Thailand’s BOI promotion reinvented


The aggressive promotion of investments through tax incentives and a broad range of non-tax benefits has in Thailand a long and successful tradition. At the end of 2014 Thailand re-invented its investment promotion legislation and the “Seven-Year Investment Strategy 2015-2021″ had been announced and significantly adjusted in November 2015 and enhanced on February 29, 2016.

The new investment promotion environment shifts the focus from a passive to an active economic governance and political control of the Thai economy. A limited scope of foreign investments is still promoted with a tendency to stricter requirements and a limited scope of benefits. However, advanced promotion is available for foreign investments of a specific type, in a specific location and specific characteristics as kindly pre-defined by the government.

Merit-based incentives, area-based incentives, and measures for the improvement of production efficiency are the modern tools and modules for a more and more centrally planned command economy for Thailand moving ahead to high technology activities and future industries 4.0.

Foreign investors need a deep understanding of the profound changes, the highly complex regulatory environment and the new challenges they face not only with respect to new investment promotion applications but also with BOI-promoted companies, whose activities are no longer the pampered darling of the new industrial policy in Thailand.

Which doors opens the new legislation for existing investment projects? What are the consequences for already promoted projects? How can the size and scope of BOI incentives and other benefits be optimized? How can the investment project be more BOI-efficiently structured and accomplished? Which actions are required for foreign entrepreneurs and which decisions have to be made before investing in Thailand.

Background of the policy change – never touch a running system

Sweet words, hand-picked by the Thailand Board of Investment (BOI): The new investment policy promises to “promote valuable investment, both investment in Thailand and Thai overseas investment to enhance Thailand’s competitiveness, to overcome the Middle Income Trap and to achieve sustainable growth in accordance with the sufficiency economy philosophy”. Under the new policy, outlined in the “Announcement of the Board of Investment No. 2/2557”, BOI Announcement No. 10/2558 “Cluster investment promotion incentives and privileges in the Special Economic Development Zones”, BOI Announcement No. Sor. 1/2558 “Re: Additional Amendments of Eligible Activities for Investment Promotion in accordance with the BOI Announcement No. 2/2557” in a press release and on a nice poster, there remain just 200 promoted types of businesses. Corporate Income Tax privileges will be granted to some of them, and the other businesses will receive non-tax incentives only along with exemption from import duties on machinery and raw materials used for export goods.

Red carpet instead of red tape? The new rules significantly modify the criteria of investment promotion rights and benefits in response to the changing situation and investment incentives of other countries as well as the significant corporate income tax reduction in previous years. Generally, it can be stated that the scope of incentives are reduced, while the promotion requirements are more open and the discretion of the authorities, who to benefit and which projects to refuse, is increased. However, each case is different, and a general statement for all industries is not adequate.

Under the new policy, Thailand concentrates investment promotion to (i) enhancement of Thailand’s competitiveness, especially by R&D research and development and value creation in the agricultural, industrial and service sectors, (ii) green industry and regenerative energy, (iii) promotion of regional clusters, SEZ special economic zones and generally the Southern provinces and (iv) Thai overseas investments.

Which doors did the new investment promotion policy open, which doors did it close?

The list of activities eligible for investment promotion covers now just seven (7) sections:

  1. Agriculture and agricultural products
  2. Mineral, ceramics and basic metals
  3. Light industry
  4. Metal products, machinery and transport equipment
  5. Electronics and electrical appliances industry
  6. Chemicals, paper, and plastics
  7. Service and public utilities

The BOI published a VIP-list of tasks that are classified as “activities of special importance and benefits to the country.” This covers, above others,

  • Category 3.9: Creative product design and development centers
  • Category 5.6: Electronic design
  • Category 5.7: Embedded software, enterprise software and/or digital content
  • Category Production of electricity or steam power from waste or refuse-derived fuel
  • Category 7.10: Cloud services
  • Category 7.11: Research and development
  • Category 7.12: Biotechnology
  • Category 7.13: Engineering design

The new scope of tax incentives and non-tax incentives – broader, more undetermined and more dependent on governmental discretion

The new incentive system is more complex, gives more space to individual considerations on a case-by-case basis and is, therefore, more difficult to handle than ever before. However, each BOI promotion comes with a unique basic package of non-tax benefits. This includes (i) a Foreign Business License for a 100% foreign ownership in the promoted company, (ii) permission to own land in order to carry on the promoted activity, (iii) a VIP treatment at the One-Stop-Servicer-Center of the BOI, (iv) easements regarding work permits and others and (v) permission to take out or remit money abroad in foreign currency. These privileges remain even after the tax holiday ended.

Under the new legislation, there will be several types of tax and non-tax investment promotions. Activity based incentives stand for high-tech (A1, A2, A3), medium tech (A4) and rather low tech (B1, B2):

  • A1: Eight year corporate income taxation (CIT) exemption (so-called tax holidays) without cap, exemption of import duty on machinery/raw materials plus non-tax incentives
  • A2: Eight year CIT exemption, exemption of import duty on machinery and raw materials plus non-tax incentives
  • A3: Five year CIT exemption, exemption of import duty on machinery and raw materials plus non-tax incentives
  • A4: 3-year CIT exemption, exemption of import duty on machinery and raw materials plus non-tax incentives
  • B1: Exemption of import duty on machinery and raw materials plus non-tax incentives
  • B2: Exemption of import duty on raw materials plus non-tax incentives

Merit-based CIT holiday extension on competitiveness enhancement can be added to the activity based tax holidays:

  1. One additional year of CIT holidays if qualified investments or expenditures are not less than 1% of the project’s total revenue of the first 3 years combined, or not less than mTHB 200, whichever is less.
  2. Two additional years of CIT holidays will be granted if qualified investments or expenditures are not less than 2% of the project’s total revenue of the first 3 years combined, or not less than mTHB 400, whichever is less.
  3. Three additional years of CIT holidays if qualified investments or expenditures are not less than 3% of the project’s total revenue of the first 3 years combined, or not less than mTHB 600, whichever is less.

