Investment Incentives for Foreign Businesses in Thailand

Thailand’s Board of Investment (BOI) is the main government agency responsible for promoting foreign investment in the country, and as such, also provides the necessary incentives, services, and information for foreign companies.

These incentives range from corporate income tax exemption to import duty exemptions on raw materials.

Businesses that are promoted by the BOI also have the advantage of being 100 percent foreign-owned.

The main and most lucrative incentives for foreign businesses are issued by Thailand’s Board of Investment (BOI). The BOI was established in 1966 to promote foreign investment in Thailand by providing incentives, services, and information for businesses.

Under the Investment Promotion Act, the BOI has is empowered to grant fiscal and non-fiscal incentives for both foreign and local businesses that engage in business activities promoted by the BOI.

Businesses that are promoted by the BOI can be 100 percent foreign-owned, provided that they engage in one of the following activities.

• Agriculture and agricultural products;
• Chemicals, paper, and plastics;
• Services and public utilities;
• Light industry;
• Technology and development;
• Electronics;
• Metal products, machinery, and transport equipment; and
• Mining, ceramics, and basic metals.

What are the available incentives for businesses in Thailand?

Activity-based incentives

These business activities are classified based on the level of importance. While group A activities receive tax as well as non-tax benefits, group B activities receive mainly non-tax benefits and certain import duty benefits, if applicable. Activities falling under each group classification and the incentives granted for each group are immediately below.

A1: Knowledge-based activities, focusing on R&D and design to enhance the country’s competitiveness.

A2: 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.

A3: High technology activities are important to the country’s development, with a few investments already existing in Thailand.

A4: Activities with lower technology than A1-A3 but add value to domestic resources and strengthen the supply chain.

B1-B2: Supporting industries that do not use high technology but are still important to the value chain.

Source: Thailand Board of Investment, 2021

Non-tax incentives include:

• Permitted to own land;
• Permitted to bring skilled foreign workers;
• Permitted to remit money abroad in foreign currency; or
• Foreign nationals are permitted to enter Thailand to study investment opportunities.

Incentives for research and development, semiconductors, and smart packaging

Incentives for R&D and HR development

The R&D and human resource (HR) incentives apply to companies making large investments in innovation.

Eligible companies will benefit from extended tax holidays lasting up to 13 years without a corporate income tax exemption ceiling. In other words, these companies will be exempt from Thailand’s headline corporate income tax rate of 20 percent.

To qualify, companies must invest a minimum of 200 million baht (US$5.5 million) or one percent of their total sales in their first three years on R&D activities. The exact length of the extended tax holiday depends on the amount the company invests in R&D.

Further, companies that adopt apprenticeship programs or invest in advanced technologies will be eligible for similar incentives. For example, semiconductor projects with additional investments in R&D may be eligible for a tax exemption of up to five years.

Moreover, companies hiring Thai workers for software development, digital services platforms, or digital content may qualify for a tax holiday of eight years. The corporate income tax exemption ceiling for this incentive depends on the number of Thai workers hired for these roles, as well as associated expenses for training and acquiring international certifications.

Incentives for semiconductor manufacturing

In addition to the R&D and HR development incentives, the BOI approved measures to promote investment in manufacturing, with a focus on semiconductors.

Per the BOI’s incentives, front-end capital and technology-intensive manufacturing will be given tax holidays for 10 years. This includes front-end semiconductor investments, such as in electronics design, silicon wafers, and wafer FAB.

Back-end semiconductor investments, such as in wafer SORT, die bank, assembly, and integrated circuit testing, qualify for tax holidays of eight years with machinery investments of at least 1.5 billion baht (US$45.7 million), and five years with machinery investments below 1.5 billion baht (US$45.7 million).

Machinery investments worth at least 1.5 billion baht (US$45.7 million) in advanced printed circuit board (PCB) manufacturing are eligible for tax holidays of eight years, while investments worth less than 1.5 billion baht (US$45.7 million) qualify for tax holidays of five years.

Finally, machinery investments in printed circuit board assembly (PCBA) worth at least 500 million baht (US$15.2 million) can enjoy a five-year tax holiday. Investments worth least than 500 million baht (US$15.2 million) may qualify for a three-year tax holiday.

Incentives for smart packaging

The BOI also approved incentives for companies producing smart and environmentally friendly packaging, in line with the government’s Bio-Circular-Green (BCG) model. Smart and environmentally friendly packaging includes digitally enabled packaging and packaging made from recycled materials, among others.

Companies manufacturing active and intelligent packaging may qualify for tax holidays of eight years. Active packaging refers to packaging that maintains the quality of the product, while intelligent packaging refers to packaging that can sense the quality of the product.

Further, companies creating smart packaging or parts thereof may be eligible for a tax holiday of three years. Smart packaging refers to packaging made from “special substances”.

Additional years of tax exemption added to the standard tax incentives are as follows.

Incentives on decentralization

The Thai government provides additional incentives for businesses that have operations in any one of the following 20 provinces:

1. Kalasin;
2. Chaiyaphum;
3. Nakhon Phanom;
4. Nan;
5. Bung Karn;
6. Buriram;
7. Phrae;
8. Maha Sarakham;
9. Mukdahan;
10. Mae Hong Son;
11. Yasothon;
12. Roi Et;
13. Sisaket;
14. Sakhon Nakhon;
15. Sa Kaew;
16. Sukhothai;
17. Surin;
18. Nong Bua Lamphu;
19. Ubon Ratchatani; and
20.  

