Tax collections are administered by the Ministry of Finance through three departments: the Customs Department. Which is responsible for import an export duties, the Revenue Department, which attends to the collection of income tax, VAT, specific business tax, and stamp duty; and the Excise Department, which collects excise taxes levied on certain specific commodities. Local governing bodies deal with the collection of property and municipal taxes.

Source of tax low
The Revenue Code is the principal tax low in Thailand. The Code governs personal income tax, corporate income tax, value added tax, specific business tax, and stamp duty. The Petroleum Income Tax Act governs taxation of oil and gas concessionaires, and the Customs Act governs tariff on imports and exports. Other laws govern excise tax and property tax.

Personal income tax
Tax year and taxable persons
The tax year for individuals is the calendar year ending December 31. Individual tax payers are classified into five categories as follows: natural person; non-juristic body of persons; non-juristic partnership (unregistered ordinary partnership); a deceased person’s assessable income and estate throughout the year in which death occurred; theundistributed estate of the deceased.

Taxable base and scope
The taxable base is determined by deducting expenses and allowances from all assessable income. Tax is levied on the taxable base at progressive rates ranging from five per cent to 37 per cent.

A resident is an individual who lives in Thailand for one or more periods totaling 180 days or more in any tax year. A resident is subject to tax on all income from sources in Thailand and on income derived from sources outside of Thailand. A non-resident individual is subject to tax only on income earned from sources within Thailand.

Types of taxable income
Section 40 of the Revenue Code describes the various types of income subject to personal income tax. Some types of income entitle the individual to standard deductions. In summary, these types of income and the corresponding standard deductions. If any, are presented in the table below.

Exclusions from gross income
Certain types of income are excluded from the gross income for the purpose of computing income tax. Among the excluded items are:

• Employee moving expenses, or the portion of travelling expenses paid by the employer to the employee for travelling from another location to assume employment for the first time, or for returning to the point of origin at the termination of employment;
• Reimbursement for per diems or transportation expenses of an employee;
• Share of profits obtained form a non juristic partnership or a non-juristic body of persons subject to personal income tax;
• Income from sale of securities traded in the Securities Exchange of Thailand, not including income from sale of debentures and bonds;
• Reimbursement of medical expenses incurred in Thailand for an employee and his or her dependents;
• Income from sale of investment units in a mutual fund set up under the Securities and Stock Exchange Act 1992.
• Up to 290,000 baht of employee contributions to a registered provident fund.

Personal allowances
In addition to the itemized standard deductions, taxpayers are also entitled to the following personal allowances:

• 30,000 baht for the taxpayer;
• 30,000 baht for the taxpayer’s spouse.
• 15,000 baht for each of the taxpayer’s children (maximum three children except those born before 1979)
• 2,000 baht for each child in school in Thailand.

Other allowances
Other allowances are available for the following:

• Life insurance premium, not exceeding 10,00 baht;
• Spouse’s life insurance premium, not exceeding 10,000 baht;
• Interest on mortgage of personal residence, not exceeding 10,000 baht;
• Contributions to a qualified provident fund, not exceeding 10,000 baht;
• Contributions to a social security fund, for the full amount
• The estate of a deceased person, 30,000 baht,
• Unregistered partnership or non-juristic body of persons, 60,00 baht (Maximum).

Tax rates
After deducting the standard or itemized deductions, and the applicable allowances from gross income, the resulting net income is taxed at the rates shown in the following table: Unit: Baht’000 Taxable income bracket Tax rate Tax amount Accumulated tax 0 – 50 0% 0 0 50 – 100 5 % 5 2.5 100 – 500 10 % 40 42.5 500 – 1,000 20% 100 142.5 1,000 – 4,000 30 % 900 1,042.5 4,000 and over 37 % The tax rate on the joint income of spouses is the same as that applicable to persons filing individual returns; the incomes of both spouses are treated as accruing solely to the husband. However, if both spouses have employment income, each spouse may elect to file a separated tax return. In that event, each employed spouse is entitled to a separate standard deduction and the personal exemption of each spouse will then be Baht 30,000 plus Baht 7,500 for each dependent child (or 8,500 if school allowance is applicable)

In the case where an individual has a gross income of more than Baht 60,000, excluding income under Section 40 (1) of the Revenue Code (employment income), the income tax payable must not be less than 0.5 per cent of that gross income.

Withholding tax
Payments of employment income and certain specific types of assessable income to natural or juridical persons are subject to income tax withholding at various rates depending on the type of assessable income. Taxes withheld by payer of income must be remitted within seven days after the end of the month of payment, together with a return, to the Revenue Department. The recipient of the assessable income is provided with a withholding tax certificate and can use the tax withheld at source as a credit against the annual or mid-year income tax payable for the pertinent tax year.

Interest income is subject to 15 per cent withholding tax. Dividend income is subject to 10 per cent withholding tax. A Thai resident may consider the withholding tax on interest and dividend income as the final tax, or include the interest or dividend in his assessable income and claim a credit for the withholding tax. However, the withholding tax is a final tax for a non-resident.

Tax credit for dividend
In the case where an individual elects to include dividends with other income in the computation of annual tax payable, the individual who is a resident of Thailand, with a domicile in Thailand, and receives dividends from any companies organized under the Thai law, is entitled to claim a tax credit.

The tax credit is regarded as taxable income and is required to be included first with the other income to arrive at the total gross income, and then deducted from the amount of tax.

Filing of returns and payment of tax
Returns must be filed and taxes paid on or before the last day of March each year for income obtained during the preceding year.

