Thailand’s Investment Incentives: Opportunities in 2023
The country is known for its investment-friendly environment, through the 1977 Investment Promotion Act ( Investment Promotion Act ), the 2017 National Competitive Enhancement Act for Targeted Industries Act and the 2018 Eastern Economic Corridor Act ( EEC, Legislation such as the Eastern Economic Corridor Act provides a wide range of incentives. In Thailand, these measures are the responsibility of the Board of Investments (BOI), which is highly influential in the overall investment environment and has a broad mandate to promote Thailand’s economic development. The BOI’s five-year investment promotion strategy for 2023-28 focuses on using these incentives to encourage economic transformation, efficient use of advanced technologies, increase competitiveness and adaptability, and promote inclusion, which includes environmental and social sustainability.
The BOI bases its investment promotion strategy on seven pillars, each highlighting a different aspect of the Thai economy. These measures include upgrading existing industries, accelerating transformation to green and smart industries, strengthening small and medium-sized enterprises and start-ups, and promoting Thailand as an international trade and investment hub. In addition, it focuses on promoting investment in various regions of Thailand, supporting community and social development, and encouraging Thai companies to expand overseas.
The BOI offers two types of incentives under the Investment Promotion Act: Activity-Based Incentives and Performance-Based Incentives. The activity-based incentives include corporate income tax exemption for up to 13 years and other non-tax benefits such as work permits for expatriates and import duty exemptions for machinery and raw materials. The level of these incentives depends on a variety of factors, including the technology used, previous investments in the country, and value added.
Performance incentives include tax deductions for qualifying expenses related to research and development (R&D), training, supply chain development, product and packaging design, and contributions to technical institutions or human resource development funds. To qualify for these incentives, companies must invest heavily in research and development. The BOI has strengthened these incentives in 2021, allowing companies to invest at least 1% of their total sales in research and development, or invest at least 200 million baht in the first three years of operation, to be eligible for additional income tax exemption.
In 2020, the BOI expanded the scope of businesses eligible for activity-based incentives under the Investment Promotion Act. These now include electric vehicle production, geriatric hospitals, elderly care centers, international procurement offices and clinical research. The BOI has also added new activities that qualify as performance incentives, such as energy efficiency investments or projects that reduce environmental impact, machinery upgrades, and investments that meet international standards.
Under the Investment Promotion Law, regional incentives are provided for projects in the Eastern Economic Corridor, special economic zones in ten provinces, five Muslim-majority southern provinces, 20 lowest-income provinces, industrial zones and special zones such as industrial zones. and technology parks. Each project must meet certain criteria, such as minimum capital investment requirements, value-added thresholds, and the use of modern production processes and new machinery.
The National Targeted Industries Competitiveness Enhancement Act allows BOI to grant up to 15 years of corporate income tax exemption to companies investing in industries such as biotechnology, advanced manufacturing, creative and digital economy. These companies are also eligible for other non-tax incentives and can apply for subsidies from the National Competitiveness Enhancement Fund to support R&D and innovation activities.
The Eastern Economic Corridor Law provides further tax incentives based on the location and type of industry. These include next-generation cars, smart electronics, tourism, advanced agriculture, biotechnology, future food, automation and robotics, aviation and logistics, medical centers and holistic health care services, biofuels and biochemistry, digital economy, defense manufacturing and human resources develop.
BOI also launched the “Thailand+” package in 2019, aimed at attracting companies to shift production from China to Thailand in response to the Sino-US trade dispute. The program provides additional tax breaks for investment in automation equipment, wages and training for highly skilled workers. These incentives are in line with the Thailand 4.0 strategy, which aims to transform Thailand into an advanced manufacturing and technology hub.
Despite the attractiveness of these incentives, Thailand still faces competition from regional rivals such as Malaysia, Singapore and South Korea, which also offer attractive incentives. Recognizing this, the BOI announced in November 2022 a new set of incentives to provide additional corporate tax exemptions for long-term investors already active in Thailand. This new package, combined with existing incentives, demonstrates Thailand’s continued commitment to establishing itself as an attractive destination for domestic and foreign investment.
Industrial Incentives
The Thailand Board of Investment (BOI) provides a range of investment incentives for more than 200 industries, including agriculture and agricultural products, projects involving technology and human resource development, infrastructure, public utilities, basic services, environmental protection and preservation, high-purity manufacturing or precision mixed gases, energy related activities, printing industry, hard disk drive manufacturing and pharmaceutical manufacturing.
