BOARD OF INVESTMENT (BOI) PROMOTIONAL INCENTIVES

The Board of  Investment is the government agency  responsible for  providing incentives to stimulate investment in Thailand. In addition, the BOI concludes extensive investment promotion activities, both in Thailand and abroad. 

NOTE: The BOI is in the process of refining a new investment policy  scheduled to be introduced in the first quarter of 2000. It is, however, in  the drafting and consultation stage and the existing policy outlined below is still in force.

The BOI is governed by the 1977 Investment Promotion Act, as amended by the Investment Promotion Act 1991. The Board is chaired by the Prime Minister, with economic ministers, senior civil servants, representatives of major private sector organisations, and academics serving  as Board Members of Advisors.

The BOI promotes projects that:

· Strengthen Thailand’s industrial and technological capability

· Make use of domestic resources

· Create employment opportunities

· Develop basic and support industries

· Earn foreign exchange

· Contribute to the economic growth of  regions outside of  Bangkok

· Develop infrastructure and conserve natural resources

· Reduce environmental problems.

The BOI is empowered to grant a wide range of fiscal and non-fiscal incentives and guarantees to investment projects that  meet national economic development goals. In addition to investment incentives,  the BOI also offers comprehensive business-related services to investors and potential investors.

These services range from working with investors to help them obtain licenses and permits to the identification of promising investment projects and joint-venture partners. In addition, the BOI offers  assistance to Thai firms interested in investing overseas, especially in  Indochina  and in  Association of Southeast Asian Nation (ASEAN).

The BOI currently has six regional offices: Nakhon Ratchasima and Ubon Ratchathani in the Northeast, Songkhla and Surat Thani in the South, Chiang Mai in the North, and Chon Buri (Laem Chabang) in  the Eastern Seaboard area.

The BOI maintains permanent investment promotion offices in Frankfurt, New York, Paris, and Tokyo. These offices offer potential foreign investors a complete range of information on business opportunities and incentives in Thailand.

 Depending on which sector their proposed activity falls under, project are assigned to one of the seven Investment Promotion Divisions within the Board of Investment. Each of the divisions is empowered to handle all aspects of a promoted project so that investors only need to deal with one division for most of their business with the BOI.

Functions of the seven divisions include: The screening and appraising of applications for investment incentives; reviewing specific duty and  tax exemptions for machinery and raw materials; monitoring  the operations of promoted projects to ensure compliance with conditions stipulated in their promotion certificates. The division also provides information to investors on the industry sector in which they are involved.

These division also consider various measures to assist promoted industries, including import duty reductions, duty exemptions and rebates, and tariff increases on competing imports.

The BOI Unit for Industrial Linkage Development (BUILD) encourages growth in supporting industries in Thailand. Build provides information on subcontracting opportunities and offers its support to buyer firms seeking sourcing networks in Thailand. It helps small and  medium sized Thai suppliers achieve standards required  to enter into productive subcontracting arrangements. BUILD’s extensive database on subcontractors in Thailand provides matchmaking services for firms seeking specific components or raw materials.

The BOI provides investment matchmaking services to both Thai and foreign investors seeking co-operation in the areas of technology, management and marketing. In addition, the BOI offers a matchmaking service for investors in regional areas looking for joint-venture partners from Bangkok and abroad, as well as for firms that want to invest in provincial areas.
 

TAX INCENTIVES

· Tax incentives offered by the BOI include:

· Exemption or reduction of import duties on imported machinery 

· Exemption or a reduction of import duties on imported materials and components

· Exemption of corporate income taxes for three to eight years, with permission to carry forward losses and deduct them as expenses for up to five years

· Exclusion of dividends derived from promoted enterprises from taxable income during the corporate income tax holiday.
 

ADDITION INCENTIVES FOR ENTERPRISES IN THE SPECIAL INVESTMENT PROMOTION INCLUDE:

· Reduction of corporate income tax by 50 percent for five years after the exemption period

· Double deduction from taxable income of water, electricity, and transport costs for 10 years from the date of first sales

· Deduction, from net profit, of 25 percent of the project’s infrastructure installation or  construction cost.
 

ADDITIONAL INCENTIVES FOR EXPORT ENTERPRISES:

· Exemption of import duties on imported raw materials and components

· Exemption of import duties on re-exported items

· Exemption of export duties

· Allowance to deduct from taxable corporate income an amount equivalent to five percent of an increase in income derived from exports over the previous year, excluding the cost of insurance and transportation.
 

CRITERIA FOR PROJECT APPROVAL

In determining both the economic and technological suitability of a project for which investment is requested, the Board applies different criteria depending on the level of investment capital.

For a project with investment capital excluding land and working capital, not greater than 200 million baht, the following criteria are used:

· Value added not less than 20 percent of sales revenue, except projects which export more than 80 percent of total sales, or use domestic agricultural resources as raw materials, or conserve, restore or develop natural resources and the environment

· Registered capital is a least 20 percent of the total investment

· Modern machinery and production processes are used

· Adequate environmental protection systems are installed.

For a project with investment capital, excluding land and working capital, greater than 200 million baht, the same criteria as for projects with investment capital less than or equal to 200 million baht, plus:

· Impact on its own industry

· Impact on  government finances

· Impact on consumers

· Contribution to technological development.