However, the total period of corporate income tax exemption shall not exceed eight years. The following overview gives a visual, but not an entirely complete picture of the compound system.

Even more incentives are available as merit (i) on decentralization, (ii) on industrial area development and (iii) for production efficiency improvement. The full matrix of incentives, requirements, and benefits shows a high-complex structure.

Merit-based and area-based incentives

On November 23, 2015 PM General Prayut was so kind to explain the “Activities Supporting Cluster Development” to us and 2,000 other participants in the seminar titled “Thailand Moving Ahead with Cluster Development.” The glossy slides of the three presentations can be downloaded on BOI’s website. 

Incentives for investments in industrial clusters must have a cooperation with academic institutions, research institutions or Centers of Excellence. Applications under the current programs have to be filed in 2016 and COD commercial operation date has to be in 2017.

Special Economic Zones have been erected in ten Provinces (23 districts, 90 sub-districts). Targeted activities are

  1. Agriculture and agricultural products
  2. Ceramics
  3. Light industry
  4. Furniture
  5. Gems and jewelleries
  6. Medical Equipment
  7. Automotive, machineries and automotive parts
  8. Electronics and electrical appliances
  9. Chemical and plastic, manufacture of plastic
  10. Medicine
  11. Logistic businesses
  12. Industrial zones or industrial estates
  13. Businesses that support tourism

The highly complex and fragmented incentive policy is beyond the scope of a LinkedIn post. An abundance of details and the wealth of available incentives requires long and tough negotiations with the BOI to obtain the optimum result. The times, when just a form has to be filled and submitted, are definitely over.

Improvement of production efficiency incentives – even more discretionary authority for the BOI officers and their supervisory body

Apart from this, the BOI is pushing manufacturers, both BOI-promoted and
non-BOI promoted, to invest additionally for the improvement of production efficiency. This improvement is to be achieved by

  • upgrading technology and machinery for energy conservation, use of alternative energy or reduction of environmental impact;
  • upgrading technology and machinery used in manufacturing;
  • encouraging investment in research and development as well as in advanced engineering designs for improved efficiency.

To qualify for such promotion, the investor must (i) operate businesses that are eligible for promotion, (ii) invest THB 1 million excluding land cost and working capital (SME’s just THB 0.5 million), (iii) submit a detailed investment plan, and (iv) meet certain other criteria. The projects must be completed within three years from the date the promotion certificate is issued.

How to clever apply for investment incentives – the old workflow and new hurdles

The Thai legislation provides for a clear workflow concerning the steps and decisions to be made from the starting point till the fulfillment of reporting requirements after the promoted investment is successfully accomplished.

Under the new BOI policy, the scope of possible investment promotions is much bigger, the discretionary power of the BOI officers has increased and, as a result, the importance and significance of a sophisticated application for promotion is now eminent. Specialist advice is required to not only get the application through but to get the best results. To give an example, the legal requirements for a promotion under A3, A4 and B1 – as explained above – are very close to each other. However, they provide tax holidays of five, three or zero years. A smart application strategy, accompanied by a target-oriented discussion with the BOI authorities, makes the difference between a good, bad and worse outcome. Specialist know-how is required

  • to efficiently reduce the time input and paperwork and manage the whole application workflow,
  • to handle expansion projects under old and under new BOI rules,
  • to get foreign investments outside of Thailand promoted,
  • to maximize the efficiency of an investment promotion and get the most incentives possible for the longest possible time.
  • to understand the tax implications of an investment promotion and set-up a tax efficient corporate structure, and
  • to reduce damages if the promoted project is now red-lined and moved into the Exit Group.

Tax holidays under the sun of Thailand – but where is the hook?

Compared with other ASEAN jurisdictions, Thailand clearly offers the most attractive all-inclusive incentive package for foreign direct investments. However, the application for investment promotion at the BOI should be a cold-blooded business decision, and investment promotion should not be confused with a donation. The Thai government implements these industrial policies to create new industries by transferring capital, jobs, and know-how to Thailand. This is conceived as a one-way-street, and a repatriation of these three key factors would be an uphill battle.

Underestimated, but valuable in the future will be the BOI guarantees, provided with a BOI promotion. This guarantees that Thailand (i) will not nationalize the activity of the promoted person, (ii) will not undertake a new activity in competition with the promoted person’s (iii) will not monopolize the sale of products similar to the promoted person’s, (iv) will not impose price controls on the products of the promoted person’s, (v) will grant permission to export at all times and finally (vi) will not allow any government agency, government organization or state enterprise to import any kind of the product being produced by the promoted person into Thailand by granting import duty exemption.

The intelligent investor will not blind sign the application forms for a BOI promotion but carefully evaluate which specific advantages and burden a BOI promotion can offer to him. This includes tax planning aspects – is the avoidance of the low Thai corporate tax rate worth it – and a review of corporate planning options to embedding a Thai majority shareholder with no voting and dividend rights – which Thai corporate and foreigner laws clearly allow.

  • N.B. Early 2014 I talked in Singapore with the “Accounting and Business Magazine” about the new BOI policy. The article can be found in their April 2014 issue here Obviously, the uncertainties of early 2014 are still the uncertainties of early 2015.

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