Overview of Thailand’s High-Tech Industries
In the year 2015, Thailand underwent sweeping reforms with its investment promotion policies; the government launched a 7 year investment promotion scheme that considerably amends the existing policies. As per the amendments made under the Investment Promotion Act, the foreign investors in the nation would get the benefits from horde of new financial privileges and incentives which includes tax incentives and exemptions with import duty, with the prospect of new policy providing increase in the FDI (foreign direct investment) inflows to the better paid high-tech and less labor-intensive industries, as the nation looks to endure the transformation to an higher-income nation.
Thailand’s military government in January 2015 revealed far-reaching reforms to the nation’s prevailing investment promotion regulations. The reforms were a adaptation of the earlier government’s New Investment Promotion Strategy Proposal which was initially declared in January 2013, and adopted officially during the administration of Prime Minister Prayuth Chan-ocha in November 2014. Prime Minister Prayuth Chan-ocha discussed all the relevant changes with the local media, ensuring that the planned reforms shall transform nation’s industrial sectors by drawing innovative high-tech industries replacing the labor-intensive manufacturing sector which is dependent on less expensive labor costs. The country’s prevailing legislation, the Investment Promotion Act, originally was announced in the year 1977, and no amendments have been made since then.
In the earlier system, the government provided businesses – predominantly those launching operations outside the city of Bangkok and in deep, far-flung remote areas – substantial tax holidays was offered specially with respect to the area of operation.
In the new system the focus instead is based on the industry type, instead of its locality, with importance over high-tech fields which includes renewable energy and aviation, requiring less labor and usually with higher wages. These changes in policies are in keeping with comprehensive government policies for supporting wage growth, avoiding middle-income trap, and encouraging upskilling.
However, high-tech development and wage growth continues to be a priority for the government, and in spite of the bearing it has on the nation’s industrial base, this new policy would help Thailand and keeping it well-positioned for meeting the global demand in the future, providing a wide number of striking incentives for investors.
In August 2015, Board of Investments declared it had finalized the scheme, which would be effective till 2021, and its goal is to streamline the country’s economy into 6 key pillars: stressing on renewable energy and sustainable development, enhancing competitiveness, forming clusters of focused investment throughout the country which is based on the latency of each region, growing the investments in southern Thailand primarily the border provinces for reducing the labor costs and boosting the local economies, creating Special Economic Zones (SEZs) that would support the continuing ASEAN integration, and reinforcing the country’s investment overseas.
Incentives – Tax & Non-Tax
Incentives comprise of exemption or reduction of 50 percent of import duties in case of machinery; 95 percent reduction of import duties in case of raw and essential materials; exemptions of corporate income tax on the net profits made by board-approved actions; 50 percent reduction with respect to personal income tax on profits which is derived out of a promoted activity; double tax deduction on water, electricity, the costs of transportation; deduction from the net profit, to the tune of 25 percent, of installation cost or construction cost of facilities, and import duties exemption of import duty on essential materials which is used in export production.
The non-tax incentives comprises of work permits for foreign citizens visiting Thailand for studying the investment opportunities; authorizations for getting skilled foreign experts, workers, and dependents or spouses into Thailand; authorizations for owning land to be used for promoted activities and consent for withdrawing and sending funds abroad in foreign currency.
As per the amendments made under the Foreign Workers Act, foreigners are not required for obtaining work permit in certain conditions, which includes visits to Thailand for attending meetings, purchasing goods at an exhibition or observing a business. All of these activities would in its place entail a non-immigrant B business visa. The Board of Investment would also announce tax holidays for hi-tech investors under two categories: merit-based activities and activity-based activities. Incentives for both categories aim at helping hi-tech industries, along with industrial developments which contribute to development of local industry, human resource and knowledge transfer.
There are 2 classes in which companies could qualify themselves for activity-based incentives. It consists of group A, which is again divided into four further groups, A1 to A4, it includes business which employs hi-tech practices for their everyday business operations. The top-priority industries in category A1 comprises of electronics-related design companies, software companies, businesses which are involved in R&D (research and development), and producers of renewable energy. Such business qualifies for incentives related to corporate income tax up to 8 years. Similarly, group B is also divided into further groups, B1 and B2, it includes businesses which employ technologies which are less-complex but continues to contribute to value-added production. These companies do not get similar tax exemptions as compared to companies in Group A, however, both Groups A1-A4 and B1 do qualify for import duties exemption on machinery, together with 1-year import duty exemption for raw materials which are required for manufacturing the export products.
Merit-based incentives are provided on top of activity-based incentives, and give emphasis to companies which are making donations to human resources development and technology funds, advance intellectual property and commercialize technology which has been developed in-country, establish locally owned vendors and suppliers with the help of technical assistance and advanced technology training, are involved in designing of products and packaging, and projects that helps decentralization, and which are established in 20 or more provinces having low per-capita income. Companies which are investing in industrial zones and industrial estates also qualify for the same.
The Board of Investment lists 3 chief considerations for being eligible for investment: environmental protection, competitiveness development in the industrial, agricultural, and service sectors, and project feasibility/ capital investment. In the competitiveness category, minimum of 20 percent of the value of the project should result from value-added production, except agricultural produce, electronic products and coil centers, where the value-added requirements are set to least 10 percent of the sales. While keeping up with original reforms, manufacturers should also employ modern processes of production and new machinery. Certification of used machinery should be performed by a reliable institution which is subject to the approval of BOI.
