Late in 2015, for the first time since 2000 Thailand’s investment promotion policies underwent sweeping reforms, with the government launching a seven-year investment promotion strategy which significantly alters existing policies. Under amendments to the Investment Promotion Act, foreign investors in Thailand will benefit from a host of new financial incentives and privileges, including tax breaks and import duty exemptions, with the expectation that the new policy will increase foreign direct investment (FDI) inflows to the less labour-intensive and better paid high-tech industries, as the country seeks to continue its transformation into an upper-income country.


In January 2015 Thailand’s military government unveiled sweeping reforms to the country’s existing investment promotion laws. The reforms are a reworking of the previous administration’s New Investment Promotion Strategy Proposal (2013-17), originally announced in January 2013, and were officially adopted by the administration of Prime Minister Prayuth Chan-ocha in November 2014. In December 2014 Prayuth discussed the changes with local media, making the case that the proposed reforms would transform Thailand’s industrial sectors by attracting new high-tech industries in place of labour-intensive manufacturing, which relies on low labour costs. Thailand’s existing legislation, the Investment Promotion Act, was originally promulgated in 1977, and had not been amended since.

Swing & A Miss

Under the previous system, the government offered businesses – particularly those establishing operations outside of Bangkok and in more remote areas – generous tax holidays calibrated specifically to their region of operation.

The new system focuses instead on the type of industry, rather than its location, with an emphasis on high-tech fields including aviation and renewable energy, which require less labour and generally pay higher wages. This is an important consideration for Thailand, with its ageing population, low levels of unemployment, and rapid wage growth (see overview). However, it also reduced the number of industries qualifying for investment incentives from 243 to 190, with labour-intensive industries including sewing, some types of paper production and simple metal processing eliminated.

Although the changes are in keeping with a broader government policy to support wage growth, avoid the middle-income trap, and encourage upskilling (see analysis), they were a disappointment to the private sector. They had the effect of pushing many businesses to swamp the state investment promotion agency, the Board of Investment (BOI), with investment applications: 60% of all annual investment applications were submitted in December 2014. As a result, FDI inflows rose by 95% in 2014 to hit BT1.02trn ($30.7bn), although these gains were almost completely reversed the following year, when FDI inflows plummeted by 78% during the first nine months of the year.

Japan’s Disadvantage

The new regulations also introduced tighter restrictions on imports of second-hand machinery, eliminating previous regulations under which machinery less than 10 years old could be imported under a preferential programme. The limit was instead reduced to five years.

This was of particular concern to small and medium-sized enterprises from Japan, which would frequently import second-hand machinery as a means to reduce production costs. Though Japanese-language documents had been prepared explaining the changes, the Japanese Chamber of Commerce later stated that the new regulations had not been adequately explained. FDI inflows from Japan fell by 81.4% to BT28.3bn ($851.83m) between January and November 2015; to mitigate, in April 2015 BOI announced relaxed restrictions on imports of second-hand machinery for a factory relocation case.

High-Tech Benefits

Nonetheless, wage growth and high-tech development remains a priority for the Thai government, and despite the impact it has had on the country’s industrial base, the new policy will keep Thailand well-positioned to meet future global demand, offering a number of attractive incentives for investors in value-added manufacturing.

In August 2015 the BOI announced it had finalised the strategy, which will be in effect until 2021, and aims to restructure the Thai economy under six key pillars: enhancing competitiveness, emphasising renewable energy and sustainable development, creating clusters of concentrated investment across the country based on each region’s latency, increasing investment in border provinces in southern Thailand in order to reduce labour costs and boost local economies, establishing special economic zones which support ongoing ASEAN integration, and bolstering Thai overseas investment.

In September 2015 the cabinet approved draft amendments to the Investment Promotion Act, incorporating the changes.

Tax & Non-Tax

Incentives include an exemption or reduction of 50% of import duties on machinery; a reduction of up to 95% of import duties for raw and essential materials; corporate income tax exemptions on net profits generated by board-approved activities; a 50% reduction of personal income tax on profits derived from a promoted activity; a double tax deduction on the costs of transportation, electricity, and water; deduction from the net profit, of up to 25%, of the costs of installation or construction of facilities, and exemption of import duties on essential materials for use in export production.

Non-tax incentives include work permits for foreign nationals who are coming to Thailand to study investment opportunities; permits to bring foreign skilled workers, experts, and spouses or dependants into Thailand; permits to own land used for promoted activities and permission to withdraw and remit money in foreign currency abroad.

Under amendments to the Foreign Workers Act, foreigners will not need to obtain a work permit under certain circumstances, including visits to Thailand to attend meetings, purchase goods at an exhibition or observe a business. These activities will instead require a non-immigrant B business visa. The BOI will also introduce new tax holidays for high-tech investors under two categorisations: activity-based activities and merit-based activities. Incentives in both of these categories are aimed at supporting high-tech industries, as well as industrial developments that contribute to human resource development, local industry, and knowledge transfer.


There are two categories within which companies can qualify for activity-based incentives. Group A, which is split into four subgroups, from A1 to A4, includes businesses employing high-tech practises in their daily operations. The highest-priority industries in the A1 category include electronics-related design firms, including software firms, businesses involved in research and development, and renewable energy producers. These companies qualify for corporate income tax incentives for up to eight years. Group B, split into subgroups B1 and B2, includes business activities which use less-complex technology but still contribute to value-added production. Group B companies do not receive the same tax exemptions as Group A companies, although both Groups A1-A4 and B1 qualify for an exemption of import duties on machinery, as well as a one-year exemption of import duty for raw materials needed to manufacture export products.


Merit-based benefits are offered on top of activity-based incentives, and emphasise companies which make donations to technology and human resources development funds, develop intellectual property and commercialise technology developed in-country, offer advanced technology training, develop locally owned suppliers using advanced technology training and technical assistance, are involved in product and packaging design, and those projects which support decentralisation, and are located in 20 provinces with low per-capita income. Companies investing in industrial estates and industrial zones also qualify.


The BOI lists three primary considerations for investment eligibility: development of competitiveness in the agricultural, industrial, and service sectors, environmental protection, and capital investment/project feasibility. Under the competitiveness category, at least 20% of a project’s value must be derived from value-added production, with the exception of electronic products, agricultural produce and coil centres, whose value-added requirements are set at a minimum of 10% of sales. In keeping with the original reforms, producers must also use modern production processes and new machinery. Any used machinery must be certified by a “reliable” institution, and is subject to BOI approval.