3.WHAT INCENTIVES ARE AVAILABLE TO INVESTORS FROM THE BOARD OF INVESTMENT AND THE INDUSTRIAL ESTATE AU
3.WHAT INCENTIVES ARE AVAILABLE TO INVESTORS FROM THE BOARD OF INVESTMENT AND THE INDUSTRIAL ESTATE AU
Frequently Asked Questions (FAQs)
What follows is taken from chapter 6 of "Doyle's Practical Guide to Thailand Business Law". The book is currently on sale at Bookazine, Asia Books and Kinokuniya bookstores throughout Thailand.
What Incentives are Available to Investors from the Board of Investment and the Industrial Estate Authority of Thailand?
The first chapters discussed the generally applicable rules for foreign investors setting up business operations in Thailand. Different rules may apply, however, if the business activities qualify for Board of Investment (BOI) or the investors locate their factory in an industrial estate.
Board of Investment (BOI)
The Board of Investment (BOI) is the Thai government agency responsible for attracting investment to Thailand by offering a wide range of tax and non-tax incentives to investors to engage in specific kinds of projects.
The following are the most common incentives granted by BOI:
1. corporate income tax exemptions, reductions and special carry forward loss provisions;
2. custom duties reductions and exemptions for raw materials and machinery;
3. permission for foreigners to own land in order to carry out promoted projects or to establish offices or residences;
4. special rights with regard to the issuance of work permits and visas; and
5. special rights with regard to operating as a foreign--held company.
Generally, when BOI awards one or more of these incentives to a given project these awards supersede the legal rules which would normally apply. Once the award expires or has otherwise been utilized, the normal legal rules would apply to the project.
An exception to the above rule exists, however, for the incentives relating to the right of foreigners to own land and special rights concerning the issuance of work permits and visas for foreign employees. These incentives normally apply throughout the life of the project.
Also, note that the incentives awarded by BOI are applicable to the specific project promoted only and are not applicable to the business's other operations.
1. BOI Benefits
The most common BOI investment incentives are discussed below. Note that which of these incentives (if any) would be awarded to a given project and the extent to which the incentives would be awarded depends upon many factors including the project's intended activities, location, and amount of investment as well as other factors.
a. Tax Incentives
The following are some of the normal tax rates applicable to businesses in Thailand.
Normal Rate BOI Rate
Corporate Income Tax 30% *
Tax on Dividends 10% *
BOI is authorized to grant qualifying projects tax reductions and exemptions from these rates during the period of promotion. Note that many times (but not always) BOI will limit the total corporate income exemption to an amount equal to the total capital investment in the project.
Note, however, that the above described limitation normally excludes the amount representing the investment in land and working capital in the project.
An applicant can often obtain exemption from both the above described limitations by submitting a "Supplementary Application for Promotion Privileges in Accordance with BOI's Investment Promotion Policy to Develop Skill, Technology and Innovation (STI) for Groups of Enterprises which Reinforce STI." The application must be submitted with the standard BOI application. The cap is exempted in cases where the applicant meets at least one of the following criteria:
1. Research and development expenses amount to at least 2% of annual sales not over 1,000 million baht, and 1% over 1,000 million baht, or
2. Not less than 1-5% of the total workforce, depending on the industry, have a bachelor's degree or higher in the field of science or any field related to research and development or design technology for the first three years of operation, or
3. The proportion of Thai employee training costs of the monthly payroll is not less than 1% during the first three years of operation, or
4. The average expenses for developing the capability of Thai subcontractors, or expenses for supporting related educational institutions is not less than 1% of annual sales for the first three years.
If a company incurs a loss in any year during the exemption period, it is allowed to carry forward the loss to deduct from its net profits (if any) within five years of the expiration of the exemption period.
b. Reduction or Exemption of Customs Duties
Normally, when raw materials or machinery are imported into Thailand a duty is levied by the Customs Department. This duty is calculated based upon the imported items' value together with the duty rate applicable to the item. BOI is authorized to award projects that qualify for reduction or exemption of this duty.