General incentives for these activities usually include exemption from machinery import duties and corporate income tax, regardless of location. Additional privileges may apply, depending on the region. Typically, each priority activity requires a minimum level of capital investment.
New businesses eligible for activity-based incentives in 2020 include the production of all types of electric vehicles, geriatric hospitals, aged care centers, international procurement offices and clinical research.
Due to the increase in demand for electronic products during the epidemic, Thailand announced in June 2021 to strengthen investment incentives for the production of semiconductors and related industries. Investments in wafer fabrication are eligible for up to ten years of income tax exemption. Investments in machinery for the manufacture of advanced integrated circuits (ICs), IC substrates and printed circuit boards of at least 1.5 billion baht are eligible for income tax holidays of up to eight years.
Discounts are available for small and medium enterprises (SMEs). From the year of assessment 2017, SMEs can enjoy a corporate tax exemption of up to 300,000 baht on their net profits. They pay 15% on net profits between 300,000 and 3 million baht, while the standard 20% tax rate applies to income above 3 million baht. To qualify, SMEs must have paid-up capital of no more than 5 million baht, annual revenue of no more than 30 million baht, and be registered under the tax amnesty scheme introduced in 2016. SME start-ups may qualify for a five-year income tax exemption.
Generous tax breaks are available for certain industries under the Investment Promotion Act 1977 and the Targeted Industries Competition Enhancement Act 2017, including biotechnology, nanotechnology, engineering design, application of advanced technologies in manufacturing, and other innovative investments .
The Eastern Economic Corridor (EEC) Act, which came into effect in 2018, provides income tax holidays and tax breaks as well as non-tax benefits to investors in 12 targeted industries within the EEC. These industries include next-generation automobiles, smart electronics, tourism, advanced agriculture and biotechnology, “future food”, automation and robotics, aviation and logistics, medical centers and overall healthcare services, biofuels and biochemicals, digital economy, defense manufacturing , and human resource development.
In 2020, the BOI announced that producers of pharmaceutical-grade alcohol can apply for income tax exemption for up to eight years. The manufacture of non-woven fabrics used in surgical masks and other medical devices is now eligible for an income tax holiday of up to five years, up from three years previously. Companies already enjoying the income tax holiday can also apply for additional tax benefits if they make financial contributions to vaccine/drug research by public institutions. They are eligible for an additional one to three years of income tax exemption if such financial contributions represent at least 1% of their total sales for the first three years of operation, or at least 200 million baht.
In an effort to boost electric vehicle (EV) adoption and infrastructure development, Thailand has extended incentives, including a five-year corporate income tax exemption, for companies operating EV charging stations. In September 2021, Thailand extended incentives to the production of all types of electric vehicles, including e-bikes, and the development of battery electric vehicle platforms such as energy storage systems and charging modules. To boost domestic electric vehicle manufacturing, Thailand has drawn up a ten-year plan starting in 2022, which expects electric vehicles to account for 50 percent of the auto market by 2030.
Under the BOI’s Investment Promotion Measure for the Grassroots Economy, projects supporting cooperatives and community enterprises involved in agricultural production, light industry and community tourism are eligible for income tax exemptions of up to three years.
Thailand has also created incentives to focus on environmental protection. The 2020 Act exempts net profits from the sale of carbon credits under Thailand’s voluntary emission reduction scheme from corporate income tax. The tax exemption applies to three consecutive accounting periods. Another decree allows businesses to take a tax deduction totaling 125% on amounts paid for biodegradable plastic products, applying retroactively to amounts paid starting in 2019 and ending in 2024. Mechanical upgrades aimed at reducing greenhouse gas emissions, as well as cold storage facilities and cold storage transportation operations using natural refrigerants qualify for a three-year income tax exemption.
Regional Incentives
The Eastern Economic Corridor (EEC) spans Chachoengsao, Chonburi and Rayong, and is Thailand’s main investment and infrastructure center within ASEAN. Established in 2018, the EEC extends beyond the east coast industrial zone to offer generous incentives to companies setting up headquarters and facilities within the zone.
Key benefits include:
- Up to 13 years of corporate income tax exemption.
