Country Report

THAILAND 2015 Investment Environment and Related Laws

(1) Current situation and trend of inbound and outbound investment

Thailand enjoys a strategic location and serves as a gateway into the heart of

Asia – home to what is today the largest growing economic market. The country also

offers convenient trade with China, India and ASEAN, and easy access into the Greater

Mekong sub-region, where newly emerging markets offer great business potential. The

country's well-defined investment policies focus on liberalization and encourage free

trade. Foreign investments, especially those that contribute to the development of skills,

technology and innovation are actively promoted by the government. Thailand

consistently ranks among the most attractive investment locations in international

surveys, and the World Bank’s 2014 Ease of Doing Business report places Thailand as

the 18th easiest country in the world (and fifth-ranked country in Southeast Asia) in

which to do business. Likewise, UNCTAD ranks Thailand as the 8th most attractive host

economy in the world (2012-2014).

In terms of outbound investment, Thailand is not yet a significant outward investor

compared with economies such as China, Hong Kong, Singapore, Korea and Malaysia

but its outward FDI is growing and it is certainly an economy with a significant outward

FDI potential. Most Thai outward FDI has been undertaken by large enterprises, often

publicly listed companies. Thai enterprises are internationalizing for different reasons,

depending on the industries they operate in. In general, the main motive is market-

seeking, which includes extending market reach, supporting distribution and expanding

trade channels.

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Comparison of Thailand’s inbound and outbound investment:

In 2011 and 2012 Thailand has been actively investing in big projects abroad and

Thailand’s outbound investment has risen above its own FDI which shows a significant

outward investment potential. With overseas investment now regarded as a national

priority, the Government Investment Promotion Agency – the Thailand Board of Investment

(BOI) - has been tasked with stepping up its efforts to assist Thai entrepreneurs who want

to invest abroad. The BOI approved the establishment of its Thai Overseas Investment

(TOI) Plan in August 2012. ASEAN member states, mainly Indonesia, Vietnam and

Myanmar, were the original target destinations, while India and China too came to be

identified as markets of opportunity for Thai investors.

(2) Thai Government’s strategy on Foreign Direct Investment

The Office of the Board of Investment, Thailand (BOI) is a government agency under

the Office of the Prime Minister. One of its main roles and responsibilities is to promote

inbound and outbound investment. The BOI has set its investment promotion strategy and

goals as follows:

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To promote 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

To promote activities that are environment-friendly, save energy or use alternative

energy to drive balanced and sustainable growth

To promote industrial clusters to create investment concentration in accordance with

regional potential and strengthen value chains

To promote investment in border provinces in Southern Thailand to help develop the

local economy, which will support efforts to enhance security in the area

To promote 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)

To promote Thai overseas investment and to enhance the competitiveness of Thai

businesses and Thailand’s role in the global economy

The BOI is available to assist both local and foreign investors in numerous ways,

including:

Enhancing Competitiveness and Investment Facilitation:

Offers an attractive and competitive package of tax incentives

Imposes no foreign equity restrictions on manufacturing activities or on some services

Provide assistance in the provision of visas and work permits to facilitate entry and

subsequent operation for a foreign-owned business

Waives restrictions on land ownership by foreign entities

Business Support Services:

Provides comprehensive information and advice on establishing operations in

Thailand

Arranges site visits

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Identifies potential suppliers, subcontractors, joint-venture partners

Provides useful contacts with key public and private organizations

Coordinates between the foreign business community and other public agencies

(3/ i) Thailand’s outline and characteristics of investment-related laws in terms of

FDI promotion

The current legislation governing investment promotion in Thailand is the Investment

Promotion Act B.E. 2520 (1977). These Acts provide investment incentives in the form of

guarantees, protection measures, tax incentives and permissions.

The current activities eligible for investment promotion are broken down into seven

sectors: agriculture and agricultural products; mining, ceramics and basic metals; light

industry; metal products, machinery and transport equipment; electronic industry and

electrical equipment; chemical, paper and plastics; and services and public utilities.

The BOI constantly reviews the investment incentives offered and their success in

meeting the BOI's objectives. A potential investor is therefore advised to confirm details of

promoted activities and investment incentives.

(3/ ii-iii) Main incentives that Thailand offers to investors

The Thailand Board of Investment offers investors two types of investment incentives

which can be applied for under the Investment Promotion Act of the Board of Investment.