An individual who derives income under Sections 40 (5), (6) or (8) of the Revenue Code is liable to file a half-year return, and pay tax on or before the last day of September for the income earned during January to June.

The half-year tax paid is allowed as a credit against the tax due for the full year.

Corporate income tax
Scope
The juristic companies and partnerships organized under Thai law are subject to income tax on income earned from sources within and outside of Thailand. The definition of juristic companies and partnerships for income tax purposes are broader than those under the Civil and Commercial Code. Juristic companies and partnerships for income tax purposes include, but are not limited to:

• Private and public limited companies.m,
• Registered ordinary and limited partnerships.
• Joint ventures.
• Foundations and associations.

A branch of a foreign corporation is taxed only on income derived from sources within Thailand Tax is imposed on the net profits of juristic companies and partnerships, ascertained in accordance with generally accepted accounting principles, subject to conditions imposed by the Revenue Code of Thailand.

Rules on computing taxable net profit
When computing taxable net profit, there are rules imposed under the Thailand Revenue code which include but are not limited to:

• A net loss carry-over for a period of five years is allowed.
• Inventory is to be valued at cost or at market price, whichever is lower.
• The employer’s contributions to a registered provident fund are deductible expenses.
• Deductions for gifts and donations up to a total of 4 per cent of net profit are available, as follows:
  – two per cent to approved public charities or for public benefit, and
  - two per cent to approved education or sports bodies.
• No deduction is permitted for any expenditure that is determined on the basis of net profit (e.g. bonuses paid as a percent-age of net profit) at the end of an accounting period.
• Depreciation of assets of limited companies and partnerships is based on cost. The rates of annual depreciation permitted by the law generally vary from 5-20 years.
• Entertainment and representation expenses are deductible up to 0.3 per cent of gross sales, or of paid-u [capital at the closing date of the accounting period, whichever si the greater. The maximum amount allowed is 10 million baht.
• Capital gains are treated as ordinary taxable income
• Unrealized gains and losses from foreign currency exchange must be included in the computation of taxable net profit.
• A Thai limited company may exclude 50 per cent of the dividend income received from other Thai limited companies from its assessable income. The exclusion is in creased to 100 per if the recipient is either listed with the Securities Exchange of Thailand or owns at least 25 per cent of the shares of the payer company, and the payer company does not hold any share in the recipient company, In all cases, there is a requirement that the recipient company holds its shares in the payer company for at least three months both before and after receiving such income.
• Tax penalties, surcharges and criminal fines under the Revenue Code are nondeductible expenses.

Tax rates
Tax on corporate net profit is computed at the following rates: Taxpayer Tax Rate All limited companies, juristic partner- ships and branches of foreign companies 30 % Petroleum concessionaires 50% – 60% Exceptions to the general rate of income tax imposed on net profit apply to:

• Companies or partnerships organized under foreign laws and engaged in the business of international transportation in various countries, including Thailand, as follows:
  

  - In the case of transport of passengers, tax is paid at the rate of three per cent of the fares, fees, and any other benefits derived in Thailand for the transportation business, before deduction of any expenses;
  - In the case of transport of goods, tax is paid at the rate of three per cent of the freights, fees, and any other benefits derived (Whether in Thailand or elsewhere) in respect of the transportation of goods from Thailand, before the deduction of any expenses.

• Foundations and associations prescribed by notification of the ministry of Finance as public charity organizations or institutions are exempted from income tax on all kinds of income. Foundations or associations organized under Thai law which are other than the above, and are engaged in any revenue producing business, are subject to income tax on gross receipts before the deduction of any expenses at rates of either two per cent or 10 per cent, depending on the type of gross revenue. Income tax exemption is granted on subscription fees received from members, or any money or properties received by way of donation or gift

Filing of returns and payments of tax
A corporate taxpayer must file an annual tax return and pay the tax due within 150 days from the closing date of each accounting period. Except for newly incorporated companies, an accounting period is defined as duration of 12 months. Returns must be accompanied by audited financial statement. A corporate taxpayer must file a half-year return and pay 50 per cent of the estimated annual income tax by the end of the eighth month of the accounting period. Failure to pat the estimated tax or underpayment by more than 25 per cent any subject the taxpayer to a fine amounting to 20 per cent of the amount in deficit.

Companies listed with the Securities Exchange of Thailand, commercial banks, finance, securities or credit foncier companies, or juristic companies or partnerships specified under the rules prescribed by the Director-General of the Revenue Department, shall pay the half-year tax on the actual net a profit for the first six months of an accounting period. In this case, the tax return must also be accompanied by financial statements, which have been reviewed by an auditor approved by the Director-General.

Tax on repatriation of income
Repatriation of a; branch’s after tax profits to the head office, or keeping of profits abroad where the head office has directly received a payment for goods sold or services rendered in Thailand, is subject to further income tax at the rate of 10 per cent of the after tax profit actually or deemed to be remitted. Repatriation of assessable income from Thailand to foreign companies not doing business in Thailand (non-resident companies) is subject to withholding tax as shown below:

Type of income Tax rate Dividends 10% Royalty, interest, rent, service fees, capital gains 15% Double taxation treaties
Tax treaties between Thailand and foreign countries cover taxes on income and capital of individuals and juristic entities. The petroleum income tax and the local development tax (i.e. property tax) are covered under some treaties but value added tax, specific business tax and municipal tax are not covered under any tax treaties.

