Thailand

Board of Investment (BOI) tax incentives

The BOI, by virtue of the Investment Promotion Act of 1977 (including its amendment no. 4 [2017]) and the Competitive Enhancement Act (2017), provides tax incentives for certain activities within the following categories:

• Agriculture, bio, and medical industries.
• Advanced manufacturing industries.
• Basic and supporting industries.
• Digital, creative industries and high value services.
• R&D and target core technology development.

The tax incentives available include the following:

• Exemption from or reduction of import duties on imported machinery.
• Exemption from import duties on raw and essential materials imported for manufacturing for export.
• Reduction of import duties on raw and essential materials by up to 90% for use in manufacturing for domestic sale.
• Exemption from import duties on items used for R&D purposes.
• Exemption from CIT with or without a cap equal to or more than the amount of the investment, excluding the cost of land and working capital, for up to 13 years, depending on the applicable law, the promoted activity, and the location.
• 50% reduction in the CIT rate for a maximum of ten years from the date of first earning income if no tax holiday is granted.
• Exclusion of dividends received from promoted enterprises from taxable income during the period of exemption from CIT and within six months from the date of expiry of any tax holiday period.
• Double deduction from taxable income of the cost of transportation, electricity, and water supply for ten years from the date on which revenue was first derived from the promoted activity.
• Deduction from net profit of 25% of the project's infrastructure installation or construction costs in addition to normal depreciation; the deduction can be made from the net profit of one or several years within ten years from the date on which revenue was first derived from the promoted activity.
• Deduction from the net profit for ten years of up to 70% of the amount of the investment in addition to the normal deductions.
• THB 10 billion subsidy under the Competitiveness Enhancement Fund, provided that certain criteria are fulfilled, without any conditions.

Incentives by category

Under the 2021 BOI promotion scheme, the focus is placed on the activities and the importance of the activities. Tax incentives are under the four technology and innovation development categories (A1 to A4) and non-tax incentives are under two categories (B1 and B2), as below:

* Exemption from CIT will be up to 13 years in total.

** Only some activities are available.

In addition, tax incentives are granted for the following categories of activities:

Targeted core technologies and enabling services

Merit on competitiveness enhancement

The investment or expenses permitted are as follows:

Additional years of tax exemption will be added to the standard tax incentives received as follows:

Merit on decentralisation

Investment promotion zones have been included as a decentralisation merit to businesses that have operations in any of the following 20 provinces with low average income:

Kalasin, Chaiyaphum, Nakhon Phanom, Nan, Bung Karn, Buriram, Phrae, Maha Sarakham, Mukdahan, Mae Hong Son, Yasothon, Roi Et, Sisaket, Sakhon Nakhon, Sa Kaew, Sukhothai, Surin, Nong Bua Lamphu, Ubon Ratchatani, and Amnatcharoen.

Additional incentives for enterprises located in these 20 provinces include the following:

• A further three years’ CIT exemption from the standard incentives, but not exceeding 13 years in total. However, a reduction of 50% of CIT for five years after the end of the tax holiday will be granted to projects with activities in technology and innovation development and Groups A1 and A2.
• Three years’ CIT exemption will be granted to projects with activities in Group B1.
• Double deduction from taxable income of the cost of transportation, electricity, and water supply for ten years from the date on which revenue was first derived from the promoted activity.
• Deduction from net profit of 25% of the project's infrastructure installation or construction costs in addition to normal depreciation; the deduction can be made from the net profit of one or several years within ten years from the date on which revenue was first derived from the promoted activity.

Merit on industrial area development

One additional year of CIT exemption will be granted to Group A projects located within an industrial estate or promoted industrial zone. However, the total period of CIT exemption will not exceed eight years, except for the activities under targeted core technologies and enabling services.

Special economic zone (SEZ)

Tax incentives available for investment in eligible target and general activities in an SEZ are as follows:

• CIT exemption for a maximum period of eight years, with or without a cap not exceeding 100% of the cost of investment (excluding cost of land and working capital).
• 50% reduction in the CIT rate for five years from the date on which the tax holiday expires.
• Double deduction of cost of transportation, electricity, and water supply for a period of ten years from the date on which revenue from the BOI business is first generated.
• A 25% deduction of the investment cost of the installation or construction of facilities in addition to normal depreciation.
• Exemption from import duty on machinery.
• Exemption from import duty on raw materials and essential goods used in the production of goods for export for a period of five years.