The level of the incentives offered to the investors depends on the type of the business

activity. The two types of incentives are “Tax- and Non-tax Incentives” as follows:

Tax Incentives:

Import duty exemptions/ reductions on machinery & raw materials

Corporate income tax exemption up to 8 years (and 50% reduction of corporate

income tax for up to 5 years)

Double deduction on utility costs

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Deductions for qualifying infrastructure costs

Non-Tax Incentives:

Work permit & visa facilitation for foreign skilled workers and experts to work in

investment promoted activities

Permit to own land

Permit to take out or remit money abroad in foreign currency

Apart from tax and non-tax incentives, the government of Thailand offers following

guarantee and protection to foreign investors investing in Thailand:

Guarantee:

The State will not nationalize the activity of the promoted person

The State will not undertake a new activity in competition with the promoted person’s

The State will not monopolize the sale of products similar to the promoted person’s

The State will not impose price controls on the products of the promoted person’s

The State will grant permission to export at all times

The State will not allow any government agency, government organization or state

enterprise to import any kind of the product similar to those being produced by the

promoted person into the Kingdom by granting import duty exemption

Protection:

To charge extra import fees into the Kingdom on products similar to those produced

by the promoted person at a rate not exceeding 50 percent of the price of overseas

insurance and freight charges, effective for a period of not more than one year

In the case of where the BOI is of the opinion that the above mentioned protection is

inadequate for protecting the activity of the promoted person. It will increase the

measure by banning the import of products similar to the local productions

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In the case where the promoted person encounters any problem or obstacles in the

course of carrying out the promoted activity, the Chairman will have the power to

render any appropriate assistance

(3/ iv) Thailand’s Tax Conventions

Thailand first concluded the double tax agreement (DTA) with Sweden in 1963. The

Thai DTA network continues to be expanded and updated. So far Thailand has concluded

DTAs with 59 countries as follows:

Armenia Chile Germany Italy Myanmar Poland Srilanka Uzbekistan

Australia China GB and Northern Ireland

Japan Nepal Romania Sweden Viet Nam

Bahrain Cyprus Hong Kong Korea Netherlands Russian Switzerland

Bangladesh Czech Rep.

Hungary Kuwait New Zealand

Seychelles Chinese Taipei

Belarus Denmark India Laos Norway Singapore Turkey

Belgium Estonia Indonesia Luxembourg Oman Slovenia Ukraine

Bulgaria Finland Ireland Malaysia Pakistan South Africa

UAE

Canada France Israel Mauritius Philippines Spain USA

The DTA applies to only income taxes, namely personal income tax, corporate

income tax and petroleum income tax. The focus of a DTA is the elimination of double

taxation. Each DTA may prescribe different methods of elimination of double taxation of a

person by the resident country.

(4) Enhancement of Investment Environment

To make the process of opening a business easier and to provide a central source

of information regarding business operations, the Thai government assigned the Board of

Investment to bring investment-related agencies under one roof. The One Start One Stop

Investment Center (OSOS) has staff from more than 20 agencies available to help investors

with various applications and to make sure investors understand what is needed to register

a company, obtain a foreign business license, complete an environmental impact

assessment, request permission to use land for industrial operations, obtain utilities, etc.

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In addition to assisting investors with procedural matters, staff from the various

agencies are available to consult with investors on a range of topics. What this means is

that if an investor has a question that requires an interpretation from more than one agency,

rather than having to go from office to office in search of answers, the matter can be

addressed by the various experts at the OSOS.

However, many of these provided services are still limited to consulting services,

and many of the applications and paperwork, can still not be done directly at the OSOS.

The OSOS still has a great potential for improvement, if the all of the necessary paperwork

and applications from various agencies could be completed in one step.

(5) Thailand’s outline and characteristics of Human Resource Management and Law

Employment legislation has a direct bearing on labor practices for each type of

business. Investors should seek appropriate advice to determine which legislation applies

to their line of business. Labor Protection Workers in Thailand are protected by the Labor

Protection Act B.E. 2541 (1998), the Labor Protection Act B.E. 2551 (2008), the Labor

Relations Act (No. 2) B.E. 2518 (1975), and other related laws. These laws apply to all

businesses with at least 1 employee. Employers who disregard these laws are subject to

heave fines and possible imprisonment of up to 1 year. It should be noted that domestic

workers (household staff) are not included in the definition of “employee” and are not

covered by the Labor Act. All other employees, whether full or part time, seasonal, casual,

occasional or contract, are covered.

The Social Security Act of 1990, amended in 1999 requires that all employers

withhold social security contributions from the monthly wages of each employee. The

prescribed rate is currently 5% for the first 15,000 baht of salary. The employer is required

to match the contribution from the employee. Both contributions must be remitted to the

Social Security Office within the 15th day of the following month. The employees with social

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security registration may file claims for compensation in case of injury, illness, disability or

death that is not due to the performance of their work, and for cases of child delivery, child

welfare, old age pension and unemployment

(6) Thailand’s dispute resolution mechanism

Thailand has a civil code, commercial code, and a bankruptcy law. Monetary

judgments are calculated at the market exchange rate. Decisions of foreign courts are not

accepted or enforceable in Thai courts. Disputes such as the enforcement of property or

contract rights have generally been resolved through the Thai courts. Thailand has an

independent judiciary that generally is effective in enforcing property and contractual rights.

In addition, companies may establish their own arbitration agreements. Thailand

signed the Convention on the Settlement of Investment Disputes Between States and

Nationals of Other States in 1985, but has not yet ratified the Convention. Thailand is a

member of the New York Convention and enacted its own rules on conciliation and

arbitration in the Arbitration Act, B.E. 2545 (2002). The 2002 Arbitration Act adopted the

principles under the United Nations Commission on International Trade Law (UNCITRAL).

The Arbitration Office of the Ministry of Justice administers these procedures.

