Driven by the vision “To promote valuable investment, both investment in Thailand and Thai overseas investment, in order to enhance the nation’s competitiveness, to overcome the “middle income trap” and to achieve sustainable growth in accordance with the philosophy of sufficiency economy", Thailand’s Board of Investment (“BOI”) has recently announced a new 7-year investment promotion strategy, to be effective from January 1, 2015 to December 31, 2021, as summarized below.
1. Investment Promotion Policy
The BOI has the policy to promote the following investments:
1.1 Investment that helps enhance national competitiveness by encouraging R&D, innovation, value creation in the agricultural, industrial and services sectors, SMEs, fair competition and inclusive growth
1.2 Investment in the activities that are environment-friendly, save energy or use alternative energy to drive balanced and sustainable growth
1.3 Investment in the clusters to create investment concentration in accordance with regional potential and strengthen value chains
1.4 Investment in border provinces in Southern Thailand to help develop the local economy, which will support efforts to enhance security in the area
1.5 Investment in the special economic development zones, especially in border areas, both inside and outside industrial estates, to create economic connectivity with neighboring countries and to prepare for entry into the ASEAN Economic Community (AEC)
1.6 Thai overseas investment to enhance the competitiveness of Thai businesses and Thailand’s role in the global economy
2. Criteria for Granting Incentives
The incentives offered by the BOI will be divided into two categories, i.e. (i) activity-based incentives or incentives based on the importance of activities, and (ii) merit-based incentives or additional incentives based on merits of the projects to encourage more investment and expenditures that benefit the country or overall industry.
2.1 Activity-based Incentives
Activity-based incentives can be classified into the following 5 classes, each with varied tax incentives:
2.1.1 Knowledge-based activities, focusing on R&D and design to enhance the country’s competitiveness, entitled to 8-year exemption from corporate income tax (CIT) without cap, exemption from import duty on machinery and raw materials
2.1.2 Activities in infrastructure for the country’s development, activities using advanced technology to create value added, with none or very few existing investments in Thailand, entitled to 8-year CIT exemption, with the cap of 100% of the non-land and non-working capital investment, exemption from import duty on machinery and raw materials
2.1.3 High technology activities which are important to the country’s development, with a few investments already existing in Thailand, entitled to 5-year CIT exemption, with the cap of 100% of the non-land and non-working capital investment, exemption from import duty on machinery and raw materials
2.1.4 Activities with lower technology than 2.1.1-2.1.3 but adding value to domestic resources and strengthening supply chain, entitled to 3-year CIT exemption, with the cap of 100% of the non-land and non-working capital investment, exemption from import duty on machinery and raw materials
2.1.5 Supporting industries that do not use high technology but are still important to value chain, merely entitled to exemption from import duty on machinery with raw materials or only raw materials
2.2 Merit-based Incentives
The BOI will give additional incentives to those granted under either of 2.1.1-2.1.5 above, based on merits of the projects as follows:
2.2.1 Merit on competitiveness enhancement, i.e. projects with investments or expenditures on (i) research and development in technology and innovation, (ii) Donations to Technology and Human Resources Development Funds, educational institutes, specialized training centers, research institutes or governmental agencies in the science and technology field in Thailand, as approved by the BOI, (iii) IP acquisition/licensing fees for commercializing technology developed in Thailand, (iv) Advanced technology training, (v) Development of local suppliers with at least 51% Thai shareholding in advanced technology training and technical assistance, or (iv) Product & Packaging Design as approved by the BOI
The eligible projects will be entitled to additional CIT incentives in the form of additional CIT exemption period of 1-3 years with additional cap of 100% or 200% of the investment, varied upon the investment/expenditure ratio.
2.2.2 Merit on decentralization, i.e. project located in the investment promotion zones, comprising (i) the specified twenty provinces with low per capital income, e.g. Kalasin, Chaiyaphum, Mukdahan, (ii) special economic development zones, and (iii) science and technology parks promoted or approved by the BOI
The eligible projects under 2.1.3, 2.1.4 or 2.1.5 will be entitled to additional 3-years CIT exemption while the activities in 2.1.1 or 2.1.2 will be entitled to addition 50% CIT reductions for 5-years after the end of the first 8-year CIT exemption period. Moreover, every eligible project will be entitled to 10-year double deductions for the costs of transportation, electricity, and water supply, and deduction from net profit of 25% of the project’s infrastructure installation or construction costs on top of normal depreciation for ten years from the date the first revenue is derived from the promoted activity.
2.2.3 Merit on industrial area development, i.e. any projects located in an industrial estate or a promoted industrial zone
The eligible projects will be entitled to an additional 1-year CIT exemption. Projects under 2.1.5 are not eligible for this incentive.
3. Criteria for Project Approval
Projects eligible for approval will meet the following criteria:
3.1 Development of Competitiveness in Agricultural, Industrial and Service Sectors
3.1.1 The value-added of the project must not be less than 20% of revenues, except for projects in agriculture and agricultural products, electronic products and parts and coil centers which must have value added of at least 10% of revenues.
3.1.2 Modern production process must be used.
3.1.3 New machinery must be used. Certain imported used machinery may be allowed, depending on the age and type of the machinery and may be subject to non-exemption from import duty.
3.1.4 Projects that have investment capital of THB 10 million or more (excluding cost of land and working capital) must obtain ISO 9000 or ISO 14000 certification or similar international standard certification within 2 years from the full operation startup date, otherwise CIT exemption will be reduced by one year.
3.1.5 For concession project and the privatization of state enterprise project, the criteria will be based on Cabinet’s decisions in 1998 and 2004.
3.2 Environmental Protection
3.2.1 Adequate and efficient guidelines and measures to protect environmental quality and to reduce environmental impact must be installed. The Board will give special consideration to the location and pollution treatment of a project with potential environmental impact.
3.2.2 Projects or activities with type and size that are required to submit environmental impact assessment reports must comply with related environmental laws and regulations or Cabinet resolution.
3.2.3 Projects located in Rayong will be subjected to specific requirements.
3.3 Minimum Capital Investment and Project Feasibility
3.3.1 The minimum capital investment of each project is THB 1 million (excluding cost of land and working capital). As for knowledge-based services i.e. creative product design and development center, electronic design, software, R&D and engineering design, the minimum capital investment requirement is based on the minimum salaries expense of personnel in the specified field of at least THB 1.5 million/year according to conditions of each activity.
3.3.2 For newly established projects, the debt-to-equity ratio must not exceed 3 to 1. Expansion projects shall be considered on a case-by-case basis.
3.3.3 Projects with investment value exceeding 750 million baht, (excluding cost of land and working capital) must submit the project’s feasibility study.
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By Phongsak Sirirakwongsa