Investment Promotion Act that announced in 1977 (including the 4th Amendment in 2017) and Competitiveness Enhancement Act in 2017, in order to attract and stimulate more investment that benefit the country or industry at large, BOI stipulates additional incentives based on Merit for Competitiveness Enhancementใ
New investment promotion was effective on 1st January 2015 and this improvement was not affect on the previous incentives that investors already had. To ease foreign shareholding restriction and promote investment, the BOI has implemented the following standards:
1) For agricultural industry, animal husbandry, fishery, mining and service subject to Type 1 investment restrictions that set in the Foreign Business Act B.E. 2542, Thai shareholders must hold shares of not less than 51% of the registered capital.
2) For manufacturing production, foreign shareholders may hold a majority (or all) in promoted business.
3) If necessary, BOI may establish foreign shareholding ratio restriction for promoted enterprise.
Since 25th January 2017, new investment promotion policy provides tax incentive up to 13 years from 14th January 2018. Merit for Competitiveness Enhancement will get tax incentive the longest year up to 15 years. They also set up a competitive enhancement fund worth up to 10 billion baht to attract high-value-added investors who use high-technology and focus on innovation and research and development.
However, currently business operator can choose to receive one of the investment promotion incentives between basic incentives or additional incentives to improve competitiveness but cannot receive both types of incentives at the same time, depending on nature and importance of the industry the region where the business is located and other conditions. BOI provides additional tax and non-tax incentives that differ in those regulations.
BOI tax incentives are as follows:
- Exemption/reduction of import duties on machinery.
- Reduction of import duty on essential materials imported for use in production up to 90%
- Reduction of corporate income tax (up to 15 years according to the rules)
- Reduction of corporate income tax on dividends
- Exemption of import duty on essential raw materials imported for use in production for export
- Exemption of import duty for essential material imported for Research & Development purpose
- A 50% reduction of the corporate income tax up to 10 years without other tax incentives
- Investment expenses can be deducted at 70% up to 10 years
In addition to the above basic incentives, the BOI provides other incentives according to project value Performance-based incentives to incentivize investors applying under the BOI Act to invest in activities that benefit a country or industry. Please see the following details:
Tax incentives for 20 provinces with lowest per capita income
BOI grant merit-based incentives for investment in 20 provinces with lowest per capita income as follows:
- Additional 3 years of corporate income tax incentive with total not exceeding 13 years. In addition to the main targeted activities, if the old tax incentives expire in 8 years, they will receive additional 5 years of corporate income tax incentive
- Double deduction from the costs of transportation, electricity and water supply for 10 years from the date business start to have corporate income
- Additional 25% deduction of the cost of installation or construction of facilities from the date business start to have corporate income
Tax incentives for Research and Development
Board of Investment will restrict additional investment at 300% for cost of Research and Development to provide advanced training for employees or to develop local suppliers and receive a maximum three-year tax exemption (total not exceeding 13 years)
Projects located within industrial estates or promoted industrial zones shall be granted one additional year of corporate income tax exemption except for activities under the targeted core technology and support services, the total tax exemption will not exceed 8 years.
BOI promoted the following 20 industries that will be granted for exemption of corporate income tax up to 11 years (no cap):
– Economical tree planting (exclude Eucalyptus)
– Creative design and product development
– High-risk or high-tech medical equipment manufacturing or commercial medical equipment through public research or joint public-private research.
-Manufacturing of automation machines and automation equipment by engineering design including automation integration and control system configuration.
– Manufactured of engineered train or locomotive
– Manufacture of aeronautical components such as engines, propellers and electronic equipment
– Manufacture of aerospace equipment related to rockets, spacecraft, propulsion equipment and accessories, etc.
– Manufacture of aerospace operating systems such as search, detection, navigation, aeronautics and instrumentation.
– Electronic design
– Software development, particularly embedded and high-value software development
– Fuel waste
– Energy Service organization
– Food Innovation Industrial Estate, Technology, Software, Data Center and Innovation Incubator
– Cloud service
– Research and Development
– Biotechnology
– Engineering Design
– Science Lab
– Check Service
– BOI approved training center
Tax incentives for technological innovation and value-added services
BOI also defines 10 activities as targets for innovative technologies and ancillary services that are eligible for the maximum incentives of 13 years corporate income tax exemption without limitation as follows:
Technology Innovation
– Biotechnology
– Nanotechnology
– Advanced Material Technology
– Digital Technology
Additional services to support main
– Electronic Design
– Research development
– Engineering Design
– Science Lab
– Check Service
– Personnel Training Center
Non-tax Incentives
Addition to tax incentives, BOI provide non-tax incentives such as permit to bring in skilled workers and experts to work in investment promoted activities, permit to own land, and permit to take out or remit money abroad in foreign currency.