To be eligible for the tax privileges, a number of general and specific conditions are required to be fulfilled, including the use of modern production processes and new machinery, paid-up share capital at the required amount, adequate environment protection systems, debt-to-equity ratio not exceeding 3:1, and the required area to operate the business. Applications to obtain investment promotion in an SEZ must be submitted by the last working day of 2022.

Research and development (R&D) incentives

Tax incentives given to R&D contractors

R&D is a promoted activity under the Investment Promotion Act, which prescribes the criteria and conditions to be followed by an R&D contractor.

Tax incentives given are as follows:

• CIT exemption on income derived from the provision of R&D services as stated in the investment promotion certificate (qualified R&D services) for up to 13 years with no cap.
• Exemption from import duty on imported machinery and raw materials for manufacturing for export.
• Exemption from import duties on items used for R&D.
• Exclusion of dividends derived from promoted enterprises from taxable income during the period of CIT exemption and within six months from the date of expiry of any tax holiday period.

The R&D services must be of the following description:

• Basic research: Activities that are conducted to explore new knowledge from basic natural phenomena and factual observation.
• Applied research: The application of basic knowledge to solve or develop a concept for commercial purposes, with the objective to obtain a new product or process.
• Pilot development: Activities performed to magnify a production scale from basic research and applied R&D of prototype and/or production process testing to test the market or collect information.
• Demonstration development: To verify a technology and production process and to demonstrate the level of integrity of the process and viability on a commercial scale production in both quality control and cost estimation.

Tax benefits under the Revenue Code

The Revenue Code provides for an additional 100% deduction in respect of expenditure incurred in Thailand on R&D for technology and innovation (including product and process innovation) when hiring government agencies or the private sector, as approved by the Director-General of the Revenue Department.

Eastern Economic Corridor (EEC)

Under the Eastern Economic Corridor Act (2018) (EEC Act), an EEC project must be located in certain zones within the EEC, which consists of the three Eastern provinces of Rayong, Chonburi, and Chachoengsao. An EEC project will be promoted only if it is engaged in a target industry.

An EEC-promoted company will be granted CIT exemption and/or reduction privileges according to the criteria prescribed by the EEC committee. Currently, the CIT privileges under the EEC Act have not been announced.

Nevertheless, the BOI, under the Investment Promotion Act, has already issued criteria and incentives for promoted activities located in the EEC. The tax incentives are categorised under three zones, as follows:

• Special industry promotion zone:
  • Eastern Airport City (EEC-A).
  • Eastern Economic Corridor of Innovation (EECi).
  • Digital Park Thailand (EECd).
  • Medical Hub Thammasat University (Pattaya) (EECmd).
  • Genomics Thailand (EECg).
• Industrial estate or industrial area within the EEC.

Applications must be submitted before the last working day of 2022, except for those under the special industry promotion zone for which there is no due date.

Only eligible activities under categories A1-A3 (except for those specified in a negative list), targeted core technologies, and enabling services can be applied for.

Tax incentives* provided by the BOI are as follows:

• BOI standard incentives.
• Additional CIT exemption up to two years for certain activities.
• CIT reduction of 50% for up to three years after the end of the tax holiday.

* EEC incentives cannot be utilised together with those under the merit of industrial area development.

The EEC Act also grants a PIT reduction for employees with special knowledge/abilities who work or operate a business in certain zones within the EEC.

Qualified expatriates and Thai employees are granted a flat rate of 17% PIT on their income derived from working for companies carrying on target activities within the EEC.

International business centre (IBC)

An international business centre (IBC) regime has been launched to replace the previous regional operating headquarters (ROH), international headquarters (IHQ), and international trade centre (ITC) regimes.