- Managers, experts and investors are subject to a maximum personal income tax rate of 17% and are eligible for a five-year business visa.
- Opportunity to lease land for up to 50 years (renewable for a further 49 years) if the investment fits one of the 12 targeted industries.
- The ability to conduct transactions in foreign currencies.
- Fast-track approval of environmental impact assessments and public-private partnerships.
Foreign investors enjoy unique privileges within the EEC, such as ownership of land for business operations, buying apartments for residential purposes and hiring highly skilled foreign workers without work permits under so-called smart visas. There are also provisions to facilitate import and export, as well as exemptions from certain requirements of the Customs Act, Factories Act and Construction Control Act.
In 2022, the Board of Investments (BOI) announced a package of incentives aimed at promoting investment and upgrading the economy, including tax exemptions and the establishment of newly promoted industry categories and regional investment zones. These economic corridors span four regions and 16 provinces: the Northern Economic Corridor, the Northeast Economic Corridor, the Central and Western Economic Corridor, and the Southern Economic Corridor.
In the area of food innovation, the BOI has designated 13 sites as “Food Innovation City” sites, usually located around universities. Investments in innovative food and services in these sectors may qualify for a corporate income tax exemption for five to ten years, followed by a 50% tax cut for the subsequent five years or a two-year extension of the tax exemption.
Projects located in 20 low-income provinces may also receive additional incentives, including exemption from corporate income tax for three years and double deduction for transportation, electricity and water expenses for ten years.
Under the Superclusters Scheme, six targeted industries in nine provinces can apply for an income tax holiday of up to eight years and a 50% corporate tax exemption for five years thereafter. These industries include automotive assembly and components, environmental petrochemicals, digital industries, processed food, medical and biomedical products, and electronics, appliances, and telecommunications equipment.
Thailand’s five southernmost Muslim-majority provinces: Narathiwat, Pattani, Satun, Songkhla and Yala, have specific incentives in place by the end of 2023 to boost investment in the region . BOI launched the “Model City Project” in the four southern districts to attract investment. The benefits include income tax reduction and exemption, double deduction of logistics costs, and import tariff reduction and exemption. Despite these incentives, security concerns have hindered investment in some parts of the southern region, with only areas around Hat Yai seeing a relative increase in investment activity.
Industrial parks and special economic zones
The Industrial Zones Authority of Thailand manages 12 special administrative zones specifically designed for export-oriented industries, while another 53 are run by the private sector. Eligible businesses in these zones can import raw materials and export finished products without paying customs duties including VAT. These free zones are equipped with customs facilities to simplify processing and are located in industrial parks in Chonburi, Lamphun, Bichit, Songkhla, Samut Prakan, Bangkok (Lak Krabang), Ayutthaya and Chachoengsao . In addition, if a factory outside the zone exclusively uses imported raw materials for export production, it may apply to set up a duty-free bonded warehouse in the factory zone.
In addition to these free zones, Thailand also has ten Special Economic Zones (SEZs). Half of them are strategically located in border areas, including Mae Sot district in Tak province (Myanmar border); Aranyaprathet district in Sa Kaeo province and Khlong Yai district in Trat province (Cambodian border); Mueang district in Moktahan province (Laos border) ; and Sadao district in Songkhla province (on the Malaysian border). The remaining five are located in Chiang Rai, Kanchanaburi, Nakhon Phanom, Narathiwat and Nong Khai. SEZs offer various incentives, such as reducing the corporate income tax rate to 10 percent for ten years, exemption from import duties on machinery and certain raw materials, double deduction for utility and transportation costs for ten years, and allowing the hiring of foreign unskilled workers.
Various incentives have been extended by several royal decrees issued in November 2021. For example, Royal Decree No. 727 slashes the corporate income tax rates for companies or partnerships of legal persons operating in special economic zones. Income from the manufacture or sale of goods, as well as income from services provided in the zone, will be taxed at 3% of net profits, a significant reduction from the standard corporate tax rate of 20%. In addition, the decree also reduces the at-source withholding personal income tax rate on real estate sales income in special economic zones to 0.1% of gross income.
Finally, to simplify operations and facilitate business development, these SEZs provide one-stop service centers. These include customs checkpoints and enhanced licensing and permit application services, ensuring a conducive and efficient business environment for companies operating in these zones.