BOI protected products of promoted activities or similar products from other factors such as Thai nationality, state-own monopoly, competition and price control by state enterprises. Other protections including limiting the import of competing products, import tax collection or any action by BOI Chairman that effectively protects the incentive program.
Tax Rates
Project in Special Economic Zones (SEZ) shall be granted corporate income tax 10% for 10 years
BOI
BOI set up tax incentive motivation in SEZ that project in SEZ has to comply with the followings rules: adopt advanced production processes and machinery and equipment to meet minimum capital requirements, have a complete environmental protection system and a debt-to-equity ratio of not less than 3:1, and operate region-specific, etc.
Projects in SEZ will be granted tax incentives as follows:
- Exemption of corporate income tax up to 8 years, 100% tax exemption of investment cost (excluding cost of land and working capital)
- Additional 5 years reduction of corporate income tax when the old tax exemption expired
- Double deduction from the costs of transportation, electricity and water supply for 10 years from the date business start to have corporate income
- Additional 25% deduction of the cost of installation or construction of facilities from the date business start to have corporate income
- Exemption of import duties on machinery
- Exemption of import duty on raw materials imported, used in production for export
Permission to employ foreign unskill labour in important project
Tax incentives for projects in SEZ are as follows:
- Additional 3 years of corporate income tax exemption, total not exceeding 8 years
- Additional 5 years reduction of corporate income tax when the old 8 years tax exemption expired
- Other incentives are the same as main project
Applications for incentives in SEZ must be submitted before 30th December 2020
IEAT Free Trade Zone
According to Industrial Estate Authority of Thailand (IEAT) regulations, IEAT Free Trade Zone is for industrial, commercial and other related activities thus products in this area will get Tax and Duty Privileges as follows:
- Machinery equipment and raw materials that use in factory construction or other necessary installation for production or commercial activities in IEAT Free Trade Zone will be granted the exemption of import tax, value added tax, excise tax, excluding used products and vehicles
- When enter into IEAT Free Trade Zone, necessary materials for productions or commercial activities will be granted the exemption of import duties, value added tax, excise tax. The scope of the tax exemption for raw materials for production also includes other IEAT Free Trade Zone that are eligible for BOI export promotion program. Raw materials that bank guarantees to re-export the finished product and are exempt from tax accordingly with other laws.
- Products entering to IEAT Free Trade Zone for manufacturing, mixing, assembling, packaging or processing for export, does not require any specific import or export licenses or packaging and is exempt from all standard inspection and quality control rules (except where required by Customs Law).
- Products manufactured in IEAT Free Trade Zone and sold in Thailand are considered imported products and are subject to import duties and related VAT. For sales made in IEAT Free Zone, VAT can be charged with normal tax rate or zero tax rate.
- Products that meet certain conditions in the IEAT Free Trade Zone will be granted special import tariffs when the products are transferred to Thailand.
Free Zone (CFZ)
To support and promote Thailand’s exports, Thailand has established a Customs Free Zone (CFZ) for industry, trade and other related activities that promote the development of the country’s economy. Products entering CFZ or manufactured in CFZ are exempt from import duty, VAT and excise tax.
The establishment of Customs Free Zone (CFZ) must be approved by a competent authority organization (Customs Department). Business established in CFZ must sign a Guarantee Agreement with the Customs Department, comply with the regulations of Customs Department and strictly pay the relevant annual fees.
Incentives in CFZ are as follows:
- When entering CFZ, machinery, tools and equipment (including spare parts) necessary for industrial or commercial activities to promote the development of the country’s economy exempt from import tax, VAT and excise tax.
- When entering CFZ, raw materials needed for production will be granted the exemption of import duty, VAT and excise tax. In addition, raw materials for production also include from other free zones of the IEAT which correspond to BOI’s exports. The bank guarantees that finished products will be exported as raw materials and are exempt from taxes under other laws.
- Products entering CFZ for manufacturing, mixing, assembling, packaging or processing for export, it is not necessary to have import or export license or special packaging and are exempt from auditing all quality inspection standards and regulations.
- Products manufactured in CFZ and sold in Thailand are considered imported goods and are subject to import duties and applicable VAT. For sale in CFZ, VAT can be charged with normal tax rate or zero tax rate.
- Products to be manufactured in CFZ will receive a special import duty rate when transferred to Thailand.
The period of storage of goods in free zones (IEAT Free Zone and Custom Free Zone) is limited to not exceeding 2 years. However, the 2 years term can be extended for 1 more year if the company in CFZ/IEAT Free Zone is approved by Customs Department or IEAT (depending on the type of Free Zone) and must be approved within 30 days before the 2 years end. Items stored within 30 days from the expiration date but have not been approved to extend the time shall have to pay import tax.