The Thai tax treaties generally place a resident of the contracting state in a more favorable position for Thai tax purposes than under the domestic law. In general, Thai tax treaties provide income tax exemption on business profits *industrial and commercial profits) earned in Thailand by a resident of a contracting state if it does not have a permanent establishment in Thailand. In addition, the withholding taxes on payment of income to foreign juristic entities not carrying on business in Thailand may be reduced or exempted under the tax treaties. As of October 1,2000, Thailand had double taxation treaties with 40 countries, including the United States.

Value Added Tax
Value Added Tax (VAT) is levied at the rate of seven per cent on the value of goods sold and services rendered at every level, including on importation. Certain categories of goods and services (e.g. exports) are zero-rated i.e. subject to 0 per cent VAT). In addition, other categories of goods and services (e.g. sale of agricultural products) are exempt from VAT.

Under the VAT system, the VAT registrant seller of goods or service must levy the VAT on the purchaser. The seller is generally entitled to claim credit for any VAT paid on the acquisition of its raw materials, stock, or other goods or services used in the business. This VAT credit is generally not available with respect to entertainment expenses and certain specific expenditures.

A business which sell zero-rated goods or services are also entitled to a credit for VAT paid on purchase of goods or services. However, a business, which sells exempt goods or services, is not entitled to such a credit and must bear the VAT as its cost.

The VAT system places stringent registration and documentation obligations on the business VAT credits are only available if tax invoices in the prescribed form are received from suppliers. There are monthly VAT return filing requirements and records that must be maintained to provide an audit trail for revenue tax examiners.

Specific business tax
Certain types of businesses (e.g.) banking, finance, securities and insurance) are subject to Specific Business Tax (SBT) rather than VAT. Businesses subject to SBT must pay VAT on their purchases of goods and services but are not entitled to a VAT credit. The SBT is computed on the monthly gross receipts at the following rates: Banking or similar business, finance, securities and credit foncier business at three per cent; life insurance at 2.5 per cent; pawnshop 2.5 per cent; and sale of immovable property in a commercial manner or for profits at three per cent from 5 July 2000 to 31 December 2001).

Documentary stamp duty
Certain documents mentioned in the Stamp Duty Schedule of the Revenue Code (e.g. power of attorney, letter of credit, check, bill of lading, service contracts, etc.) must contain documentary stamps of various specified denominations. While the stamp duty is generally at nominal rates, failure to affix such stamps may attract a surcharge of up to 600 per cent.

Excise Tax
Excise tax is currently levied on the following commodities: domestically produced petroleum and oil products; non-alcoholic beverages, excluding water, mineral water and milk; air conditioners with a capacity of not more than 72,000 BTUs; certain light fittings; crystal; motor cars designed to carry not more than 10 persons; yachts and other pleasure boats; perfume; cosmetic products; and certain entertainment businesses. In addition, there are special excise taxes imposed on liquor, beer and cigarettes.

Customs duties
Customs duties are governed by the Customs Tariff Decree of 1987, an amendment of previous tariff codes, to conform to the Harmonized System of the Customs Cooperation Council. Tariff duties on goods are levied on an ad valorem or a specific rate basis. The majority of goods imported by businesses are subject to rates ranging from 0 per cent to 80 per cent.

The majority of imported articles are subject to two different taxes: tariff duty and VAT Tariff duty is computed by multiplying the CIF value of the goods by the duty rate. The duty thus determined is added to the CIF price. VAT is then levied on the total sum of the CIF value, duty, and excise tax, if any. Goods imported for re-export are generally exempted from import duty and VAT. Export duties are imposed on only a few items including rice; hides, skins, and leather; scrap iron and steel; rubber, including latex, rubber waste, tree and lump scraps, earth rubber, and bark shavings from rubber trees; teak and other kinds of wood. Tariff duties may be lowered at the discretion of the Minister of Finance with the approval of the Cabinet. Two exceptions to the obligation to pay customs duties apply to the importation of machinery, equipment, and materials for use by:

• Oil and gas concessionaires and their contractors.
• Certain companies promoted by the Board of Investment.

Property taxes
There are two kinds of property tax in Thailand, namely, house and land tax, and local development tax. House and land tax is imposed on the owners of a house, building, structure or land, which is rented or otherwise put to commercial use. The tax rate is 12.5 per cent of actual or assessed annual rental value of the property.

A local development tax is imposed upon any person who either owns land or is in possession of land. The tax rates vary according to the appraised value of the property being determined by the local authorities. There is an allowance granted for land utilized for personal dwellings, the raising of livestock and the cultivation of crops by the owner. The extent of the allowance differs according to the location of the land.

Source: American Chamber of Commerce in Thailand

Related Links
Ministry of Commerce
Customs Department
Revenue Department

An unregistered ordinary partnership has partners who are all jointly liable, without any limitation on the partnership’ total obligations. A new partner in an unregistered ordinary partnership becomes liable for all obligations incurred by the partnership before or after his association with the partnership. This type of partnership is not a legal entity and is subject to taxation as if it were an individual.

A registered ordinary partnership is a juridical entity having a separate and distinct personality from each of the partners by virtue of its registration with the Commercial Registrar. A registered ordinary partnership is treated as a corporate entity for income tax purposes.

A limited partnership is one in which there are one or more partners whose individual liabilities are limited to their respective contributions, and one or more partners jointly liable without any limitation on all the oobligations of the partnership. A limited partnership is taxed as a corporate entity.

Private limited company
The Thai private limited company is similar to what is commonly referred to as a corporation. The company may be wholly owned by aliens. However, in those business activities reserved for Thai nationals, alien participation is generally allowed up to 49 per cent.

