Seven opportunities: Thailand’s Eastern Economic Corridor (EEC)
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Thailand aims to create the manufacturing paradise of Asia
The Eastern Economic Corridor is the enhancement of the former Eastern Seaboard, that had been for over thirty years the region’s powerhouse for manufacturing and trade. Now Thailand moves from the “Detroit of the East” to the manufacturing paradise of Asia. The EEC consists of the three Eastern provinces Rayong, Chonburi, and Chachoengsao with a combined area of 13,285 square kilometers. The Eastern Economic Corridor will see investments of US$ 43 billion during the next five years, mostly through foreign direct investments.
The corridor is intended to accommodate investment in 10 targeted industries: next-generation cars, smart electronics, affluent medical and wellness tourism, agriculture and biotechnology, food, robotics for industry, logistics and aviation, biofuels and biochemical, digital and medical services.
“Eastern Economic Colony”: Under the EEC bill, more than one hundred Thai laws and regulations will be amended or suspended to facilitate foreign investment by special privileges in the EEC. Around ten laws and more than 100 articles will be waived to eliminate legal restrictions regarding foreign investments. Not only the specific foreigner legislation (land ownership, business activities, work) will be relieved. Also for traditional hurdles like the limited term of lease contracts, a legal shortcut is in the making. Some advantages might be available for foreigners only.
The EEC could be seen as part of the Chinese geo-economic doctrine for OBOR (One Belt, One Road) the trans-national connectivity project to connect China with Asia, Europe, and Africa through the land corridor (SREB, Silk Road Economic Belt) and the sea corridor (MSR, Maritime Silk Road) to augment global trade and economic cooperation.
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Advantages and benefits under the EEC regime in Chon Buri, Rayong and Chachoengsao
Business incentives are being sweetened. The EEC will receive a super incentive promotion package which goes far beyond the current regulations of the BOI-Act. However, different data are published, and the final outcome seems not to be clear. The EEC Act (Eastern Special Economic Zone Act) had been approved by the Cabinet mid-April.
The following main advantages might be applicable:
- The exemption for corporate income taxation (CIT) will be granted up to 15 years instead of the current maximal tax holidays of eight years.
- A maximum personal income tax (PIT) rate of 17% for management, investor, experts.
- A five-years business visa,
- A land lease for 50+49 years,
- Trade using foreign currencies directly without having to exchange it into Thai baht,
- A 3-month public-private-partnership (PPP) procedure, and
- A fast-tracked environmental impact assessment (EIA).
Thailands personal income taxation (PIT) has a progressive rate up to 35%. This results in an unreasonable high tax burden for individuals compared with the 20% corporate income tax (CIT) rate. Under the proposed EEC tax scheme, the personal income tax burden will be cut to a fixed 17% rate. Individuals paying more than 17% can use this EEC flat tax incentive to reduce their tax bill. In some cases, this might result in a 50% tax reduction.
These tax benefits will apply to individual income owners in Chon Buri, Rayong and Chachoengsao provinces only. According to press reports, all local and foreign employees whose companies are investing in one of the ten targeted industries headquartered in the EEC or have received investment incentives from the Board of Investment can enjoy from this scheme.
Seven opportunities under the EEC
The Eastern Economic Corridor provides for seven business opportunities (or challenges), which can be outlined as follows:
1. STANDALONE: Benefits for new or existing business ventures to be set-up in the EEC. How to maximize the advantages under the new legal and tax regime? How to adjust the business to fall under the 10 targeted industries? How to handle mixt businesses? In which cases does it make sense to postpone certain business transactions till 2018 when the new EEC tax regime will be in place?
2. RELOCATION: Benefits from a relocation of existing Thai businesses from Bangkok or other provinces to Chon Buri, Rayong or Chachoengsao. In which cases might it be beneficial to move the company’s headquarters from Bangkok into the EEC? It is worth the efforts to resettle human resources, assets and office address?
3. TWO THAIS: Synergy effects from the combination of two Thai businesses, one inside and one outside of the EEC. How to clever allocate human resources, assets and ventures between the two locations?
4. Foreign plus EEC: Synergy effects from the combination of the head office in an AEC state or the foreign headquarters outside of AEC with a Thai company in the EEC. How to design an incentive and tax efficient legal environment for the Thai affiliate company?
Do you like to know more? The law firm keeps foreign companies up-to-date on investment opportunities in Thailand’s energy and infrastructure sectors in its newsletter “Seven Opportunities“. Further information is available here.
5. PPP-EEC-FT: Participation in the infrastructure Public-Private Partnership Eastern Economic Corridor Fast-Track scheme.
6. NON TARGETED: Benefits for Thai companies in the EEC which do not belong to the ten targeted industries as mentioned above. How to utilize EEC benefits in other industries? How can capital gains from property developments and the sale of a business be tax-efficiently structured?
7. PRIVATE: Benefits of private land ownership and personal income taxation for foreigners in the EEC. How to make use of the EEC benefits as a foreign individual? How can the taxpayer benefit on his non-salary income? How can non-qualified income sources be transformed into low taxation income? How can capital gains from property developments and the sale of a business be tax-efficiently structured?
Timeline: Finalizing of the law, enacting, application deadline
The EEC train came to an abrupt stop when the government decided to put each and any aspect back to the test stand. The EEC Act will be fully rewritten. Each clause will be double checked whether it is in compliance with legal and political considerations. To facilitate public concerns as well as to meet investor’s demands, nothing from the previous draft is taken for granted.
The next meeting of the EEC Office took place in July 2017. The EEC Act, a new civil law designed to govern all activities in the EEC, seems to be on track to be enacted by this October. Foreign investors are understandably waiting for the implementation of a clear legal framework governing the EEC before making any investment decisions.
Under the current regulations, the application for the investment incentives in the EEC must be submitted before December 29, 2017. However, the Board of Investment will decide in July to extend the application period for the investment privileges. Such extension into 2018 is deemed to be highly likely.
PUGNATORIUS Ltd. advises enterprises how to design and structure investments in real estate and industries in the EEC area, how to maximize the investment promotion granted by the BOI and other Thai agencies and how to set-up a sustainable tax efficient structure. Send us your investment plans for a swift legal review whether your venture qualifies under the EEC regime, which benefits are granted and which steps are required. Secure your FDI in paradise.