits, Bangkok is a natural base for travel around the country and the rest of the region. The city ranks high consistently on global tourist destination surveys and offers visitors a range of hotel accommodation. Suvarnabhumi Airport, which is 15 minutes from central Bangkok on the new Airlink, is a regional air transport hub capable of servicing up to 45 million passengers per annum. Expatriates As discussed in the office section, there are 108 companies registered as ROH that receive relevant incentives. In addition, there are 271,918 multinational and domestic companies registered in Bangkok as of June 2010 which may employ foreign workers. As part of the initiatives to attract more ROH to Bangkok, the government is reportedly seeking to streamline the process of approving and registering foreigners for work permits in Thailand. There are nearly 90,000 professionals and investors registered with work permits in Bangkok. Figure 3 shows from where most of these expatriate workers come from. As discussed in the previous section, office costs in Bangkok are relatively low. This condition also applies to costs for the Bangkok resident. According to Mercer s 2010 Cost of Living Survey, Bangkok was ranked 121st most costly, while Singapore, Kuala Lumpur, and Jakarta were ranked in 11th, 138th, and 94th, respectively. Figure 3: Work Permit by Nationality and Type Japan 23,060 Great Britain 8,481 China 8,414 India 8,047 Philippines 7,052 United States 6,838 Taiwan 4,592 South Korea 3,176 Australia 2,963 France 2,659 Germany 2,655 Malaysia 2,185 Canada 1,578 Singapore 1,548 Italy 1,218 Netherlands 1,113 0 5,000 10,000 15,000 20,000 25,000 Source: Office of Foreign Workers Administration, Jones Lang LaSalle Research, October 2010 Majority of expatriates in Bangkok rent their residential accommodation, for which numerous international and local agents can provide search and tenant services. Accommodation types range from the most basic to the ultra-luxurious. On the city s fringe a small studio apartment can be had for as little as USD150 a month, while in the CBD, a 500 sqm penthouse can cost as much as USD 15,000 a month. Overall, development in recent years has dramatically raised the quality and standards of many residences on offer in Bangkok. At the high-end, most condominiums offer ample facilities such as swimming pool and fitness, grand lobby and reception attendant, tight security, and ample covered parking. Detached houses at the high-end will typically offer large living area (200 sqm plus), landscaped lawn, covered car parking, and often private swimming pool. For both of these types of accommodations, the lease term is typically one to two years, with related expenses like utilities, Internet, and basic maintenance typically borne by the tenant. Domestic help is readily available in Bangkok, either on a full-time live-in basis or daytime employment basis.

14 Advance Serviced residences and apartments, managed by operators like Marriott, Fraser, Oakwood and Centerpoint, are becoming increasingly common, whereby the operator can offer short-term leases, with all necessary domestic services and expenses included in a single rent. Nevertheless, most foreigners working in Bangkok on a longerterm basis tend to rent houses, townhouses, traditional apartments, or condominiums. Apartment Rents In line with overall living costs, Bangkok s accommodation is some of the least expensive in Asia. Figure 4 shows the costs of high-end residential accommodation relative to that in other major cities around Asia. Condominium Prices As an alternative to renting and in accordance with Thai law, foreigners are allowed to purchase condominium units (either for their own use or investment) provided that the total area of foreignowned units does not exceed 49% of the total area of all units within the building. Prices for new condominiums in the current market start from USD 4,000 per sqm, while prices for upper-mid condominiums are wide in range between USD 2,000 and USD 3,500 per sqm, depending on the location and quality. New developments over the past several years and recent launches mean there is an abundance of supply available to foreign buyers both directly from developers and in the resale market. Similar to rents, high-end condominiums in Bangkok are some of the most affordable in the region, as illustrated in Figure 5. Conclusion Thailand already plays host to 108 regional offices. While the factors and reasons for locating ROH are wide and varied, actions being taken by the Thai government are making incentives and criteria attractive compared with competitive markets like Singapore and Malaysia. In addition Figure 4: High-end Residential Rents Hong Kong 30,836 Singapore 11,038 Beijing 6,485 Shanghai 5,683 Mumbai 4,565 Bangkok 3,234 Kuala Lumpur 2,190 Jakarta 1,360 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 USD psm pm Source: Jones Lang LaSalle Real Estate Intelligence Services, October 2010 Figure 5: High-end Residential Prices Hong Kong 59.8 Singapore 33.5 Beijing 25.0 Mumbai 21.0 Shanghai 19.7 Jakarta 16.1 Kuala Lumpur 11.9 Bangkok 10.7 0 10 20 30 40 50 60 70 USD psm pm Source: Jones Lang LaSalle Real Estate Intelligence Services, October 2010 to this new set of ROH incentives, development in Bangkok is making the city one of the most easy to live and do business. Given its location as the heart of Southeast Asia, not to mention its cost benefits, Bangkok stands a strong chance of standing up to the competition and drawing more regional headquarters.

Is Bangkok Ready to Become a Leading Hub for Regional Operating Headquarters? 15 About Jones Lang LaSalle Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2009 global revenue USD2.5 billion, Jones Lang LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.6 billion square feet worldwide. LaSalle Investment Management, the company s investment management business, is one of the world s largest and most diverse in real estate with approximately USD40 billion of assets under management. Jones Lang LaSalle has over 50 years of experience in Asia Pacific, with over 19,000 employees operating in 77 offices in 13 countries across the region. In Thailand, Jones Lang LaSalle started its operation in 1990 and today is the country s largest international real estate services firm with 1,000 real estate professionals and four million square meters of property and corporate facilities managed. About DLA Piper DLA Piper is one of the largest global legal practices in the world with over 3,500 lawyers in 69 offices and 30 countries across Asia, Europe, US and the Middle East. The Firm was ranked No.1 in the World, Asia Pacific and Greater China (by volume of M&A transactions) for 2010 Q1-Q3 result by mergermarket, recognized as the winner of the International Law Firm of the Year 2010 by the International Law Office Client Choice Awards and winner of the ALB SE Asia Debt Market Deal of the Year 2010. In Asia, DLA Piper comprises over 250 partners, lawyers and paralegals based in Bangkok, Beijing, Hong Kong, Shanghai, Singapore and Tokyo. The Firm services clients in each of these locations as well as across the Asia Pacific region including Australia, India, Indonesia, Korea, Malaysia, New Zealand, Philippines, Taiwan and Vietnam. DLA Piper (Thailand) provides a full range of legal services to local and international clients. Our services cover all aspects of business law including Corporate and Finance, Real Estate, Insurance, Employment, Pensions and Benefits, Intellectual Property, Litigation and Regulatory, Marine, Restructuring, Technology, Media and Communications, and Tax and Customs. The Firm is equipped to assist clients across all of their strategic requirements, anywhere, anytime.

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