Note that raw materials and machinery that can be produced or assembled in Thailand which are of similar quality are normally excluded from this exemption. Additionally, used machinery and equipment considered obsolete (the standard threshold is ten years' prior use) are also normally excluded.
c. Foreign Ownership of Land
As discussed in Chapter 8, foreigners are normally prohibited from holding title to land in Thailand. However, BOI is authorized to grant qualifying projects the right to own land. This right may extend to not only factories, but for offices and residences purchased under the promoted company's name. d. Issuance of Work Permits and Visas
The normal rules and procedures associated with the issuance of work permits for foreign staff are discussed in Chapter 5. However, BOI is authorized to grant qualifying projects special rights concerning the issuance of work permits and visas for the foreign employees working on those projects.
These special rights are:
1. an increase in the number of work permits and visas that the company would normally qualify for as well as an increase in the normal duration of those work permits and visas and
2. access to BOI's One Stop Visa and Work Permit Service Center (which processes work permits and long-term visas in three hours or less), instead of using the normal procedure discussed in Chapter 5.
e. Operating as a Foreign Company
As stated in Chapter 3, companies legally classified as "foreign" that engage in List 3 activities (as stated in the Foreign Business Act) are required to obtain a Foreign Business License prior to commencing those activities.
The application process for this license normally takes a minimum of three months and many times the outcome of the application is less than certain. BOI is, however, authorized to grant qualifying projects an exemption from this requirement.
2. Promoted Activities
In order for a project to qualify to receive the above incentives it must fall into one or more of the activities promoted by BOI at the time. To see the current list of activities promoted by BOI go to www.boi.go.th. Note that different activities are entitled to receive varying levels of incentives.
BOI also has a list of priority activities which may qualify for maximum incentives. Appendix A contains the list of priority activities.
3. Promotion Zones
One of the ways BOI determines the level of incentives to be granted to a particular project is through the use of promotion zones. BOI divides Thailand's 76 provinces into three zones. Appendix B designates in which of the three zones each province is located.
Projects in Zone 1 (Bangkok and the five central provinces around Bangkok) and Zone 2 (the ten provinces that surround Zone 1 and the developed provinces of Phuket and Rayong) are eligible to receive reductions in import duties for machinery and exemptions from corporate income tax and import duties for raw materials of products for export.
Thailand's remaining 58 provinces fall into Zone 3 which is designated as an Investment Promotion Zone. Projects located there are eligible to receive more extensive incentives than those located in Zone 1 or 2. Note that those projects located in the provinces designated by BOI as the 22 least developed in Zone 3 are eligible to receive maximum incentives.
4. Application Process
BOI has a well-defined criteria governing the evaluation of projects and the awarding of incentives. Basically, BOI evaluates the application from the perspective of "how the project would benefit Thailand." The primary factors considered when determining whether to grant awards are (1) the economic contribution of the project to the country and (2) compliance of the project with the government's investment promotion policies and strategies. Other broad criteria include:
1. Project activity
2. The amount of project investment
3. Project location
4. Technology and knowledge transfer
5. Stature of the applicant internationally
6. Number of Thai employees
Although producing goods for export is not formally considered in investment promotion awards, a project's ability to generate foreign exchange for the country is also generally considered by BOI to be important.
Applications for BOI promotion can normally be completed within two to four months of submission of all required information from the company. Note that the application may be submitted before the company's final registration with the Ministry of Commerce (MOC).
The following is BOI's normal procedure for processing promotion applications:
1. A project officer is assigned by the BOI to each project;
2. The project officer evaluates the application, writes up recommendations for approval or rejection, and presents the project to an investment subcommittee for approval;
3. The evaluation is required to be completed in either sixty or ninety days depending on the circumstance.
It is not required, but is often a good idea for the applicant to meet with the director of the division handling the application and one or more senior BOI executives, to familiarize them with the benefits of the project to Thailand.
The application process normally involves a series of meetings between the applicant and BOI officials in order to discuss the details of the proposed project. The object of these meetings is to give the presiding BOI official a general understanding of the project's staffing requirements, logistic needs, production processes, etc.
