CHAPTER 3
BUSINESS PROMOTION
INCENTIVES
There
are two governmental bodies that have authority to grant business incentives in
order to encourage both foreign and local investment in Thailand. Firstly, the
Board of Investment (BOI) may grants general investment privileges. These are
based on the location of the enterprise. Presently, there are three general
regional zones to which are allocated different levels of investment
privileges.
The
other governmental body is the Industrial Estates Authority of Thailand (IEAT).
This has authority to grant investment privileges to enterprises that are
located specifically within industrial estates that have been developed either
by the IEAT, or as a joint venture between the IEAT and a private entity.
Board of Investment
General The BOI operates in accordance with the powers contained in
the Investment Promotion Act (1977) in order to administer a program of
incentives for both Thai and foreign businessmen who wish to establish or
expand suitable businesses in Thailand. In appropriate cases and in accordance
with the guidelines listed below, the BOI grants special privileges to those
who invest in approved projects.
Service Centers Promoted companies and those planning to construct or
obtain a license for a factory are eligible for assistance at a Service Center.
There are two such centers in Bangkok that provide assistance in obtaining
licenses and permits and generally in dealing with governmental agencies.
Doing business without BOI promotion Whilst the BOI provides
valuable incentives, many Thai and foreign businessmen establish businesses without
BOI assistance. Accordingly, investors should carefully consider the pros and
cons of seeking BOI incentives before making an application.
Foreign ownership Foreign investors often desire to own all or a at least a majority interest in their manufacturing
subsidiaries established abroad. Where such a subsidiary in Thailand seeks BOI
privileges, the BOI will allow it to be majority or 100% foreign owned, subject
to conditions.
Application for privileges Investors who wish to seek promotional privileges
should file an application in duplicate. The application may be either granted, refused, or referred for further
clarification.
Promotional certificate If the application is
approved, the applicant will be notified and provided with an application form
for a Promotional Certificate. Within the times provided or any extension
permitted, the applicant must submit the completed form and show compliance
with the following matters:
- that a Thai limited
company has been incorporated;
2. that the required amount of capital has been remitted into
the country;
3. that the nationality profile of the shareholders meets BOI
requirements; and
4. the existence of any relevant agreements providing for the
transfer of technology.
The
Promotional Certificate will list all the special privileges granted to the
promoted company. It is essential that it is correct in every detail since, for
example, the Customs Department, will not permit the duty free importation of
any goods that do not clearly conform to the description contained in the
Promotional Certificate.
Summary of available incentives The incentives available from the BOI are listed
below. Many of these incentives are generally available to businesses that are
not BOI promoted. However, these benefits are often greatly facilitated for
those with promotional privileges.
The
most important privileges available are summarized as follows:
- Permission for
majority foreign ownership of a promoted business which would otherwise be
restricted under Schedule 2 or 3 of the Foreign Business Act (see Chapter
1 Foreign Business Restrictions).
2. Permission
for the enterprise to own land for use in the promoted business.
3. Exemption
from various taxes imposed on the business, including exemption from the requirement
to withhold tax on dividends and royalty payments.
4. Permission
to remit capital, profits, interest and principal on foreign loans, royalties,
fees or other obligations in foreign currency.
5. Permission
to employ foreign experts and technicians on more advantageous terms than
permitted by the Ministry of Labour (see further
Chapter 19 Work Permits and Chapter 20 Immigration).
6. Exemption
from import duties for machinery imported for use in the business.
7. Exemption
from import duty, or reduction of duty on raw or essential materials used in
the business.
8. Exemption
from corporate income tax for a period of 3, 5 or 8 fiscal years respectively
in Zones 1, 2, and 3 (see below), depending on the size of investment or number
of full time employees. An extended tax holiday may be granted to businesses
located in certain provinces in Zone 3 for an additional 5 years, subject to
further requirements.
9. Dividends
may be exempted from tax for a period equal to the period of exemption from
corporate income tax.
10. Exemption from tax on payments of royalties and
fees for up to five years.
Policy of the BOI The
BOI has issued regulations that set out its policies in relation to
applications:
1.
Privileges will be granted to
projects that benefit the economy. Promoted entities must report operating
results of their promoted projects to the BOI for review prior to the
application of tax and duty privileges for that year.
2.
Every promoted project that has
investment capital of 10 million baht and upwards (excluding land and working
capital) must obtain ISO 9000 certification or similar international
certification within a specified period of time.
3.
Previous conditions
regarding exports and use of local material are repealed so that the criteria
for promotion will be in line with international trade and investment
agreements.
4.
Special promotion shall be given
to regions or areas with low income and inadequate investment.
5.
Importance is given to SMEs by applying a minimum level of investment capital of 1
million baht (excluding cost of land and working capital) for projects eligible
for promotion.
6.
