Thailand takes a new approach with its regulatory framework for foreign investment

Thailand’s Board of Investment (BoI) was established to promote investments by foreign and local investors in economic activities that will benefit its people. It has promoted a very broad range of investments. In 2015 the BoI implemented a substantial re-think of the purpose and scope of its efforts to attract foreign direct investment through a seven-year plan ending in 2021 that makes significant changes to the types of business activities it wants to encourage, as well as to the locations for those activities.

Focus On Sustainability

Instead of promoting a broad range of activities, the BoI wants to encourage investments that will increase Thailand’s global competitiveness in a sustainable and environmentally beneficial fashion. It also promotes investments in functionally related and economically efficient clusters similar to what exists in the eastern seaboard of Thailand with the auto manufacturers and their suppliers, as well as promoting investments in selected special economic zones and in southern Thailand.

BoI’s incentives are tailored to the proposed project. They can include corporate income tax exemptions for up to eight years, corporate income tax reductions for up to another five years, exemptions from import duties on machinery and raw materials, enhanced deductions of certain expenses for up to 15 years, other income tax concessions, and permits to remit funds abroad. They can also include permission for owning freehold land by foreigners, visa and work permit privileges for employees, and licences for foreigners to conduct certain activities like hotel ownership under the Foreign Business Act of 1999.

The seven-year plan creates a new approach to evaluating new grants of incentives. First, the BoI considers the importance of a given activity to its goal of enhancing national competitiveness and fostering sustainable rises in income levels by encouraging research and development, design, advanced technology, innovation and value creation in the agriculture, industry and services, as well as contributing to the development of small and medium-sized enterprises, fair competition and inclusive growth. These are designated as activity-based incentives. Whether the activity is already substantially established in Thailand is an important factor considered in the BoI’s decision-making process. Even investments for activities that support the targeted investments will be given consideration for incentives.

The BoI will consider granting what it labels as merit-based incentives to promote investments that will benefit the country or overall industry. It looks at the contributions likely to be made to enhancing Thailand’s competitiveness, to decentralising its economy, to strengthening lower-income provinces, and to development in preferred industrial estates and zones. These incentives may be granted in addition to activity-based incentives or on a stand-alone basis.

Criteria For Suitability

In evaluating the suitability of a proposed investment for incentives, the BoI will evaluate criteria such as the value being added to the relevant product or service, whether modern technologies and production processes are to be employed, whether relevant international certification standards can be met for significant investments, how the proposed investment is likely to impact the environment, and the capital investments and debt-to-equity ratios proposed. Investment projects with a value of more than BT750m ($22.6m) will require the submission of a feasibility study. There are also special incentives available for investments in the border provinces in southern Thailand, as well as in certain other provinces with designated special economic zones. Incentives and privileges can also be granted by the Industrial Estates Authority of Thailand. Factories located in industrial estates receive tax or non-tax privileges. A foreign entity that locates its factory outside the industrial estate thereby waives the right to own land, unless it is a BoI-promoted company.

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The Report: Thailand 2016

Legal Framework chapter from The Report: Thailand 2016

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This article is from the Legal Framework chapter of The Report: Thailand 2016 . Explore other chapters from this report.

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