The liability of the shareholders is limited to the par value of the authorized capital. The liability of the directors, however, may be unlimited if so provided in the company’s memorandum of association or the articles of incorporation. The limited company is managed by a board of director according to the company’s charter and by laws.

Although there is no established minimum level of capitalization, the private. Limited company’s capital must be sufficient to accomplish its objectives. All of the shares must be subscribed to, and at least 25 per cent of the subscribed shares must be paid up. Both common and preferred shares of stock may be issued, but all shares must have voting rights. Thai law prohibits the issuance of shares with no par value; it also stipulates that only shares with par value of five bath or above may be issued.

Thai corporate law has some features which may be unfamiliar to foreign business persons. Among these are the prohibition on treasury shares and a rule that a private limited company’s shareholders must never be fewer than seven at all times. In addition, non-voting stock, whether common or preferred, is not permitted; the original authorized capital stock must be subscribed in full.

Public limited company
The procedure for setting up a limited public company is similar to that for a private limited company. The provisions of the Limited Public Company Act of 1992 allow a private company to be converted into a public company. The major difference between a public and a private company is that a private company is prohibited form offering shares to the public. Certain other differences are as follow:

*Under specified qualificationsJoint venture
A join venture may be described in accordance with general practice as a group of persons (natural and/ or juristic) entering into an agreement in order to carry on a business together. It has not yet been recognized as a legal entity under the Civil and Commercial Code.
However, income from a joint venture is subject to corporate taxation under the Revenue code, which classifies it as a single entity.

Branch of a foreign corporation
A company incorporated under foreign laws may establish a branch office to do business in Thailand. Branch offices are required to maintain only those accounts relating to the activities of the branch in Thailand. It is important, however, to clarify beforehand what constitutes income subject to Thai tax, as the Revenue Department may consider revenues directly earned by the foreign head office form sources within Thailand as subject to Thai tax.

As a condition for approval of an alien business License for a branch of a foreign corporation, Minimum capital amounting to three (3) million bath must be brought in to Thailand. This amount may be changed by subsequent Ministerial Regulations, A branch office may exist for an indefinite period up to its date of dissolution.

Representative office of a foreign corporation
A foreign entity may establish a representative office in Thailand to engage in limited non-revenue-earning activities. These activities are restricted to:

• searching for local sources of goods or services for its head office.
• Inspecting and controlling the quality and quantity of goods procured by its head office.
• Providing advice in various fields relating to products directly sold by its head office to local distributors or consumers.
• Disseminating information about new products and services of its head office.
• Reporting to its head office on local business developments and activitiesThe minimum capital contributions in respect to branches also applies to representative offices.

Regional office of a multinational corporation
A multinational corporation may establish a regional office in Thailand to engage in limited non-revenue-earning activities are restricted to:

• Contacting, coordinating, and supervising
• Providing services to affiliated branches or subsidiaries such as: advisory and management services; training and personnel development; financial management; marketing control and sales promotion; and product research and development

All expenditures incurred by the regional office must be borne by the head office of the multinational corporation. The minimum capital requirements in respect to branches also apply to regional offices.

Corporate registration procedures
Limited Company:
Before forming a limited company, the chosen corporate name must first be registered and approved by the Commercial Registrar. A Memorandum of Association is then filed which contains: the approved name of the company, its business address, its objectives, personal details about the promoters and the shares subscribed by each, and data on the authorized capital of the company.

The next step is to hold a statutory meeting of shareholders during which the articles of incorporation and by-laws are approved, the board of directors is elected, the transactions and expenditures of the founders are ratified, and the authorized auditor is appointed. The directors may then register the company with the Commercial Registrar.

Branch, representative and regional office:
Foreign corporations wishing to do business in Thailand through a branch, representative or regional office must submit the required document, which documents issued by the Head Office must be notarized by a notary public or certified by the local Thai consulate or embassy.

Documents required register to a branch, representative or regional office in Thailand
Foreign corporations wishing to do business in Thailand through a branch, representative or regional office must submit the following documents

• An affidavit from the manager or corporate officer, stating the following:

- name of the corporation, registration member, and date of registration;
- address of the registered office;
- jurisdiction under which the corporation is registered;
- name, address, nationality, age and race of each director, number of shares held by each, and identification of the director (s) with the power to bind the corporation;
- authorized capital of the corporation, number of shares and par value of each, and amount of paid-up capital stock, and
- total number of shareholders, their nationalities, and number of shares owned or held by each national group.

• A power of attorney for the manager in Thailand giving him or her, in addition to the normal powers, the power to register the branch office with the pertinent Thai government authorities, and to act as the manager thereof.
• Brief description of the objectives or details of the business and steps of work.
  

  - Office address in Thailand and map thereof.
  - Brochure or profile and annual report of head office.
  - Details of technology transfer to Thai staff.
  - Number and name of staff together with their salaries.
  (Items 1-2 must be notarized by a notary public or certified by the Thai consulate or embassy abroad). These documents must not be more than six months old at the time of submission to the Commercial Registrar.

• Well known projects/ clients/ products. (case by case)
• Forecast plan and amount of expenses for the next three years.
• Type, value and number of machinery/office equipment used in the business.

Tax registrations
An individual person who is subject to personal income tax must obtain a tax identification card from the Revenue Department within 60 days from the date of having income.

A business, which is subject to corporate income tax, must obtain a tax identification card from the Revenue Department within 60 days after its incorporation or registration.

All persons whose annual turnover exceeds Bath 1.5 million must register for value added tax within 30 days after the annual turnover has exceeded that amount, unless specifically exempted.

The application for VAT registration before the date of commencing business is also allowed under the conditions specified by the Director General of the Revenue Department.