Priority is given to activities
in agriculture and agricultural products, technological and human resource
development, public utilities and infrastructure, environmental protection and
conservation, and certain other industries, as announced by the BOI from time
to time.
Criteria for project
approval BOI regulations set out the criteria for
approval of a project:
1.
Projects with investment capital
(excluding cost of land and working capital) not exceeding 500 million baht,
should meet the following criteria:
(a) The value added is not less than 20% of
sales revenue, except for projects that manufacture electronic products and
parts or process agricultural produce, and other projects as specified;
(b) The ratio of liabilities to registered
capital should not exceed 3:1 for a newly established project.
(c) Modern production processes and new
machinery are used.
(d) Adequate environmental protection systems
are installed.
2.
For a project with investment
capital exceeding 500 million Baht (excluding the cost of land and working
capital), the criteria above are applied and a feasibility study must also be
submitted.
3.
Special criteria apply to
concession projects or privatization of a state enterprise
Criteria for shareholding
by foreign investors The current rules regarding
foreign shareholdings in a promoted project are as follows:
1. Agriculture,
animal husbandry, fisheries, mineral exploration, mining and services under
Schedule 1 of the Foreign Business Act - Thais must hold not less than 51% of
the registered capital;
2. For
manufacturing projects, foreign investors may hold a majority of the shares;
3. The
Board may specifically fix the shareholding of foreign investors on some
promoted projects when it is deemed appropriate.
Investment Zones
Thailand is divided into three investment zones for promotional purposes:
Zone
1: Bangkok, Samut Prakan, Samut Sakhon,
Pathum Thani, Nonthaburi and Nakhon Pathom
Zone
2: Samut Songkhram, Ratchaburi, Kanchanaburi, Suphanburi, Ang Thong, Ayutthaya, Saraburi, Nakhon Nayok, Chachoengsao, Chon Buri, Rayong and Phuket
Zone
3 The remaining 58 provinces.
All Zone 3 provinces are
designated as Investment Promotion Zones.
Criteria
for Granting Tax and Duty Privileges
The tax and financial
privileges available on a zone by zone basis are as follows:
Zone
1 projects:
1. 50%
reduction of import duty on machinery that is subject to import duty of not
less than 10%;
2. Corporate
income tax exemption for 3 years for projects located within industrial estates
or promoted industrial zones, provided that such a project with capital
investment of 10 million baht or more (excluding cost of land and working
capital) obtains ISO 9000 or similar international standard certification
within 2 years from its start-up date, otherwise the corporate income tax
exemption will be reduced by 1 year;
3. Exemption
from import duty on raw or essential materials used in the manufacturing of
export products for 1 year.
Zone
2 Projects:
1. 50%
reduction of import duty on machinery that is subject to import duty of not
less than 10%;
2. Corporate
income tax exemption for 3 years, increased to 5 years for projects located
within industrial estates or promoted industrial zones, provided that such a
project with capital investment of 10 million baht or more (excluding cost of
land and working capital) obtains ISO 9000 or similar international standard
certification within 2 years from its start-up date, otherwise the corporate
income tax exemption will be reduced by 1 year;
3. Exemption
from import duty on raw or essential materials used in the manufacturing of
export products for 1 year.
Zone
3 Projects:
1. Exemption
of import duty on machinery;
2. Corporate
income tax exemption for 8 years, provided that a project with capital
investment of 10 million baht or more (excluding cost of land and working
capital) obtains ISO 9000 or similar international standard certification
within 2 years from its start-up date, otherwise the corporate income tax
exemption will be reduced by 1 year;
3. Exemption
from import duty exemption on raw or essential materials used in the manufacturing
of export products for 5 years;
4. A project located in one of the following 36
provinces: Krabi, Kamphaeng
Phet, Khon Kaen, Chanthaburi, Chai Nat,
Chumphon, Chiang
Rai, Chiang Mai, Trang, Trat, Tak, Nakhon
Ratchasima, Nakhon Si Thammarat, Nakhon
Sawan, Prachuab Khiri Khan, Prachin Buri, Phangnga,
Phattalung, Pichit, Phitsanulok, Phetchaburi, Phetchabun,
Mukdahan, Mae
Hong Son, Ranong, Lop Buri,
Lamphang, Lamphun, Loei, Songkhla, Sa Kaew, Sing Buri,
Sukhothai, Surat Thani, Uttaradit,
and Uthai Thani will be
granted tax and duty privileges as above and further
privileges, as
follows:
1.A
project located within industrial estates or promoted industrial zones is
entitled to: 50% reduction of corporate income tax for 5 years after the
exemption period; and double deduction from taxable income of transportation,
electricity and water costs for 10 years from the date of first revenue derived
from promoted activity;
2.For
a project located outside industrial estates or promoted industrial zones, a deduction
can be made from net profit of 25% of the project infrastructure installation
or construction cost for 10 years from the date of first sales, and net profit
for one or more years of any year can be chosen for such deduction. The
deduction is additional to normal depreciation.