(7) Technology Transfer

Thailand experienced an increase in technology transfer and FDI since its first

Patent Act in 1979. However, most technology is still imported and controlled by foreign

experts for a limited purpose.

In case a foreign company is applying for the investment promotion and incentives

from the Thailand Board of Investment, technology transfer plans from abroad shall be

declared in the application form and will be taken into consideration while evaluating the

investment projects.

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(8) Environment protection/ Social safeguard

Environmental management and administration in Thailand officially started in 1975

with the passage of the Enhancement and Conservation of National Environmental Quality

Act, B.E. 2518 (1975). In 1992, a new Environmental Act was issued in order to reform the

management of natural resources and environmental conservation, based on effective,

transparent and accountable monitoring. The new Act also enhances public participation,

decentralizing management authority to local authorities and adheres to the 'polluter pays'

principle. Simply put, the owner or possessor of the pollution source is held responsible for

all costs of construction and operation of their treatment facilities or the payment of service

fees to send their waste to the government’s central treatment/disposal plant.

Large-scale ventures with significant environmental or surrounding habitat impact

must forward Environmental Impact Assessment reports (EIA) to the Office of Natural

Resources and Environmental Policy and Planning (ONEP), which then submits preliminary

comments to the Expert Review Committee (ERC) for consideration. After the report has

been approved, ONEP gives recommendations to permitting agencies. If a project must be

approved by the Cabinet, then the ONEP summarizes the comments of the ERC and

forwards them to the NEB and the Cabinet.

EIA reports must be prepared by a licensed consulting firm registered with ONEP.

The Minister of Natural Resources and Environment, with the approval of the National

Environment Board (NEB), has the power to determine the type and size of projects or

activities requiring an EIA. Projects and activities that may seriously affect the quality of the

environment, natural resources and biological diversity are not permitted, unless the

environmental impact and health of the people in the communities have been studied,

evaluated and consultations held with the public and interested parties organized, and the

opinion of an independent organization obtained prior to the operation of such project or

activity.

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(9) Bilateral/multilateral and regional economic agreements of Thailand

Thailand has several bilateral, multilateral and regional economic agreements, which

are both in force and on-going negotiations. These agreements can be represented by the

following illustrations:

Figure 1: Thailand’s bilateral agreements

Figure 2: Thailand’s regional agreements

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Figure 3: Regional economic integration

(10) Evaluation for Investment Projects

The Board of Investment stipulates the following criteria for project approval:

1. Development of competitiveness in the agricultural, industrial and services sectors

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, all of which must have value added of at least 10% of revenues.

Modern production processes must be used.

New machinery must be used. Used machinery shall not be over 5 years old and a

machinery performance certificate issued by a trusted institute identifying efficiency,

environmental impact and energy usage for the machine, as well as its fair value,

must be obtained.

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Projects that have investment capital of 10 million baht or more (excluding cost of land

and working capital) must obtain ISO 9000 or ISO 14000 certification or

similar international standard certification

2. Environmental protection

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.

Projects or activities with type and size that are required to submit environmental

impact assessment reports must comply with the related environmental laws and

regulations or Cabinet resolutions

3. Minimum capital investment and project feasibility

The minimum capital investment requirement of each project is 1 million baht

(excluding cost of land and working capital) unless specified otherwise on the list of

activities eligible for investment promotion that is attached to this announcement.

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.

For projects with investment value of over 500 million baht, (excluding cost of land and

working capital), the project’s feasibility study must be submitted. Following

information shall be included in the feasibility study:

- Summary of the project: Type of products, investment capital, factory location,

number of workers, raw material in use, technology etc.

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- Industry overview: Demand of product, import/export statistics, domestic/

export markets, local production capacity of similar products

- The appropriateness of the project: Investors’ aspect (industry experience,

contract negotiation progress etc.), financial aspect (source of funds,

utilization of investment capital, internal rate of return (IRR) etc.),

competitiveness (production cost, advantages of manufacturing products in

Thailand etc.), technical aspects (utilization of labor, conditions and limitations

of technology transfer, the cost of know-how etc.), effects on the environment,

R&D, Effects to the overall economy: How much will the government lose in

revenue by promoting the project (CIT, Import duties on machinery and raw

material)? What are the benefits to the overall economy (Domestic value-

added, savings in net foreign currency, factory establishment in provincial

areas)

(11) Thailand’s fast facts:

Corporate Income Tax [ % ] 20 %

VAT [ % ] 7 %

Personal Income Tax [ % ] Sliding Scale (5 - 35 %)

Withholding Tax [ % ] 3 %

Tax Incentives

[Yes/No/Others]

Yes

Import Tariff Incentives

[Yes/No/Others]

Yes

VISA/Work Permit

[Difficult?/Easy?]

Easy: One-Stop Service Center for Visas and

Work Permits can process applications or

renewals of visas and work permits within three

hours

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Dispute Resolution

Mechanisms of FDI & Local

Investment

General court

Mediation

One-Stop Shop One Start One Stop Investment Center

FDI Registration at (what

Ministry/Agency)?

Office of the Board of Investment