Licensing a factory
Under the Factory Act 1992, factories are separated into three groups according to the gravity of impact of the factory operations on the public or the environment, as follows:

• Group 1 – Factories that can operate immediately without prior government permission.
• Group 2 – Factories that require prior notification of the pertinent government authority before the business starts operations.
• Group 3 – Factories that require the application for a factory license before the establishment of the factory.

Before the establishment of a factory classified under Group 3, the operator must obtain a factory license from the Department of Industrial Works, Ministry of industry. Application for a license entails completing an official form, submitting drawings and particulars of the factory , machinery, and acceptable effluent treatment system, and attaching a set of documents stipulated on the form. These additional documents include statements of the amount of investment in factory establishment and operation, number and grades of factory employees, details of production, construction period for the factory, and the blueprints of the structures and the machinery that will be installed. The factory must be established in accordance with the approved plan and specifications.

The operator of a Group 3 factory must notify the competent authority at least 15 days before a factory test-run commences, and again 15 days before actual manufacturing operations start.

The factory license is valid up to the last day of the fifth calendar year from the year of commencement and is renewable. An application for renewal of the factory license must be filed to the authority prior to the expiration of that license. While the factory license is valid, the licensee must pay an annual fee for the said license as scheduled by the authority.

Licensees must also obtain prior permission from the Ministry of Industry for any factory expansion, transfer of machinery to other sites, or transfer of factory site. Permission is likewise required in order to transfer, lease, assign, or sell a factory operation.

Public offerings
A company, which wishes to issue shares or debt securities to the public, must comply with the regulations of the Securities Exchange Commission and the Securities Exchange of Thailand. A description of the activities of these bodies is outlined below.

Securities Exchange Commission
The Securities Exchange Commission (SEC) has regulatory control of he securities industry. The objectives of the SEC are as follow:

• To provide a single legal framework for the development of Thailand’s capital markets. The SEC is responsible for overseeing the issuance by private companies of debt securities to the public and the review and approval of prospectuses.
• To improve the level of investor protection. The SEC is responsible for the investigation of any breach of the laws relating to stringent information disclosure requirements, insider trading and takeover, and
• To develop Thailand’s capital markets. For example, the SEC has sanctioned the establishment of foreign-backed mutual funds

Securities Exchange of Thailand
Under the Securities and Exchange Act 1992 the Securities Exchange of Thailand (SET) operates under the SEC. A board elected from the SEC and the member brokers operates the new SET. In short, the SET is responsible for the operating side of the exchange while the SEC is responsible for enforcement.

The SET is responsible for determining which companies will be allowed to list on the stock exchange. The SET has complete power to approver a company’s listing.

Investment incentives
Incentives under the investment promotion act

Government role
The Board of Investment (BOI) is the government agency responsible for administering incentives to encourage private sector investment in priority areas. The structure, role, and policies of the BOI today basically follow the guidelines contained in the Investment Promotion Act of 1977, as amended in 1991. The BOI is chaired by the Prime Minister and includes as members and advisors, key ministers and private sector representatives. The office of the BOI functions as the administrative arm of the Board. BOI has six regional offices in Songkhla, Nakhon Ratchasima, Chiang Mai, Chonburi, Surat Thani and Ubon Ratchathani and four overseas offices in New York, Frankfurt, Tokyo and Paris.

Foreign equity participation rules
The BOI uses the following criteria in considering the extent of foreign equity participation allowed in a promoted investment project:

The BOI has a policy of giving special consideration to investment projects which:

• Locate operations in provincial areas.
• Establish or develop industries, which form the base for further stages of industrial development.
• Develop public utilities and basic infrastructure.
• Conserve natural resources and reduce environmental problems.
• Conserve energy or replace imported energy supplies.
• Contribute to technological development.
• Strengthen significantly the balance of payments.

Promoted company
The types of entities that may be promoted by the BOI and granted investment incentives are: a limited company, a foundation, or a cooperative. Application for promotion may be submitted in accordance with the rules, procedures, and forms prescribed by the BOI prior to the formation of the qualified promoted company.

Non – tax incentives for promoted companies
The following non-tax incentives may be granted to promoted companies:

• Guarantees
  - Against nationalization.
  - Against competition of new state enterprises.
  - Against state monopolies..
  - Against price controls.
  - Against tax – free imports by the public
• Permission
  - To own land.
  - To bring in foreign nationals to undertake investment feasibility studies.
  - To bring in foreign technicians and experts to work on the promoted project.
• Protection measures
  - Imposition of a surcharge on competing imported products of up to 50 per cent of CIF value for a period of one year at a time.
  - Import ban on competing products.
  - Implementation of other tax relief measures as appropriate.
• Investment promotion zones
  In line with the national goals of decentralizing and spreading the benefits of development to the country’s provinces, the BOI has divided all provinces of Thailand into three investment zones. Investors who set up their operations in provinces outside the central region of Thailand are entitled to a wider range of tax incentives. The three investment zones are as follows:
  • Zone I: Six provinces, namely: Bangkok, Samut Prakan, Nakhon Pathom, Nontaburi, Pathum Thani, and Samut Sakhon.
  • Zone II: Twelve provinces, namely: Suphan Buri, Ayutthaya, Nakhon Nayok, Chachoengsao, Chonburi, Ratchburi, Samut Songkram, Saraburi, Kanchanaburi, Ang Thong, Rayong and Phuket.
  • Zone III: All the remaining fifty eight (58) provinces, and Industrial Estate in Rayong Province under conditions prescribed by BOI.

