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 marketseeking, which includes extending market reach, supporting distribution and expanding trade channels.
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: Country Report: Thailand 2015 1
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 Country Report: Thailand 2015 2
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 Country Report: Thailand 2015 3
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 Country Report: Thailand 2015 4
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 Japan Nepal Romania Sweden Viet Nam Ireland Bahrain Cyprus Hong Kong Korea Netherlands Russian Switzerland Bangladesh Czech Hungary Kuwait New Seychelles Chinese Rep. Zealand Taipei Belarus Denmark India Laos Norway Singapore Turkey Belgium Estonia Indonesia Luxembourg Oman Slovenia Ukraine Bulgaria Finland Ireland Malaysia Pakistan South UAE Africa 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. Country Report: Thailand 2015 5
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 Country Report: Thailand 2015 6
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. Country Report: Thailand 2015 7
(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. Country Report: Thailand 2015 8
(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 Country Report: Thailand 2015 9
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. Country Report: Thailand 2015 10
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. Country Report: Thailand 2015 11
- 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 valueadded, 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 [Yes/No/Others] Import Tariff Incentives Yes [Yes/No/Others] VISA/Work Permit Easy: One-Stop Service Center for Visas and [Difficult?/Easy?] Work Permits can process applications or renewals of visas and work permits within three hours Country Report: Thailand 2015 12
Dispute Resolution Mechanisms of FDI & Local Investment One-Stop Shop FDI Registration at (what Ministry/Agency)? General court Mediation One Start One Stop Investment Center Office of the Board of Investment Country Report: Thailand 2015 13