The mentioned provinces have some of the lowest income per capita in the country. As such, the incentives afforded are:

• A further three years of CIT exemption, but not exceeding 13 years in total. A reduction of 50 percent of CIT will be granted to activities in technology and innovation as well as A1 and A2 groups. This is added after the end of the tax holiday;
• CIT exemption of three years for business in group B1;
• Double deduction of taxable income for electricity, transportation, and water supply for 10 years from the date from which revenue was first derived from the promoted business activity; and
• Deduction from net profit of 25 percent of infrastructure installation or construction costs. The deduction can be made from the net profit of one or several years of business operations but must be within 10 years from the date from which revenue was first derived from the promoted business activity.

Tax incentives for investments in local startups

In March 2022, the Thai cabinet approved income tax exemptions for investments in Thai startups whether directly or indirectly through individuals, companies, or corporate venture capital (CVC). The startup must operate in one of the 12 government-promoted industries. These benefits are available until June 30, 2032.

The income tax incentives are given to the following forms of investments:

• Direct investments: Undertaken by individuals, companies or partnerships registered in Thailand, and companies or partnerships registered abroad; and
• Investments via venture capital: Consisting of corporate venture capital (CVC), private equity (PE) trusts, shareholders of CVC funds, and unit holders of PE trusts.

The CVC fund or PE trust can be registered in Thailand or abroad. If the CVC or PE is established under Thai law, it must be registered with the Securities and Exchange Commission and have paid-up capital on the last day of the accounting period of 20 million baht (US$581,000) or more.

What are the targeted industries?

Investors can only invest in startups engaging in ‘targeted industries/activities as prescribed by the Committee on Policy for National Competitive Enhancement for Targeted Industries. The government agencies responsible for the issuance of the certification of the target activities are the National Innovation Agency (NIA) and the National Science and Technology Development Agency (NSTDA).

The targeted industries are divided into three groups:

New S-Curve industries:

1. Aviation and logistics;
2. Biofuels and biochemicals;
3. Robotics;
4. Digital economy; and
5. Medical hub.

S-Curve industries:

1. Smart electronics;
2. Medical and wellness tourism;
3. Affluent tourism;
4. Agriculture and biotechnology; and
5. Food for the future.

Additional industries:

1. Defense and education; and
2. Human resource development.

If the CVC fund or PE trust fails to meet this criterion, they could have their rights to the tax exemption revoked.

What are the tax benefits?

Direct investments

An individual or entity registered in Thailand or abroad will be eligible for individual income tax or corporate income tax (CIT) exemption for profits derived from the transfer of shares in Thai startups.

Prior to the transfer of shares, the shareholder must have held the shares for at least 24 months. Further, the startup must engage in one of the target industries and derive at least 80 percent of its revenue from the targeted activities in two consecutive accounting periods before the shares are transferred.

Investments via venture capital

The tax benefits provided to investments via venture capital vary according to the level of investment of the CVC fund or PE trust, as well as the amount of investments of shareholders of the CVC fund and unitholders of PE trusts.

Tax benefits for CVC funds and PE trusts

The private equity trust is not subject to CIT. As for CVC funds, they are eligible for CIT exemption for profits derived from the transfer of shares in Thai startups. The Thai startup must have earned at least 80 percent of its revenue from the targeted activities for two consecutive accounting periods before the transfer of the shares.

Tax benefits for shareholders of CVC funds and unitholders of PE trusts

Shareholders of CVC funds and unitholders of PE trusts are eligible for personal and CIT tax exemptions on capital gains derived from the disposal of shares from the CVC funds and PE trusts. The tax exemptions are in proportion to the amount they invested.

Before the transfer of shares of the CVC fund or PE trust, the shareholder must have held the share for at least 24 months. Further, the CVC fund or PE trust must have invested in a startup that derived at least 80 percent of their revenue from the targeted activities, also for two consecutive accounting periods.

In addition, shareholders and unit holders are eligible for personal and CIT tax exemptions for their gains from the dissolution of CVC funds and PE trusts.

Incentives for establishing an international business center

In 2018, the government enacted the international business center (IBC) regime to replace the international trading center, regional operating headquarters, and international headquarters regimes.

The IBC regime is part of the government’s push to make Thailand a hub for regional business, challenging the status of Singapore as the main financial and trading hub in the Asia Pacific.

The following tax benefits are offered in the IBC regime for 15 accounting periods.

Reduction in the rate of CIT based on qualifying income:

• Eight percent, if the IBC incurs expenditure of at least 60 million baht (US$1.6 million) in Thailand;
• Five percent, if the IBC incurs expenditure of at least 300 million baht (US$8.2 million) in Thailand; or
• A Three percent CIT rate if the IBC incurs expenditure of at least 600 million baht (US$16.6 million in Thailand.

In addition to CIT exemptions, the IBC is also afforded exemption on withholding tax on dividends paid to a non-resident company out of the profits derived from the qualifying income.

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