Tax incentives for promoted companies
BOI grants two major types of tax incentives to promoted companies: exemption or reduction of tariffs on imported machinery and equipment, as well as raw materials for the promoted activity, and exemption from income tax on net profits and dividends. The extent of these incentives varies according to the location of the promoted company.

Customs duty exemption
The general rules for granting import duty exemptions on the import of machinery and raw materials by promoted companies are outlined in the table below:

Conditions:

• Machinery is subject to import duty of 10% or more
• For a period of one year, for raw & essential materials used in the manufacturing of export products.
• For a period of five years.

Income tax exemption
In general, the duration of income tax exemption granted to promoted companies depends on the project’s location. The period of tax exemption generally starts from the date of the first sale.

Conditions:

1. For project with capital investment of 10 million bath or more (excluding cost of land and similar international standard certification within two years from the start-up date. Otherwise the income tax exemption will be reduced by one year.
2. Located in an industrial estate or promoted industrial zone.

Additional fiscal incentives for projects located in zone III
Promoted activities located in Investment Zone III may also be eligible for the following additional incentives:

1. A project located in one of the following forty (40) provinces: Krabi, Kamphaeng Phet, Khon Chumphon, Chiang Rai, Chiang Mai, Trang Trat, Tak, Nakhon Ratchasima, Nakhon Si Thammarat, Nakhon Swan, Prachuab Khiri Khan, Prachin Curi, Phangnga, Phattalung, Pijit, Phitsanulo, Phetchaburi, Phetchabun, Mukdahan, Mae Hong Son, Ranong, Lop Buri, Lamphang, Lamphun, Loei, Songkhla, Sakaew, Sing Buri, Sukhothai, Surat Thani, Nong Khai, Udon Thani, Uttaradit, Uthai Thani, and Ubon Ratchathani shall be granted further privileges, as follows:
   1. A project located within industrial estates or promoted industrial zones in entitled to the following privileges:
      - 50 per cent reduction of corporate income tax for five years after the exemption period;
      - double deduction from taxable income of transportation, electricity and water costs for 10 years from the date of first revenue derived from promoted activity;
   2. For a project located outside industrial estates or promoted industrial zones, a deduction can be made from net profit of 25 per cent of the project’s infrastructure installation or construction cost for 10 years from the date of first sales, and net profit for one or more years of any year can be chosen for such deduction. The deduction is additional to normal depreciation.
2. A project located in one of the following eighteen (18) provinces: Kalasin, Nakhon Phanom, Narathiwat, Nan, Buri Ram, Pattani, Phayao, Phrae, Maha Sarakham, Yasothon, Yala, Roi Et, Si Sa Ket, Sakhon Nakhon, Sathun, Surin, Nong Bualamphu, and Amnat Charoen shall be granted further privileges as follows:
   1. 50 per cent reduction of corporate income tax for five years after the exemption period;
   2. double deduction from taxable income of transportation, electricity and water costs for 10 years from the date of first revenue derived from promoted activities;
   3. Deduction can be made from net profit of 25 per cent of thee project’s infrastructure installation or construction cost for 10 years from the date of first sales, and net profit for one or more years of any year can be chosen for such deduction. The deduction is additional to normal depreciation.

Priority activities
BOI places priority on promoting the following types of projects: agriculture and agricultural products, direct involvement in technological and human resource development, public utilities and infrastructure, environmental protection and conservation, and targeted industries.

BOI shall announce the list of priority activities or industries. Such projects will be entitled to the following privileges: exemption of import duty on machinery regardless of location; corporate income tax exemption for eight years, regardless of location; other privileges entitled for each zone.

Source: American Chamber of Commerce in Thailand

Related Documents
Starting a business in Thailand by by Ministry of Foreign Affair
Costs of Doing Business in Thailand

Related Links
Ministry of Commerce
Thailand Board of Investment
Department of Export promotion
Thailand Business Registration (Ministry of Commerce)
Thailand Industrial Estates Authority Business

• In keeping accounts, the person with duty to keep accounts must hand over the documents required for making accounting entries to the bookkeeper correctly and completely, in order that the accounts so kept may show the results of operations, financial position or changes of financial position according to facts and accounting standards” Accounting entries may be recorded in a foreign language, but there should be an appended Thai translation. All accounting entries should be written in ink, typewritten, or printed.

Accounting period
A newly established company or partnership should close its account within 12 months from the date of its registration. Thereafter, the accounts should be closed very 12 months. If a company wishes to change its accounting period, it must obtain the written approval of the director-General of the Revenue Department

Reporting requirements
In accordance with the Accounts Act of 2000, all juristic companies, partnerships, branches of foreign companies, and joint ventures are required to prepare the financial statement for each accounting period. The financial statement must be audited by and subjected to an opinion of , a certified auditor, except the financial statement of a registered partnership established under Thai law whose capital, assets or income any one or all of them, are not more than that prescribed in the Ministerial Regulations. Copies of the audited financial statements must also accompany the income tax return that must be filed with the Revenue Department within 150 days from the closing date of each accounting period.

Accounting principles

Generally, the basic accounting principles practiced in the United States are recognized and accepted in Thailand. In addition, accounting methods and conventions sanctioned by law are considered as generally accepted accounting practices. The Institute of Certified Accountants and Auditors of Thailand is the authoritative group promoting the application of generally accepted accounting principles.