Skill, Technology and Innovation (STI) Policy
The Board of investment in Thailand lately announced a new policy for promoting the country as a base for future Electronic, High Tech and Software development and also to further strengthen the nation’s place as a key player in the HDD (Hard Disk Drive), PCB manufacturing and Assembly, Consumer Electronics and other related fields. In a retreat from the preceding Thai Government investment policies that focused on the financial size of investments and targeted only specific industries, the Board of Investment recently embraced the new Skill, Technology and Innovation (STI) Policy, it is considered to be a cross-sector tactic for promoting investments which are designed to improve the capabilities and skills of local Thai workforce while at the same time enhancing the technological superiority of the nation’s industries. Formally sanctioned in December 2003 and extended in early March, the Board of Investment has been marketing actively the latest incentive package to the prospective investors over the last few months.
The new Skill, Technology and Innovation policy is envisioned for increasing the global competitiveness of the country’s industries and assisting the nation’s drive in becoming a knowledge-based economy. It is part of the Government’s widespread effort in increasing Thailand’s presence in the global High Tech Industry. With nations globally pushing toward these similar goals, the BOI’s STI policy is intended for increasing country’s share of investment in human resource development, R&D and enhancements in SCM (supply chain management) developing subcontractors with all these skillsets. Specific trainings and programs, including development of technological skills of the local workforce and boosting the manufacturing related to higher value-added products.
Board of Investment new policy has nominated 2 groups which fall under the STI policy:
(A) companies promoting Skills, Technology and Innovation with least expenses on vendor and human resources development and R&D
(B) Companies engaging directly with STI development, engaging in 8 prescribed activities, like manufacture of scientific equipment etc.
– (1) Companies falling in group A should qualify minimum of one of the four conditions as below:
1) The average Research & Development or design expenses for the initial three years of its operations are not less than 1-2 percent of its sales per annum.
2) Employees having least Bachelor’s degree in R&D, science, design, or such other technology field make up at least 1-5 percent of the total project workforce for the initial three years of its operations.
3) The average training expenses for the initial three years of operations are least 1 percent of the payroll costs.
4) The average expenses for the development of Thai subcontractors or vendors or for assisting related educational institutions are least 1 percent of sales per annum for the initial three years of operations.
As the Thai Government identifies the competitive nature of retaining and attracting companies which meets the criteria above, BOI-promoted companies that fulfills such requirements on the completion of 3 years would receive additional on year of corporate income tax exemption for each of the 4 requirements which is satisfied with a maximum 8 years of tax exemption. They would be considered as involved in priority activities, and the corporate income tax holiday would not be restricted to the investment amount. Additionally, such projects would be exempted from duties on imported machinery.
(B) Companies which are involved in direct Skill, Technology and Innovation development Projects in the below mentioned 8 areas would be considered as priority activities directly related to STI Development:
1) Manufacture of scientific instruments
2) Manufacture of medical equipment
3) Research and Development (R&D)
4) Electronic design
5) Calibration services
6) Scientific laboratory work
7) Manufacture or repair of aircraft
8) Human resource development
Businesses in the above mentioned activities would be exempt from duties on import of machinery and would receive income tax holiday for eight years, not restricted to the investment amount.
By gratifying companies which are improving the skillsets of the local workforce, transferring technology actively, and boosting innovation, the Board of Investment hopes to hasten improvements in the superiority of its competitiveness of industries and labor force throughout the country.
THAILAND’S HIGH TECH INVESTMENT PLAN
Thailand is well-known for its original equipment manufacturing, and the country has done pretty well in developing such industries. However, Thailand has decided that industries, such as automobile and component parts, can no longer meet the demands of the country’s growing ambitions.
Thailand has been best known for original equipment manufacturing, and they have done quite well in developing such traditional industries. However, Thailand has decided that industries, such as automobile and component parts, can no longer meet the demands of the country’s growing ambitions.
Instead, Thailand aims to raise its ambitions by manufacturing and exporting higher quality and higher value products. As of last year, they have launched a program called “Thailand Investment Year 2008-2009.”
The goal of the program is to offer incentives to attract foreign investment from more technologically advanced nations. Thailand’s Office of the Board of Investment (BOI) have said that attracting foreign investment from high technology industries has become one of Thailand’s principle priorities.
Among the countries Thailand is aiming to attract, Taiwan tops the short list of countries. The BOI have opened up an office in Taipei last November in order to help facilitate investment. South Korea and Japan are two other countries after Taiwan that are a high priority for the BOI, and an office is expected to be set up in South Korea in February. Along with high-tech industries, Thailand is trying to attract alternative energy and eco-friendly material industries.
Incentives for attracting the desired business comprises of offering up to 8 years of tax exemption and decreasing the duty on import of machinery. Also, Thailand has announced infusion of $8.7 billion of capital for stimulating the economy. This injection of investment would benefit the investors indirectly. Furthermore, for providing the best investment environment, the government is trying to enhance the facilities and working conditions. All of such improvements are aimed at the water supply and electricity.
As per Audsitti Sroithong of the Board of Investment, “Thailand has been preparing for more than 10 years to develop technology.” The planning seems to have been working as Taiwanese high-tech investment is growing. Now there are more than 2,000 Taiwanese companies in the country.
Closing the Technology Gap
The focus on innovation and creation of productive competences is the ground for an effective transition to a modernized economy. Thailand is moving ahead with higher-value segment of global production network, building stronger strategic alliances with foreign establishments, and raising innovation in its domestic market for lifting its growth potential and creating decent jobs.