5. A project located in one of the following
22 provinces: Chaiyaphum, Kalasin,
Nakhon Phanom, Narathiwat, Nan, Nong Khai, Buri Ram, Pattani, Phayao, Phrae, Maha Sarakham,
Yasothon, Yala, Roi Et, Si Sa
Ket, Sakhon Nakhon, Sathun, Surin, Nong Bualamphu,
Amnat Charoen Udon Thani, and Ubon Ratchathani shall be granted
tax and duty privileges as above and further privileges as follows:
1.50%
reduction of corporate income tax for five years after the exemption period;
2.Double
deduction from taxable income of transportation, electricity and water costs
for ten years from the date of first revenue derived from promoted activities;
3.Deduction
from net profits of 25% of the project's infrastructure installation or
construction costs for ten years from the date of first sales, and net profit
for one or more years of any year can be chosen for such deduction. The
deduction is additional to normal depreciation.
Priority activities BOI
regulations also describe certain activities that are regarded as a priority
for promotion, namely agriculture and agricultural products, technological and human
resource development, public utilities and infrastructure, environmental
protection and conservation, specifically targeted industries. These projects
will be entitled to the following privileges:
1. Exemption of import duty on machinery
regardless of location.
2. Corporate income tax exemption for eight
years, regardless of location.
3. Other privileges entitled for each Zone
Criteria for factory relocation
Certain criteria have been issued where a promoted
business relocates into a different promotional zone.
Reporting operating
results Promoted business are required to report
their annual operating results to the
BOI for review, prior to the BOI granting tax and duty privileges for that
year.
Discretion
Although the Board must follow the criteria above in
considering investment promotion applications it has discretion in certain
cases to make a decision outside the guidelines expressed above.
Activities eligible for
promotion Regulations have been issued with regard to
the activities that are eligible for promotion:
1.
A minimum level of investment
capital (excluding cost of land and working capital) of one million baht is
required for all types of activities eligible for promotion.
2.
Promoted projects must comply
with the conditions specified for each type of activity.
3.
The rights and benefits provided
for promoted projects must be in accordance with BOI regulations regarding
policies and criteria for investment promotion
4.
Certain activities are designated
as priority activities. These include agriculture and agricultural products,
technological and human resource development, infrastructure, public utilities
and basic services, including mass transit systems and transportation of bulk
goods, environmental protection and conservation, environmental preservation,
waste water treatment, disposal of waste,
industrial waste or toxic chemicals
Targeted industries as specified and including microelectronics, electronic design, software, software parks and international distribution centers
Industrial Estates
Authority of Thailand
The IEAT is a state
enterprise established under the Ministry of Industry. It was created in order
to implement the government’s industrial development policy and provides
investment incentives on a zonal basis.
IEAT Zones There are generally five
zones within a given industrial estate:
1.
General Industrial Zone. This is designated for industry generally and
contains factories with intended output to either the domestic or overseas
market.
2. Export Processing Zone. This is
designated specifically for those enterprises that are manufacturing for
export.
3. Export Processing Zone (Special).
This is reserved for industries manufacturing for export and associated
activities, e.g. trading, warehousing, transport, and research and development,
etc.
4. Commercial Zone. This contains
non-manufacturing activities such as banks, post offices etc. that support the
activities of the industrial estate.
5. Residential Zone. This contains the
housing accommodation for employers and employees.
Incentives available The investment incentives
offered by the IEAT in a number of aspects mirror those that are granted by the
BOI. Both the General Industrial Zone and the Export Processing Zone offer
benefits relating to land ownership by a foreign entity, facilitation of work
permits and visas for expatriates and remittance of foreign currency for the
foreign entity. Additional benefits granted to those enterprises located in the
Export Processing Zone relate to the exemption of import duties and VAT for the
import of capital goods and spare parts, raw materials, packaging materials,
the exemption of export duties and VAT on the export of goods and the exemption
of export duties, import duties and VAT for local goods used in production.
Other incentives Any person or company may
receive incentives in the form of clawback of import
duty on materials imported in order to produce goods for export. Provided the
goods are actually exported within the time permitted, there are tax rebates on
components and machinery used for the production of goods for export, and below
market interest rates provided as a packing credit for exporters.
Future direction of the BOI The fact that Thailand grants
various incentives to exporters has been criticised
by foreign governments, on the grounds that the incentives amount to improper
subsidies. Some countries have threatened to impose countervailing duties on
subsidized exports. The Thai government has acknowledged this and recognized
that the granting of extended tax holidays will have to end in the near future.
In response to this, the
BOI is beginning to change its strategic role into a general information and
advisory agency for foreign investment, with the ability to help foreign
companies find manufacturing or joint venture partners, to set up manufacturing
operations in Thailand, arrange OEM manufacturing, etc.
Revised 1 December 2006