Incentives Under the Investment Promotion Act

Government Role

The Board of Investment (BOI) is the government agency responsible for administering incentives to encourage private-sector investment in priority areas. The structure, role, and policies of the BOI today basically follow the guidelines contained in the Investment Promotion Act.

The BOI is chaired by the Prime Minister and includes as members and advisors, key ministers and private-sector representatives. The office of the BOI functions as the administrative arm of the Board. It is headed by a secretary- general, and has eight divisions, four regional offices in Songkhla, Nakhon Ratchasima, Chieng Mai and Chonburi, and six overseas offices in New York, Frankfurt, Tokyo, Osaka, Paris and Sydney.

Foreign Equity Participation Rules

The BOI uses the following criteria in considering the extent of foreign equity participation allowed in a promoted investment project:

Foreign ownership requirements for the following projects are considered on a case-by-case basis by the responsible ministry:

• Development of transportation systems
• Public utilities
• Environmental conservation and restoration
• Direct involvement in technological development

Objectives of BOI

The BOI has a policy of giving special consideration to investment projects which:

1. Locate operations in provincial areas,

2. Establish or develop industries which form the base for further stages of industrial development,

3. Develop public utilities and basic infrastructure,

4. Conserve natural resources and reduce environmental problems,

5. Conserve energy or replace imported energy supplies,

6. Contribute to technological development, and

7. Strengthen significantly the balance of payments.

Promoted Company

The types of entities that may be promoted by the BOI and granted investment incentives are: a limited company, a foundation, or a cooperative. Application for promotion may be submitted in accordance with the rules, procedures, and forms prescribed by the BOI prior to the formation of the qualified promoted company.

Non-Tax Incentives for Promoted Companies

The following non-tax incentives may be granted to promoted companies:

Guarantees:

• Against nationalization.
• Against competition of new state enterprises.
• Against state monopolies.
• Against price controls.
• Against tax-free imports by the public sector.

Permission:

• To own land.
• To bring in foreign nationals to undertake investment feasibility studies.
• To bring in foreign technicians and experts to work on the promoted project.

Protection Measures:

• Imposition of a surcharge on competing imported products of up to 50% of CIF value for a period of one year at a time.
• Import ban on competing products.
• Implementation of other tax relief measures as appropriate.

Investment Promotion Zones

In line with the national goals of decentralizing and spreading the benefits of development to the country's provinces, the BOI has divided all provinces of Thailand into three investment zones. Investors who set up their operations in provinces outside the central region of Thailand are entitled to a wider range of tax incentives. The three investment zones are as follows:

Zone I:
Six (6) provinces, namely: Bangkok, Samut Prakan, Nakhon Pathom, Nontaburi, Pathum Thani, and Samut Sakhon.

Zone II:
Ten (10) provinces, namely: Suphan Buri, Ayuthaya, Nakhon Nayok, Chachoengsao, Chonburi, Ratchburi, Samut Songkram, Saraburi, Kanchanaburi, and Ang Thong.

Zone III:
All the remaining provinces, and Laem Chabang Industrial Estate in Chonburi Province.

Major Tax Incentives for Promoted Companies

The BOI grants two major types of tax incentives to promoted companies, namely:
1. Exemption or reductions of tariffs on imported machinery and equipment, as well as raw materials for the promoted activity, and
2. Exemption from income tax on net profits and dividends.

The extent of these incentives varies according to the percentage of products exported and the location of the promoted company.

Customs Duty Exemption

The general rules for granting import duty exemptions on the import of machinery and raw materials by promoted companies are outlined in the table below.

Conditions:

1. Not less than 80% of sales are for export and the machinery is subject to import duty of 10% or more.
2. Located in an industrial estate or promoted industrial zone, and the machinery are subject to import duty of 10% or more.
3. For a period of one year, and not less than 30% of sales are for export.
4. For a period of 5 years (reviewed annually) and the materials are not readily available in Thailand, not including projects located in Laem Chabang Industrial Estate.
5. For a period of 5 years, and not less than 30% of sales are for export.

Income Tax Exemption

In general, the duration of income tax exemption granted to promoted companies depends on the project's location and the amount of export sales. The period of tax exemption generally starts from the date of the first sale. The exemptions are shown in the table below.

Conditions:
1. Exports not less than 80% of total sales.
2. Located in an industrial estate or promoted industrial zone.

Additional Fiscal Incentives

For Projects Located in Zone III
Promoted activities located in Investment Zone III may also be eligible for the following additional incentives:

1. Fifty percent (50%) reduction of income tax for 5 years after the exemption period.
2. Double deduction for income tax purposes on the costs of water supply, electricity, and freight for 10 years from the date of the first sale.
3. Additional 25%, deduction for income tax purposes of the costs of installation or construction of the project's infrastructure facilities.

Priority Activities

The BOI have identified the following areas as priority activities:

• Basic transportation systems,
• Public utilities,
• Environmental protection and/or restoration,
• Direct involvement in technological development, and
• Basic industries.