For a project with investment capital, excluding land and working capital, of over 500 million baht, the same as for projects with investment capital greater than 200 million baht, plus:

· A feasibility study.

Projects which qualify for investment promotion incentives and the conditions under which awards are made are set out on BOI’s “List of Promoted Activities.” The List is broad enough to encompass most industrial projects. The award of tax-related incentives is based on project location and, in certain cases, on type of industry or export orientation.

The BOI divides Thailand into three investment zones for promotional purposes. The are:

· Zone 1, comprising Bangkok and five contiguous provinces;

· Zone 2, comprising 10 provinces, most of which are within a 180-kilometer radius of Bangkok;

· Zone 3, comprising all other provinces.
 

Standard BOI incentives provided to promoted firms include:

· Investment guarantees against nationalisation, state monopolies, price controls, tax exempt imports by government agencies, export restrictions

· Visas and work permits for expatriate personnel

· Permission to own land

· Permission to remit money abroad in foreign currency
 

The principal incentives offered by Zone are:

Zone 1

· No tax exemption or reduction on machinery, except projects which export not less than 80 percent of total sales or locate their factories in industrial estates or promoted industrial zones. Such projects will receive a 50 percent import duty reduction on machinery which is not included in the tariff reduction notification of Ministry of Finance (Notification No. C 13/2533) and which is subject to import duty greater than or equal to 10 percent.

· No corporate income tax exemption, except for projects that export not less than  80 percent of total sales and locate their factories in industrial estates or promoted industrial zones, in which case a three-year exemption will be granted.

· Exemption of import duty on raw or essential materials used in export products for a period of one year for projects exporting at least 30 percent of total sales.

Zone 2

· A 50 percent import duty reduction on machinery that is not include in the tariff reduction notification of the  Ministry of Finance (Notification No. C 3/2533) and that is subject to import duty greater than or equal to 10 percent

· Corporate income tax exemption for three years, extendible up to seven years for projects that locate their factories in industrial estates or promoted industrial zones

· Exemption of import duty on raw or essential materials used in export products for a period of one year for projects exporting at least 30 percent of total sales.

Zone 3

· Import duty exemption on machinery

· Corporate income tax exemption for eight years

· Exemption of import duty on raw or essential materials used in export products for a period five years for projects exporting at least 30 percent of total sales

· percent import duty reduction on raw and essential materials used in production for domestic sales for five years. This reduction is renewable on an annual basis, provided that  raw or essential materials comparable in  quality are not being produced or are not originating within the Kingdom in sufficient quantity to be acquired for use in such activity.

This does not include projects or factories in Laem Chabang Industrial Estate.

SPECIAL PRIVILAGES ARE GRANTED AS FOLLOWS:

· Reduction of corporate income tax by 50 percent for five years after the exemption period

· Double deduction from taxable income of water, electricity, and transport  costs for 10 years from the date of first sales

· Deduction, from net profit, of 25 percent of the project’s infrastructure installation or construction  cost.
 

PRIORITY ACTIVITIES

The Board has identified projects in the following five areas to be priority activities:

· Basic transportation systems

· Public utilities

· Environmental protection and/or restoration

· Direct involvement in technological development; and

· Basic industries.

Such projects will be eligible to receive the following privileges:

· Corporate income tax exemption for eight years, regardless of location

· A 50 percent import duty reduction on machinery which is not included in the tariff reduction notification of the Ministry of Finance (Notification No. C 13/2533) and which is subject to import duty greater than or equal to 10 percent for projects located in Zones 1 or 2

· Import duty exemption on machinery for projects located in Zone 3.
 
 

INDUSTRIAL ESTATE AUTHORITY OF THAILAND

The IEAT, established in 1979 as a State Enterprise under the Ministry of Industry, is charged with carrying out the government’s industrial development policy. the IEAT is the principal regulatory authority for industrial estate construction and operation. The Authority is also the sole investor in three industrial estates, including Map Ta Phut and Laem Chambang Industrial Estates on the Eastern Seaboard, and more than 20 more joint operations with the private sector.

There are 17 export processing zones (free trade zones), where machinery, goods and materials may be imported free of duty and tax to facilitate production for export. Finished products produced in export processing zones are treated like imports when they are distributed in Thailand. Import duties are paid at the gate of the Zone.

Additionally, the IEAT may grant non-tax investment incentives (essentially the same as BOI’s non-tax incentives) to companies that locate in industrial estates. Most industrial estates also offer “one-stop shop” services to foreign investors in the estates.
 

DUTY DRAWBACK SCHEME

Under the duty drawback scheme, exporters may recover import duties paid for importing raw materials that are processed into finished goods for export. Processing takes approximately three months. The duty drawback scheme is a workable alternative to import duty exemptions on raw materials provided by the BOI. Applications for duty drawback should be submitted to the Customs Department.
 

BONDED WAREHOUSES

Under the bonded warehouse program, manufacturers which import and export may import goods under bond into bonded warehouses without payment of import duties. No import duties need be paid on the goods unless they are distributed into the local economy. The program works in two ways. Importers and manufacturers may use the services of private companies operating commercial bonded warehouses, and manufacturers may request the Customs Department to designate their factories as bonded warehouses. In both cases, the Customs Department stations one or more officials at the bonded warehouse to facilitate import and export paperwork. Manufacturers must have a paid-in registered capital of at least 10 million baht of goods per year to qualify for bonded warehouse status.