Note that when explaining production procedures often it is useful if the applicant prepares a simple flow chart with pictures describing the individual steps.
The following BOI divisions process applications:
1. Incentive Management Division 1 or Agro-Industry Division
Tel: 0-2537-8097, 0-2537-8111 Ext. 1010-8
2. Incentive Management Divisions 2 or Metals, Metal Products, Machinery and Transport Machinery Division
Tel: 0-2537-8164, 0-2537-8111 Ext. 1040-6, 2043-6
3. Incentive Management Divisions 3 or Electronics and Electrical Industries Division
Tel: 0-2537-8165, 0-2537-8111 Ext. 1050-9, 5020-1, 4500, 4600, 1201, 5015
4. Incentive Management Divisions 4 or Chemical, Paper, Plastic, and Light Industries Division
Tel: 0-2537-8166, 0-2537-8111 Ext. 1030-9, 2031, 2000-2
5. Incentive Management Divisions 5 or Services and Public Utilities Division
Tel: 0-2537-8099, 0-2537-8111 Ext. 1070-7
The BOI Promotion Application Form can be found on the BOI website.
Applicants may either submit the application at the appropriate division office (depending on the type activity) or submit it online.
5. Terms and Conditions
If the application is approved BOI will issue a list of terms and conditions. These are effectively the rules applicable to the project's promotion. The project's continued receipt of incentives will be contingent upon its ability to continue to comply with the terms and conditions during the promotion period.
Industrial Estate Authority of Thailand (IEAT)
Industrial estates are developed and managed by the Industrial Estate Authority of Thailand (IEAT), which is a state enterprise attached to the Ministry of Industry. Industrial estates are equipped to provide infrastructure necessary for industrial operations (for sample electricity, water supply, flood protection, waste treatment, solid waste disposal, etc.). Appendix C lists each of Thailand's thirty four industrial estates.
IEAT is authorized to grant non-tax incentives to investors who choose to locate their factories on an industrial estate. These incentives include:
1. permission for foreigners to own land in order to carry out promoted projects or to establish offices or residences (see Chapter 8);
2. special rights with regard to the issuance of work permits and visas; and
3. special rights with regard to operating as a foreign-held company (see previous section).
Just as with BOI incentives, when IEAT awards one or more of these incentives to a project the incentives supersede the normal legal rules which would apply.
Unlike most BOI incentives, however, the incentives granted by IEAT are normally applicable during the entire life of the project (as long as it remains on the industrial estate) instead of a specific period of time as with BOI.
For a description of the application process to obtain IEAT incentives see Chapter 8.
Export Processing Zone (EPZ's)
Seven of the total thirty four industrial estates in Thailand operate Export Processing Zones (EPZs). An EPZ is a special area within an industrial estate designed to allow goods to enter Thailand for processing. As long as the goods remain in the EPZ no Thailand customs duty or VAT is applicable.
Thailand Export Processing Zone Gate access
IEAT manages the EPZ, however, the Customs Department is in charge of the EPZ gate in order to monitor the goods entering and exiting the EPZ.
In this situation as long as the imported raw materials are shipped, processed and exported from the EPZ no Thailand VAT or customs duties would be applicable, just as if the raw materials had never entered Thailand.
Note, do not confuse EPZ's with Customs Free Zones, which offer similar benefits to investors, but are managed by the Customs Department rather than IEAT.
Appendix A: BOI Priority Activities
The following activities have been designated as priority activities.
1. Agriculture and agricultural products as specified in Section 1 of the Investment Promotion List. (Please visit http://www.boi.go.th/english/about/section1.pdf for more details.)