Any accounting method adopted by a company must be used consistently and may be changed only with approval of the Revenue Department.
Certain accounting practices which may be of interest are a s follows:

• Depreciation
  The Revenue Code permits the use of varying depreciation rates according to the nature of the classes of assets which have the effect of depreciating the assets over periods that may be shorter than their estimated useful lives. These maximum depreciation rates are not mandatory: a company may use lower rates that approximate the estimated useful lives of the asset. But if lower rates are used in the books of accounts, the same rates must be used in the income tax return.
• Accounting for pension plans
  Contributions to a pension or provident fund are not deductible for tax purposes unless these are actually paid out to the employees, or the fund is approved as a qualified fund by the Revenue Department and is managed by a licensed fund manager. In most cases, contributions to the pension fund are not based on actuarial computation.
• Consolidation
  Local companies with either foreign or local subsidiaries are not required to consolidate their financial statements for tax and other government reporting purposes, except for listed companies which must submit consolidated financial statements to the Securities Exchange of Thailand.
• Statutory reserve
  A statutory reserve of at least five per cent of the annual net profits arising from the business must be appropriated by the company at each distribution of dividends until the reserve reaches at least 10 per cent of the company’s authorized capital.
• Stock dividends
  Stock dividends are taxable as ordinary dividends and may be declared only if there I an approved increase of authorized capital. The low requires the authorized capital to be subscribed in full by the shareholders.
• Auditing requirements and standards
  Audited financial statements of juristic entities (i.e., limited company; registered partnership; branch office, representative office, or regional office of a foreign corporation; and joint venture) must be certified by an authorized auditor and submitted to the Revenue Department and to the Commercial Registrar for each accounting year (except for representative office and regional office). Auditing standards conforming to international auditing standards are, to a large extent, recognized and practiced by authorized auditors in Thailand.

Foreign participation in business
Alien Business Law
On March 3, 2000, Alien Business Act 1999 became effective replacing NEC Decree No. 281. Under this act, a foreign investor and a majority foreign owned company registered in Thailand are restrict to carry on certain types of business activities unless prior approval is granted by the authority for certain business.

Companies promoted by the Board of Investment shall be permitted to engage in certain business activities restricted under the Alien Business Act. Moreover, US-owned enterprises may claim exemption from the Alien Business Act under the provisions of the Treaty of Amity and Economic Relations between Thailand and the United States.

Types of business restricted by the Alien Business Law

Alien Employment Act
The Alien Employment Act lists the occupations that may be undertaken exclusively by Thai nationals and prescribes procedures to regulate alien participation in others. The substance of the law may be summarized as follows:

With a few exceptions, the law requires all non-Thai nationals who work in Thailand to have work permits issued by the Ministry of Labor

The use of these work permits is restricted to the particular occupation, particular employer, and particular locality for which they are applied; any change in these restrictions will necessitate a new work permit.

Aliens working in companies promoted by the Board of Investment or who are in Thailand under special laws (such as the Petroleum Act of 1971) can be issued work permits which are valid for the duration prescribed by such laws under which they were allowed to enter Thailand. Likewise, foreigner assigned to work in representative or regional offices may readily obtain a work permit from the Commercial Registrar.

Aliens entering Thailand to work with promoted firms or under special laws, as above, may commence work immediately, but they should apply for a work permit within 30 day form the date of entry into the Kingdom.

Within 15 days after the date of employment, transfer to a new locality, or separation of an alien employee, the employer is required to formally notify the pertinent government entity that issued the original work permit.

Aliens working in Thailand under special conventions between Thailand and other countries, including international organizations such as the World Bank, are exempted from obtaining work permits.
Occupations and professions-Prohibited to aliens

Immigration requirements for foreigners

A foreigner may enter the country under the following categories of visa:

Transit
Except for citizens of certain countries, a foreigner may enter the country without a visa. He is normally granted a 30 day stay. Extension of stay may be granted in certain cases but would normally be limited to an additional 10 days.

Tourist
Foreigners who obtain a visa from a Royal Thai Embassy or Consulate are initially granted a stay of 60 days. The Immigration Department may grant an additional extension of 30 to 51 days.

Non-immigrant
A foreigner entering the country to work or fill an employment post must obtain a non-immigrant visa from a Royal Thai Embassy or Consulate. His spouse and dependents who accompany him must likewise obtain the same type of visa. The visa is normally granted for an initial stay of 90 days, but it may be extended up to one year and is renew able each year. This visa entitles the foreigner to apply for a work permit. Holders of a transit or tourist visa cannot apply for a work permit.

Immigran
A person wishing to immigrate to Thailand may apply for a certificate for residence. How ever, the conditions for qualifying as an immigrant are quite restrictive and covered by annual immigration quotas and other conditions fixed for each country by the Ministry of Interior.

Restrictions on an alien’s right to own land
An alien may own land only with special permission from the Minister of interior and only if, under a treaty between his home country and Thailand, Thai nationals are extended the reciprocal right to own land. In the case of a promoted company, the company should obtain the approval of the Board of Investment. If the BOI-promoted company ceases or transfers its business, it has to sell such land within one year.

Once an alien has secured permission to acquire land, he must use it for the purpose stated in his application. A change in the use of the land can be made only with the permission of the Ministry of interior. A sale or transfer of land by an alien also requires approval by the ministry of Interior.

A foreigner is permitted to acquire units in a high rise condominium under certain conditions.

Labor regulations
The main basic Thai labor legislation consists of the Civil and Commercial Code on contracts relating to the hire of services (Book III, Title VI), the labor Protection Act 1998 promulgated with effect from August 19, 1998, the Labor Relations Act 1975, the Act on Establishment of labor courts and labor Court Procedures 1979, the social Security Act 1990 and the Compensation Act 1994. The Ministry of Labor and Social Welfare is charged with implementing labor laws and performing labor inspections throughout the country.

