How to understand the rationale behind Thailand’s investment promotion
The business deal between BOI and foreign investor
Thailand’s investment promotion requires an extensive application process with the Board of Investment. It grants tax incentives, especially tax holidays, and non-tax incentives, including 100% foreign shareholding and land ownership. During the BOI application process, the size, scope of investment promotion and the underlying conditions are negotiated with the foreign investor. Thailand’s regulatory framework gives the BOI a wide leeway to overrule legal requirements for foreigners and Thais.
The investment promotion is not granted to foreign companies, but to businesses that are set-up in Thailand under Thai laws. Typically, such a company can do business with a foreign majority shareholding not before the application process is accomplished. As a result, foreigners benefit only indirectly from the BOI promotion.
The Board of Investment pursues with its comprehensive promotion program Thailand’s industry policy. This is no undue enrichment, not a donation, but the hard-nosed compensation and offset for a substantial concession accepted by the foreign investor. During the BOI application process, it is the intention of the government (i) to maximize the investment amount of the applied project in Thailand, (ii) to generate the maximum number of Thai jobs, as high-skilled as possible, (iii) to establish modern industries with a know-how transfer to Thailand, and (iv) (with or without a tax holiday in the beginning,) to create long-term tax revenue streams out of the promoted investment.
Typically, the foreign investor has conflicting interests. He should clearly understand this scenario of a business confrontation in the land of smile. The BOI officers are without exception well-educated, English speaking, experts in their industries, equipped with the know-how and expertise of tons of previous applications, investors, and negotiations. If the foreign investor does not fully understand this commercial situation and his bargaining position, he will act naive or stupid. To accept the BOI application and conditions of the promotion as it is kindly recommended by the BOI itself makes sense in the same manner as to accept a commercial contract as it is drafted by the opponent’s counsel.
Legal services on BOI investment promotions
PUGNATORIUS Ltd. is the Bangkok-based specialist provider of transactional legal and tax advice on foreign investments in Thailand’s manufacturing and service industries. The law firm’s activities are described at “Professional services regarding BOI promotions“.
To assist foreign clients in the BOI application process can be reduced to the basic process, support in filling out the forms and attachments, accompanying the application meeting and being the representative and contact person in Bangkok. Such scope of services would not do justice to the importance and complexity of the task, would leave the client with a sub-optimal result, and might result in disadvantages and shortcomings for years.
Instead, the law firm’s preferred approach is to lead the process in a pro-active way. This means to do the full legal project management with respect to (i) the application strategy, including analysis of the available scope of investment promotion, its particular requirements, advantages, and downsides, (ii) the document management of data and information to be submitted during the application process, (iii) the preparation of the financial planning as a required attachment to the application – and its implications for customs purposes, for transfer pricing and other matters, and (iv) the implementation of a cross-border tax strategy in the application process
PUGNATORIUS Ltd. can guide your BOI project through the red-tape requirements, legal hurdles, and industry practice in Thailand. Lessons you do not want to learn the hard way. A specific consultancy agreement is available on request. Sophisticated solutions in a complex legal environment. Serious legal and tax advice in the land of smile.