As you begin your exploration in Thailand, our professionals can guide you through the process of obtaining BOI incentives, which can include Corporation Income Tax exemption for 3-13 years for eligible activities. For Pillar Two Rules affected mega groups, alternative options are available to rationalize the effective tax rate while the tax incentives are enjoyed.
Situated in the center of Southeast Asia and ranking 2nd by GDP among ASEAN countries, Thailand has been a major destination and a regional hub for foreign direct investment, renowned for its pro-investment policies, well-developed infrastructure and robust human capital.
In recent years, the Board of Investment (BOI), the main investment promotion authority under the Office of the Prime Mister, has offered both tax and non-tax incentives as follows to Thai and foreign investors to establish and operate business in targeted economic sectors, particularly for high-tech, innovative and sustainable activities in the following industries:
| BCG Industries | Basic & supporting industries | Advanced Manufacturing Industries | Digital, Creative Industries, and High Value Service |
|---|---|---|---|
| Agriculture and food Biotechnology Medical & healthcare | Mineral, metals & materials Chemicals & petrochemicals Public utilities & environment Industrial real estate | Machine & automation system Automotive Electrical & electronics | Digital, logistics, tourism Creative Industries High-value services |
Overview Tax and Not-tax incentives
| Tax incentives | Non-tax incentives |
|---|---|
| Exemption from corporate income tax (“CIT”) on net profits and dividends derived from the promoted activity Additional CIT exemption period for merit of Competitiveness Enhancement A 50% reduction of the CIT Exemption/reduction of import duties on machinery and raw materials Double deduction for the costs of transport, electricity and water supply Additional 25% deduction for the costs of installation/construction of facilities | Permit for foreigners to enter Thailand for the purpose of investment opportunity study Permit to bring into Thailand skilled workers and experts to work in investment-promoted activities Permit to own land Permit to withdraw or remit money abroad in foreign currency |
In terms of the CIT exemption, the activity groups are classified into six categories from A1+ to B based on the industries and conditions in a comprehensive way (with a catalogue of approximately 100 pages) and granted with different favorable periods as follows1:
| Activity Group | Basic period for CIT exemption |
|---|---|
| A1+ | 10 – 13 years, with no cap |
| A1 | 8 years, with no cap |
| A2 | 8 years |
| A3 | 5 years |
| A4 | 3 years |
| B | Nil |
Under the Measures for Competitiveness Enhancement, the CIT exemption period can be further extended for 1-5 years depending on the volume of the R&D investment/expenditure, provided that the R&D investment/expenditure accounts for at least 1% of total sales in the first three years or is at least THB 200 million, whichever is lower.
Apart from the above, there are area-based incentives in 20 low-income provinces, BOI-promoted industrial estates or zones, science and technology parks, special economic zones, model city projects, science and technology zones etc., whether further CIT exemption period extension and 50% CIT reduction for 5 years granted to foreign investment may be granted.
How to profit from the new incentives
To apply for the BOI incentives, investors generally should follow the following procedures2:
According to the Pillar Two Model Rules (also referred to as the “Global Anti-Base Erosion” or the “GloBE” rules) published in December 2021 as part of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), taxpayers with consolidated revenues over EUR 750 million and meeting other relevant criteria will be required to calculate their effective tax rate for each jurisdiction where they operate, and pay top-up tax on the difference between their effective tax rate per jurisdiction and the minimum rate of 15%.3
In response to the Pillar Two Model Rules, the BOI issued an announcement NO. 1/2566 4 on 16 May 2023, effective from 20 March 2023, which sets out the conditions and rights/benefits for the taxpayers who currently enjoy or plan to apply for the BOI incentives to rationalize their effective tax rates if they belong to multinational enterprises (“MNEs”) groups with consolidated revenue of THB 28,000 million (ca. EUR 750 million) that are expected to be affected by the Pillar Two Model Rules. In essence, the Thai subsidiary of such in-scope MNEs may elect to convert the CIT exemption treatment to a preferential CIT rate of 10% (i.e. 50% of the 20% statutory CIT rate) for a doubled tax incentive period up to 10 years, if the relevant conditions are met.
However, for MNEs with consolidated revenues below the above threshold and not subject to the Pillar Two Model Rules, the original CIT exemption treatment of BOI incentives still applies and no election is required under the foregoing Announcement No. 1/2566.
How can we help you?
If you would like to discuss the topics above or any other tax issues in Thailand or other Asian countries, please feel free to contact us.
As we observe that more and more multinational companies contemplate to build up a diversified portfolio by investing in a variety of ASEAN countries, we have developed a strong professional network in China and the ASEAN region over the past few years, which has proven to be responsible, responsive and reliable in various cases. As you set foot in, grow and prosper in these countries, our dedicated team of accounting and tax professionals can work collaboratively and proactively to help you achieve your business goals, comply with the local accounting standards and tax laws, and structure your investment in a tax-efficient and prudent manner.
Sources
[1] Per PDF Page 13 of BOI Guide
[2] Per PDF Page 128 of BOI Guide
[3] Referring to The Pillar Two Rules in the Nutshell issued by OECD, and Tax Challenges Arising from Digitalization of the Economy – Global Anti-Base Erosion Model Rules (Pillar Two) issued by OECD
[4] BOI Announcement No.1/2566, currently without official English translation
Questions about this topic? Get in touch!
Dr. Gerald Neumann
Partner