The criteria for the establishment and operation of an IBC are as follows:

• A Thai company incorporated for the purpose of providing management, technical, support, or treasury management services to its associated enterprises or for undertaking the ITC business.
• Paid-up capital on the last day of each accounting period of at least THB 10 million.
• Management, technical, support, or treasury management services are provided to its associated enterprises.
• At least ten knowledgeable and skilled personnel working full time for the IBC or at least five if the IBC acts only as a treasury centre.
• Expenses for the operation of the IBC paid to recipients in Thailand must be not less than THB 60 million in each accounting period.
• Other rules, procedures, and conditions that will be prescribed by the Director-General of the Revenue Department.

Management, technical, and support services comprise the following:

• General management, business planning, and business coordination.
• Procurement of raw materials and parts.
• Research and development of products.
• Technical support.
• Marketing and sales promotion.
• Personnel management and training.
• Financial advice.
• Economic and investment analysis and research.
• Credit control and management.
• Other support services as prescribed by the Director-General of the Revenue Department.

Treasury management services comprise the following:

• Treasury management of a treasury centre as permitted under the exchange control law.
• Borrowing and lending in baht of a treasury centre as permitted under the exchange control law.

ITC means the international business of buying and selling goods, which may include the provision of services related to the goods purchased and sold. These services include the following:

• Procurement of goods.
• Storage of goods while awaiting delivery.
• Packing and packaging.
• Transportation of goods.
• Insurance of goods.
• Technical advice and services and product training.
• The other services as prescribed by the Director-General of the Revenue Department.

Income of the IBC means the following:

• Income from the provision of management, technical, support, or treasury management services to its associated enterprises.
• Royalties from associated enterprises arising from a result of R&D carried out in Thailand by the IBC or other entities hired by the IBC, according to the rules, procedures, and conditions prescribed by the Director-General of the Revenue Department.

 The following tax benefits are available for 15 accounting periods: 

• Reduced rates of CIT on qualifying income:
  • 8% if the IBC has incurred expenditure of at least THB 60 million paid to recipients in Thailand during the accounting period.
  • 5% if the IBC has incurred expenditure of at least THB 300 million paid to recipients in Thailand during the accounting period.
  • 3% if the IBC has incurred expenditure of at least THB 600 million paid to recipients in Thailand during the accounting period.
• Exemption from tax on dividends derived by the IBC from its affiliates.
• Exemption from WHT on dividends paid by the IBC to a non-resident company out of profits derived from qualified service income subject to the reduced rate of tax.
• Exemption from WHT on interest paid by a treasury centre on borrowed funds that are re-lent to affiliates.
• Exemption from specific business tax on income received by a treasury centre.
• PIT rate of 15% for expatriate full time employees of the IBC and working for IBC or ITC businesses. If the company undertakes IBC or ITC business as well as other businesses, the revenue derived from the IBC or ITC or both these businesses must not be less than 70% of the company’s total revenue.

In comparison with the previous ROH/IHQ regimes, the IBC regime does not apply different tax rates to offshore and onshore income. As a consequence, there is no longer any requirement for services to be provided to a minimum number of offshore affiliates. There is also no limit to the amount of onshore income that qualifies for the reduced tax rates. The expenditure required to qualify for the reduced tax rates has been significantly increased. However, in the case where an existing ROH/IHQ converts to be an IBC, it can enjoy the reduced tax rate of 8% provided that it meets the original minimum expenditure requirement of THB 15 million. 

If an IBC does not meet the rules and conditions prescribed or does not otherwise qualify as an IBC in any accounting period, the benefits will be revoked on a year-by-year basis. If the company does not meet the conditions for more than one accounting period, or has none of the characteristics for operating as an IBC, the tax benefits will be terminated with effect from the first accounting period.

The taxable profit and loss of an IBC must be computed separately between the IBC and non-IBC businesses and between (i) headquarters and treasury management services, and (ii) royalties. Common expenses are to be allocated based on the proportion of revenue of the IBC and non-IBC businesses.

Tax losses must be maintained separately, as follows:

• Headquarters and treasury management services.
• Royalties.
• Non-IBC business.

Tax returns must be filed separately for (i) headquarters and treasury management services, (ii) royalties, and (iii) non-IBC business.

Foreign tax credit

A Thai company can use foreign tax paid on business income or dividends as a credit against its CIT liability. However, the credit cannot exceed the amount of Thai tax on the income.