The priority activities may receive the following tax privileges:

• Corporate income tax exemption for 8 years, regardless of location.
• Fifty percent (50%) customs duty reduction on the import of machinery, otherwise subject to import duty of 10% or more for projects located in Zones I or II; 100% duty exemption for independent power producers (IPP) awarded concessions by the Electricity Generating Authority of Thailand (EGAT), regardless of project location.
• Customs duty exemption on the import of machinery for projects located in Zone III.

Factory Relocation Incentives

The BOI has introduced incentives to encourage the relocation of existing factories, regardless of whether they previously had BOI promotion, to the less developed regions of Thailand. The following general conditions are imposed:

1. The new factory must comply with the same rules of eligibility for BOI promotion as discussed above for new projects. However, the BOI may consider granting incentives even where this condition is not met.

2. For factories required to relocate by the Ministry of Industry for environmental reasons:

• It must be relocated to an industrial estate or promoted industrial zone, and
• The existing factory must be closed and all machines moved and in operation in the new area within two years.

3. For factories that move voluntarily:

• The relocated factory must have at least 50 employees, and
• The main machinery of the existing factory must be relocated and in operation within two years.

The fiscal incentives available are limited to exemptions for corporate income taxes. Factories relocated from Zone I to Zone II are entitled to the same income tax exemptions as new Zone II projects discussed above. Factories relocated from Zone I or II to Zone III are entitled to the same income tax exemptions as new Zone III projects.

Application Procedures

All applications for promotional privileges under the Investment Promotion Act are filed in duplicate with the BOI. The completed application forms will be passed to the Investment Promotion Division where an officer may discuss the application with the designated representative of the applicant.

Once the application is approved, the BOI will inform the applicant of the privileges awarded and the conditions for investment promotion. Within one month from the date of the notice of approval, the applicant must confirm in writing to the BOI its acceptance of the investment promotion package, or otherwise seek any changes in the conditions and /or privileges outlined.

The BOI will issue the Promotion Certificate to the applicant after receiving the following documents: evidence of the registration of the promoted company; list of shareholders and their nationalities; copies of licensing agreements and technology transfer contracts, if any; and a completed Promotion Certificate application form.

Thereafter, machinery and equipment must be imported within the period specified by the BOI. Normally, the factory must be ready to commence operations within 30 months after the receipt of the Promotion Certificate. The BOI must be informed in writing at least 15 days before the factory operations commence in order to allow an officer to inspect the premises. An official permit to start operations will then be issued by the BOI.

2. Incentives Under the Industrial Estate Authority of Thailand Act

The Industrial Estate Authority of Thailand (IEAT) was established in 1972 as a government agency under the Ministry of Industry and is responsible for industrial development and pollution control of industrial operations by setting up "industrial estates." An industrial estate may also be set up in joint venture with private developers. Industrial estates are divided into 2 zones according to the nature of the industries as follows:

1. General Industrial Zone (GIZ), an area designated for industrial and supporting operations.
2. Export Processing Zone (EPZ), an area designated for industrial and supporting operations for exports exclusively.

Industrial operators locating their projects in GIZ or EPZ may be granted certain investment incentives without having to apply for BOI promotion as follows:

1. Permission to own land in an industrial estate.
2. Permission to bring in foreign technicians and experts.

Moreover, industrial operators locating in the EPZ may be granted the following tax incentives:

• Exemption from import duty, value added tax and excise tax on machinery and construction materials for the factory.
• Exemption from import duty value added tax and excise tax on raw materials used in production.
• Exemption from export duty, value added tax and excise tax on products, by-products, and other products derived from production in the export industrial zone if these are to be exported from Thailand.
• Exemption or refund of taxes for any goods sent into the export industrial zone for manufacturing. Such goods must be goods entitled to exemption or refund of taxes if they are exported from Thailand.

3. Incentives Under the Petroleum Laws

Governing Laws

The Petroleum Act and the Petroleum Income Tax Act of Thailand enacted in 1971, together with various amendments, grant special incentives to concessionaires engaged in petroleum survey, exploration, and production.

This is consistent with the government's policy to develop Thailand's natural resources.

Qualification of Concession Applicant

The applicant for concessions must be a company with sufficient capital, machinery, equipment, and experts to execute the survey, production, sale, and supply of petroleum.

Investment Incentives

The incentives extended to concessionaires under the Petroleum Act and the Petroleum Income Tax Act are:

• Assurance that the state will not nationalize any private industrial activity.
• Permission to own land required for its operations.
• Freedom to export its products.
• Permission to bring in alien experts and technical staff and their dependents, including those of its contractors.
• Exemption from tariffs on imported machinery, spare parts, and materials required for its business, or for the use of its drilling and oil field service contractors.

Reporting Requirements

During the exploration period, the concessionaire is required to make periodic reports to the specific government entities on the progress of work, including a statement of expenditures. During the survey and exploration period, a concessionaire is not required to submit an income tax return to the Revenue Department. The first accounting period, for income tax purposes, starts from the date production starts.

An income tax return must be filed, however, if an exploration concession is sold in whole or in part.