For a number of years there have been plans at the Board of Investment (BoI) to change its criteria for the kind of business it wishes to assist.
This June the BoI presented its proposals to the foreign business community after originally consulting with it and the Thai business community back in September 2013. Since then, the BoI has confirmed that the new scheme will come into effect on 1st January 2015.
The changes are quite significant, as some sectors which benefitted from the BoI’s initiative will no longer qualify. Broadly speaking, these include sectors which have low added-value, labour-intensive, low-tech and/or use uncomplicated production processes.
In fact, businesses will no longer qualify for incentives purely based on the sector in which they work. Companies operating in favoured sectors will receive lower basic tax rates; but those who also meet criteria in areas such as R&D, advanced technology, design and development of local suppliers, will enjoy additional incentives.
Additionally, zone-based incentives will be abolished, to be replaced by the promotion of sector-specific industrial clusters in each region. This will mean in essence that there will no longer be any difference between Bangkok and the Eastern Seaboard. However, Zone 3 incentives will more or less remain intact, minus one or two exceptions.
The BoI will no longer only concentrate its support of inbound investment – it will begin to actively promote outward investment by Thai-based firms. Although, how it proposes to do this has yet to be clarified.
How will it affect foreign business in Thailand?
As the new sector and merit criteria have yet to be finalised, it is still unclear as to the precise categories under which incentives will be awarded.
Businesses which have already been approved under the old BoI scheme will not be affected for the duration of their contract, even if that is beyond 1st January 2015.
Any new projects which are submitted before 31st December 2014 fall under the old scheme – the submission date is the official validity date, not the date of approval. The same applies to any extensions of existing projects submitted before the end of 2014.
For any new project submitted on or after 1st January 2015, the new scheme will apply. Also, if the submission for an extension of an existing project is submitted on or after 1st January, the new scheme will apply.
Whilst details are still sketchy, it appears that there is an emphasis on innovative and hi-tech activity. It appears that the days of BoI benefits for low-tech companies, such as food and drink producers, are numbered. Today around 240 types of business receive incentives and it seems that up to 40 will lose support altogether. Others, meanwhile, may only receive tax incentives.
Furthermore, there promises to be measures to increase competitiveness amongst small and medium-sized businesses (SME’s). This is much needed and will include an extension of the SME incentive scheme by three years from this year. The incentives will be given to SMEs in 35 selected sectors.
One thing the BoI hasn’t mentioned to date is how these changes will take into account and be affected by the inception of the ASEAN Economic Community at the end of next year.
What to do
Of course such major changes will involve initial confusion and a need to grasp exactly how the new scheme’s rules are interpreted in practice. For that reason, if you run a company, or intend to set up, a company under the BoI scheme, it’s best to ask an advisor.
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