2. Projects with direct involvement in technological and human resource development, specifically the following:
* 2.1. Research and development (Category 7.12)
* 2.2 Scientific laboratories (Category 7.13)
* 2.3 Calibration services (Category 7.14)
* 2.4 Human resource development (Category 7.15)
3. Infrastructure, public utilities and basic services, specifically the following:
* 3.1 Public utilities and basic services (Category 7.1)
* 3.2 Mass transit systems and transportation of bulk goods (Category 7.2)
4. Environmental protection and conservation, specifically the following:
* 4.1 Industrial zones for environmental preservation (Category 7.5.6)
* 4.2 Waste water treatment, disposal services for refuse, industrial waste or toxic chemicals (Category 7.16)
5. Targeted industries, specifically the following:
* 5.1 Manufacture of steel casting using induction furnace (Category 2.12)
* 5.2 Manufacture of forged steel parts (Category 2.13)
* 5.3 Manufacture of machinery and equipment (Category 4.2), specifically the following:
1. Manufacture of molds and dies and parts
2. Manufacture of jigs and fixtures
3. Manufacture of industrial machinery, specifically the following:
o Turning Machines
o Drilling Machines
o Milling Machines
o Grinding Machines
o Machine Centers
o Gear Cutting & Finish Machines
o Die Sinking EDMs
o Wire EDMs
o Laser Beam Machines
o Plasma Arc Cutting Machines
o Electron Beam Machines
o Broaching Machines
4. Manufacture of parts and equipment for high precision machine processes, namely, cutting, milling, turning, grooving, shaving, grinding, polishing and threading.
* 5.4 Manufacture of sintered products (Category 4.3)
* 5.5 Manufacture or repair of aircraft and aircraft parts (Category 4.7)
* 5.6 Manufacture of vehicle parts (Category 4.8), specifically the following: 1. Manufacture of ABS
2. Manufacture of substrate for catalytic converters
3. Manufacture of electronic fuel injection systems
* 5.7 Heat treatment (Category 4.12)
* 5.8 Manufacture of material for microelectronics (Category 5.6)
* 5.9 Electronic design (Category 5.7)
* 5.10 Software (Category 5.8)
* 5.11 Software parks (Category 7.5)
* 5.12 International distribution centers (Category 7.7)
Appendix B: BOI Promotion Zones
BOI divides Thailand's 76 provinces into three zones as follows:
Includes Bangkok, Samut Prakan, Samut Sakhon, Nakhon Pathom, Nonhtaburi, and Pathum Thani (Bangkok and five provinces)
Includes Ang Thong, Ayutthaya, Chachoengsao, Chon Buri, Kanchanaburi, Nakhon Nayok, Phuket, Ratchaburi, Rayong, Samut Songkhram, Saraburi, and Suphanburi (12 provinces)
Encompasses the remaining 58 provinces
Appendix C: Industrial Estates in Thailand
At present The Industrial Estate Authority of Thailand (IEAT) has established 34 industrial estates located in 15 provinces nationwide:
Northern Region Industrial Estate EPZ*
Hariphunchai Industrial Estate
Phichit Industrial Estate EPZ*
Khon Kean Industrial Estate
Ban-wa (Hi-Tech) Industrial Estate EPZ*
Bangpa-in Industrial Estate EPZ*
Saharattananakorn Industrial Estate
Bang Chan Industrial Estate
Lat Krabang Industrial Estate EPZ*
Gemopolis Industrial Estate
Kraulok Industrial Estate
Kaengkhoi Industrial Estate
Nong Khae Industrial Estate
Bang Poo Industrial Estate EPZ*
Bang Plee Industrial Estate
Samut Sakhon Industrial Estate
Sinsakhon Industrial Estate
Ratchaburi Industrial Estate
Wellgrow Industrial Estate
Gateway City Industrial Estate EPZ*
Chonburi (Bo win) Industrial Estate EPZ*
Laem Chabang Industrial Estate EPZ*
Amata Nakorn Industrial Estate
Pin Thong Industrial Estate
Pin Thong Industrial Estate (Laem Chabang)
Map Ta Phut Industrial Estate
Eastern Industrial Estate
Padaeng Industrial Estate
Eastern Seaboard Industrial Estate
Amata City Industrial Estate
Asia Industrial Estate
Hemaraj Eastern Seaboard
Southern Industrial Estate EPZ*
Halal Industrial Estate
EPZ* = Export Processing Zone. There are ten EPZs.