India: Regional Head Quarters (RHQs)

Last Updated: 28 February 2005
Article by Keshav Jetsey

Recently India’s Prime Minister Dr. Manmohan Singh, during his visit to UN, invited business enterprises in UK and USA to invest in India.

Economies world over including India have opened doors for capital investment in their countries.

FDI investment in India grew from USD 129 m in 1991 to $ 3557 m in 1997, and under the revised norms, to $ 4.66 b in 2002/03. However this was 24% less than 2001/02, which attracted USD 6.131 b.

Under the FDI Performance Index of UNCTAD, released in their World Investment Report of 2003, China ranked 54th and India was 122nd. FDI flows to China grew by leaps and bounds from $ 3.5 b in 1990 to USD 52.7 b in 2002.

80% of Fortune 500 companies have presence in China, while only 37% of these firms outsource to India.

The FDI gives a huge boost to the economy of the host country, generates tremendous employment growth, gives comfortable foreign exchange reserves, quality goods and services.

Over the last few years major MNCs, taking advantage of lower costs and better productivity, have shifted their manufacturing bases to developing countries. Better equipped countries have attracted higher FDI capital. This, in turn, has induced other countries to improve their infrastructure to attract FDI capital.

Along with, the service sector is also witnessing a big change. MNCs have been setting up Regional Head Quarters (RHQs) in other countries / regions. This is done for better control of regional operations, saving on costs, taking advantage of tax incentives and overall better group management.

Edna Carew, in the Language of Money, describes RHQs as the base chosen by a company operating in several countries. The country or capital city chosen benefits in terms of increased employment and spin off demands for services.

MNCs look out for many factors before deciding on the location of their RHQ, which include:


Quality of life


Political stability


Cost of Property


Cost of Operations


Competitive Wage Cost


Advanced communication infrastructure.


Labour Market – Educated Labour with good language skills

RHQs, being a service office, create work for consultants, administrative staff and connected organizations. They bring along a tremendous leverage and status to the host country, and this in turn attracts more MNCs / RHQs and more funds.

Income tax is not the only criteria or a substantive issue on which MNCs take strategic decisions. But tax does play an influencing role and realizing this, countries are offering various incentives.

Countries like Singapore, Malaysia, Thailand, Philippines, China and Australia have all incorporated RHQ tax incentives / concessions in their tax laws and overall packages to attract RHQs.

Singapore announced a new and enhanced tax incentive programme that offers 15% or even lower tax to companies having Regional or International HQs in Singapore. There are more than 7000 MNCs in Singapore, and more than 4000 of them manage regional responsibilities. Of these, 280 Companies which have key decision making responsibilities of their Company’s global operations have been awarded the Headquarter status by the Economic Development Board of Singapore. An International HQ may even qualify for a tax rate, which could be as low as zero. GAIL has set up a subsidiary Company in Singapore as also has Ushacomm belonging to the Usha Martin group. Scandent group and Tata Consultancy Services also conduct their global business from Singapore.

The Malaysian Budget for 2003 exempted "Operational Headquarters" from Income Tax for ten years. Moreover dividends paid by OHQs from their exempt income would not be taxable to the receiving shareholders. Similar are the benefits for "Regional Distribution Centers".

Organon, with a worldwide turnover of more than USD 2 billion has set up its Asia Pacific RHQ near Kuala Lampur in Malaysia. This office will manage its activities in 14 countries of the region.

RHQs of multinationals set up in Phillipines are exempt from income tax and value added tax. They are also exempt from all kinds of local licenses, fees, dues, imports or any other local taxes or burdens. For alien employees, income tax is charged at a reduced rate of 15% of their gross compensation.

Instead of the usual 30% corporate income tax rate, Thailand announced a reduced corporate income tax rate of 10% on net profits of Regional Operating Headquarters of MNCs set up in Thailand. Subject to conditions, even personal income tax rate on taxable salaries derived from employment with the ROH was reduced to flat 15% from the usual personal tax rates ranging up to 37%.

Ford Motors has made Thailand the base for its Regional Operations Headquarters to support all its manufacturing activities in Southeast Asia.

The new regulations announced by Shanghai make it easier and attractive for foreign multinationals to establish RHQs in Shanghai. The new rules reflect the Shanghai government’s commitment to compete with other countries in Asia. Sabre Holdings, an S&P 500 Company, Fed Ex and General Motors have all relocated their Asia Pacific Regional Headquarters in Shanghai.

The Chairman of the Board of Taxation of Australia, at the 2nd Annual Australian Taxation Summit held on 10th February, 2004, commented about the business tax reforms introduced by Australia and the modernization of business tax arrangements which included reduction in the Company tax rate to an internationally competitive 30%.

In addition, international tax reforms were announced which would encourage the establishment in Australia of RHQ for foreign groups.

Few years back, Cathay Pacific shifted its office to Sydney where the cost of real estate was reported at 2% of Hong Kong costs.

Hongkong, the financial centre and one of the most favoured destinations, is an ideal location, more so because of easy access to mainland China.

Tax incentives apart, globalization is making it harder for governments to overtax, because it is easy for taxpayers to shift their productive activities to lower tax environments. Governments are caught in a dilemma as tax incentives to RHQs have a negative impact on resident, domestic taxpayers.

OECD, as a part of its harmful tax practices project, does not encourage discriminatory tax benefits as it generates tax avoidance opportunities.

RHQs are a service office not generating manufacturing profits. Manufacturing units accelerate and multiply all round growth. This is not associated with service offices.

Moreover, for taking benefit of tax incentives, MNCs could designate their office as RHQs. These tax benefits could also see transfer of profits to these countries to take full advantage of tax savings. Hence the issues of granting tax incentives / concessions to RHQs are in itself a big question.

The developments in the Asia Pacific region reflect the importance being attached by countries in attracting and retaining RHQs and money of MNCs, especially because capital is extremely mobile.

All these issue need to be taken into careful consideration by India, as it is in the process of withdrawing tax provisions which provide tax incentives / concessions.

India should debate and decide whether it wants to attract more FDI and establishment of RHQs or wants to give domestic industry a big push.

Alternatively a moderate tax regime with better infrastructural facilities may be created for all to compete in a level playing field.

There should be an all round development of infrastructure, communications and quality of life and labour, mixed with moderate income tax to attract RHQs and to discourage discrimination.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions