Requirements and Incentives

Thailand committed to implement all WTO agreements, including Trade-Related Investment Measures (TRIMS). In its latest Trade Policy Review in November 2007, the WTO noted, “Thailand has maintained its support and commitment to the liberalization of the multilateral trading system, especially for agriculture.

It also remains committed to “open regionalism” and considers regional trade liberalization an effective catalyst for freer trade and complementary to multilateralism.” The report continued that WTO negotiations would improve market access and the predictability and stability of trade and investment. The report notes that a key challenge for Thailand’s future economic performance is the government’s ability to restore private investor confidence and to proceed with pending structural reforms, including stalled privatizations that would help improve the country’s competitiveness.

The report also underlines the need for Thailand to expand its tariff bindings and to simplify its relatively complex tariff regime. The services sector, which makes up a large part of the Thai economy, has benefited so far from liberalization but would grow further if multilateral commitments under the GATS were expanded, according to the review.

The Board of Investment (BOI), established by the Investment Promotion Act of 1977, is Thailand’s central investment promotion authority. Complete information on BOI policies, programs, incentives, and application procedures can be found on the BOI web site at

In November 2009, BOI established the ‘One Start One Stop Investment Center’ as a centralized location to assist investors with the requirements of the various investment-related government agencies. Staff at the Center provide guidance to investors on how to register a company, obtain BOI’s investment promotion privileges, obtain a foreign business license, complete an environmental impact assessment, request permission to use land for industrial operations, obtain utilities, and other related investment issues.

BOI identifies priority sectors (detailed below), covering hundreds of types of businesses eligible for investment incentives. Generally, the most generous incentives are offered to those projects that bring new technology to Thailand and those that invest in less-developed provinces. There are two basic types of BOI incentives: tax-based (including tax holidays and tariff exemptions) and non-tax privileges (guarantees, special permissions, services, etc.). The minimum investment amount is 1 million baht (approximately $30,000), excluding the cost of land and working capital. Projects with an investment of 10 million Thai baht (approximately US$300,000) or more, excluding the cost of land and working capital, are typically required to obtain international standards certifications, such as International Standards Organization (ISO) 9000. BOI requires investors to submit evidence of compliance with the conditions of their approval in order to claim incentive benefits. BOI previously lifted all local content and export requirements.

Specific BOI incentives include:

· Tax incentives: exemptions or reductions of import duties on imported machinery; reductions of import duties on imported raw materials and components; exemptions from corporate income taxes for three to eight years; and, deductions from net income of infrastructure costs.

· Permissions: to bring in foreign nationals to undertake investment feasibility studies; to bring in foreign technicians and experts to work under promoted projects; to own land for carrying out promoted activities.

· Guarantees: against nationalization; against competition by new state enterprises; against state monopolization of the sale of products similar to those produced by promoted firms; against price controls; against tax-exempt import by government agencies or state enterprises of competitive products; and, of permission to export.

Tax incentives offer the greatest advantages, though their relative value has declined in recent years with the general reduction of import duties and elimination of the former business tax system. The Value Added Tax (VAT) Law, which eliminated the business tax exemption, has no provision for BOI to offer VAT exemptions or reductions. Investors must submit an application form along with supporting documentation to be considered for incentives. In most cases, BOI decides within sixty days whether or not a project is eligible for investment privileges. BOI typically completes its review of applications for projects valued in excess of 750 million baht (approximately US$22 million) within 90 days.

The maximum allowable debt-to-equity ratio is 3:1 for a newly established project, but expansion projects are considered on a case-by-case basis. With the exception of electronic and agricultural investments, projects valued less than 500 million baht (about US$15 million), regardless of overall investment size, must produce added value equal to at least 20 percent of sales revenue. For projects valued more than 500 million baht (about US$15 million), excluding land and working capital, a feasibility study must be presented at the time of application. Adequate environmental protection systems must be installed for projects with a potential environmental threat.

BOI’s priority areas for investment privileges include:
· Agriculture and agricultural products;
· Environmental protection and/or restoration;
· Direct involvement in technological and human resource development;
· Public utilities, infrastructure, and services;
· Mining, ceramics and basic metals;
· Light industry;
· Metal products;
· Chemicals, paper and plastic;
· Services and public utilities.

Other targeted industries include agro-industry, automotive, information technology/electronics, high value-added services, semi-conductors, manufacture of machinery and equipment, software parks, and high-quality upstream steel. In 2009, BOI expanded the list of eligible businesses for promotion to include four additional sectors:
· Technology and healthcare, specifically the production of nano-technology materials or products;
· Manufacture of musical instruments;
· Manufacture of ‘completely built unit’ (CBU) houses or ‘completely knock-down’ (CKD) houses; and
· Service-related industrial estates, as well as activities related to tourism and tourism-related real estate.

State-enterprise projects are not eligible for BOI promotion, but concession projects (either Build Transfer Operate or Build Operate Transfer) by the private sector are eligible with some restrictions. For privatization of state enterprises, only expansions after the privatization are eligible for BOI promotions.

BOI actively encourages investment in the least-developed provinces of Thailand, offering maximum incentive packages to projects that locate in one of these provinces. BOI typically classifies these provinces as those whose average per capita income has been below 85 percent of the national average during the previous three years. These provinces have included: Sisaket, Nong Bua Lamphu, Surin, Yasothon, Maha Sarakham, Nakhon Phanom, Roi-Et, Kalasin, Sakon Nakhon, Buri Ram, Amnat Charoen, Phraea, Phayao, Nan, Satun, Pattani, Yala, and Narathiwat.

In June 2004, BOI introduced special investment privileges to promote investment in four northeastern provinces, namely Chiayaphum, Nong Khai, Ubon Ratchathani, and Udon Thani. With this designation, all operations located in these four provinces will receive special privileges, regardless of their location within or outside of an industrial estate. These incentives include:
· A 50 percent reduction in corporate income tax for an additional five years beyond the initial 8-year exemption;
· Double income tax deduction of costs for transportation and utilities for a period of 10 years;
· Deduction of 25 percent of the project’s infrastructure construction costs from net profit (for tax purpose) for a period of 10 years.

In an attempt to revive the economies of the three southernmost provinces (Pattani, Yala, and Narathiwat), BOI launched a special package for investment projects in the area in mid-2007. The package includes maximum tax incentives, including eight-year corporate income tax holidays plus a 50 percent reduction on corporate income tax for the following five years, an exemption of import duties on machinery and raw materials, and deduction of infrastructure construction and installation cost up to 25 percent of capital investment. The applicable period for double deduction of public utilities and transportation costs was extended to 15 years. In 2009, BOI broadened the investment promotion scope to allow all types of eligible activities to apply for the promotion incentives in Pattani, Yala, and Narathiwat. In addition, the deadline for applications was extended from December 2009 to December 2012.

As part of its policy to encourage investment throughout the country, BOI divides the country into three zones: Zone 1 (Bangkok and 5 surrounding provinces), Zone 2 (a grouping of 12 other provinces), and Zone 3 (the remaining 58 provinces). BOI promotes the relocation of projects from Zone 1 to Zone 2 and Zone 3; however, in order to be eligible for new incentives, these projects must relocate to an industrial estate or a promoted industrial zone.

A three-year income tax holiday applies to qualifying investments in Zone 1 and Zone 2, but in Zone 2 if the project is located in industrial estates or promoted industrials zones, the period for income tax holiday increases to seven years. Projects with capital investment of 10 million baht (about US$300,000) or more may be eligible for an income tax holiday of eight years if it is relocated to Zone 3. Projects must obtain ISO 9000 or similar international standard certification within 2 years from their start-up date or the income tax holiday period will be reduced by one year. To improve the corporate governance, BOI sets a cap on a project’s corporate income tax holiday at 100 percent of invested capital. In September 2002, BOI relaxed its zoning requirement to promote expansions and cluster development. Projects formerly required to locate in Zones 2 or 3 are now free to expand wherever they wish. On environmental protection grounds, however, tanneries, bleaching and dying plants, cyanide-based heat treatment facilities, and facilities for the recycling/re-use of unwanted materials are ineligible for this zoning relaxation.

Majority or total foreign ownership is permitted for BOI-approved investment projects in the manufacturing sector; however, for projects in agriculture, animal husbandry, fishery, mineral exploration and mining, and service businesses under Schedule One of the Foreign Business Act of 1999, Thai nationals must hold shares totaling not less than 51 percent of the registered capital.

Investment conditions and incentive packages differ for regional operating headquarters (ROHs), which are defined by BOI as companies or partnerships that provide managerial, technical, or supporting services to an associated enterprise or domestic or foreign branches. ROH business projects with registered capital of at least 10 million baht (approximately US$300,000), and in which overseas revenue accounts for at least half of annual income, are eligible to receive BOI incentives, such as permission to own land, eased provisions for hiring expatriate staff, and additional tax breaks (such as a preferential corporate income tax rate of 10 percent versus 30 percent and a flat 15 percent personal income tax rate for foreign employees for four years). In July 2008, BOI waived import tariffs on machines for research and development for ROHs in order to attract more investments. In September 2009, BOI set up a working committee to revise the ROH regulations and improve corporate income tax incentives related to ROH activities, but the results have not been announced. There are currently 81 BOI-promoted ROH projects, most of which are in the manufacturing and service sectors, including U.S. companies such as Exxon Mobil Co., Ltd., Chevron Asia South Co., Ltd., General Motors Southeast Asia Operations Co., Ltd., and Ford Services (Thailand) Co., Ltd.

In 2005, BOI introduced tax incentives to help boost investments in Thailand’s electrical and electronics industries. In order to qualify for these incentives, companies must be long-term investors with total investment of at least 15 billion Baht (approximately US$450 million). The incentives include 8-year corporate income tax exemption periods for projects in Zone 3. However, priority activities such as production of solar wafers and solar cells, will receive 8-year corporate income tax holidays regardless of project location. BOI also granted duty exemptions for all electrical and electronics projects, including shorter-term projects, permitting duty-free imports of upgraded or replacement machinery for the life of the project. In addition, BOI also expanded zone-based fiscal incentives for Zone 1 and Zone 2 (Bangkok and surrounding provinces) for electrical and electronics projects. For example, projects in Bangkok located outside of industrial estates were previously ineligible for corporate income tax holidays; however, these projects now are eligible for 5-year exemptions.

BOI has also extended tax incentives to the automotive machinery sector so that automobile assemblers are eligible for import duty exemptions on machinery, regardless of the BOI geographic investment zone in which they operate. Total initial investment costs for eligible projects must be at least 10 billion Thai baht (approximately US$300 million). BOI also made “call center” facilities eligible for tax incentives; however, to be eligible, the project must be majority Thai-owned.

Investment Climate Statements provide a thorough description of the overseas environments in which U.S. investors must operate. The statements cover general characteristics, such as openness to foreign investment and treatment of foreign investors, as well as details about procedures for licensing and similar administrative matters. The statements are updated each year as Chapter 7 in the Country Commercial Guides, a series to be found by country at the U.S. Department of Commerce’s website:

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