Minimum wages
The minimum wages per day effective January 1, 2001, are fixed at rates depending on the location of the work place as follow:

165 bath for Bangkok, Nakorn Pathom, Nonthaburi, Pathum Thani, Phuket, Samutprakarn and Samut Sakorn

143 bath for Chonburi, Chiang Mai, nakorn Ratchasima, Phang-nga and Ranong

133 baht for all other areas
The above rates are subject to change from time to time.

Working hours and leave
maximum number of working hours of employees is fixed at eight hours a day and 48 hours a week in total. In some types of works, as stipulated by law, the employer and the employee may agree to arrange the period of working hours but the working hours in any case must not exceed 48 hours a week. In establishments in which the work is deemed injurious to health or personal safety, as stipulated by law, working hours must not exceed seven hours a day and 42 hours a week in total.

All employees are entitled to a daily rest period of at least one hour after working for five consecutive hours. The employer and the employee may arrange the daily rest period to be shorter than one hour at each time but it must not be less than on hour a day in total. A weekly holiday of at least one day a week at intervals of a six day period must be arranged for the employee.

For work performed in excess of the maximum number of working hours fixed either by law or by specific agreement (if the latter is lower), employees must be paid overtime compensation. The rates of overtime vary and range from one-and-a-half times to three times the normal average hourly wage rate for the actual overtime worked. Certain employees engaged in employment related work on behalf of the employer and other types of work as prescribed by law are not entitled to overtime compensation. The maximum number of overtime working hours is limited to not more than 36 hours a week.

All employees are entitled to unlimited sick leave, but the number of paid leave shall not exceed 30 regular workdays a year. The employer may require an employee to produce a certificate from a qualified doctor for a sick leave of three days or more.

An employee who has worked consecutively for one year is entitled to at least six working days of paid vacation every year, in addition to the 13 holidays in a year traditionally observed in Thailand. A female employee is entitled to maternity leave for a period of 90 days including holidays, but the number of days paid leave hall not exceed 45 days.

Employee record
An employee with 10 or more regular employees is required to establish written rules and regulation in Thai language governing work performance and to display these regulations on the work pre3mises within 15 days from the date that the number of employee reaches 10 employees or more. A copy of these rules and regulation must be submitted to the Department of labor Protection and Welfare within seven days from the date that the employee announces or displays the working regulations.

An employee with 10 or more regular employees is also required to maintain an employee register in the Thai language together with document s pertaining to the payment of wages, overtime, holiday work and overtime on holidays. The employee register must be maintained for at least two years after the date of termination of employment of each employee together with the supporting source documents.

Workmen’s compensation
The compensation Act 1994 prescribes that the employer must provide the necessary compensation benefits for employees who suffer injury or illness or who die an a result or in the performance of their work at the rates prescribed by law. The compensation benefits can be grouped into four categories: the compensation amount, the medical expenses, the work rehabilitation expenses and the funeral expenses. The payment of compensation benefits will be made in accordance with the criteria and rates prescribed by law depending on the seriousness of the case. In general, the compensation amount must be paid monthly at the rates of 60 per cent of the monthly wages of the employee but not lower than 2,000 bath and not exceeding 9,000 bath per month. The monthly payment of the compensation amount will be paid over a specific period of time and based upon the criteria prescribed by law to the employee who is unable to work ccontinuously for more than three days, has lost an organ, has become disable or dies. Actual and necessary medical expenses must be paid but not exceeding 35,000 bath for a normal case and 50,000 bath for a serious injury. The work rehabilitation expenses will be paid as necessary according to the criteria, procedures and rates prescribed by law but not exceeding 20,000 bath. In case of death, the funeral expenses will be paid at a maximum amount equal to 100 times of the minimum daily wage rate prescribed by law.

An employer with 10 or more regular employees is required to contribute to the Compensation fund maintained by the Office of Workmen’s compensation Fund in the Social Security Offices. The Compensation Fund has been established in order to directly indemnify employees who suffer injury, illness or death as a result or in the performance of their work. The employer must pay contributions by January 31st of the following year at the rates prescribed by the Ministry of Labor and Social Welfare.

Social security
The Social Security Act 1990 and its amendment, the Social Security Act (No. 2) 1994 require all employers with 10 or more employees to withhold social security contributions from the monthly wages of each employee. The prescribed rates applied to the monthly wages are:

From Jan. 1, 2000 – Dec. 31, 2000 Rate three per cent
From Jan 1, 2001 onwards Rate = 4.5 per cent

However, the maximum monthly wage base on which the above rates are applied must not exceed 15,000 bath. The employer is required to match the contribution from the employee. The contributions of both the employer and employees must be remitted to the Social Security Office within the 15th day of the following month.

Employees with social security registration may file claims for compensation in case of injury of illness, disability or death which is not due to the performance of their work, and for cases of child delivery, child welfare, old age pension and unemployment. The social security contributions are envisaged to rise as the benefits to be provided to employees are increased.

Termination of employment
If an employment contract does not specify any duration, either party can terminate the contract by giving notice at or before any time of payment, to take effect in the next pay period. An employee may be dismissed without due notice and severance pay if the employee:

- Intentionally commits a crime or act of dishonesty against the employer
- Intentionally or negligently causes the employer to suffer damage
- Violates the employer’s work rules, regulations or lawful orders and a written warning has been given (except that such warning is not required for serious offences)
- Has been absent for three consecutive working days without a reasonable excuse
- Is adjudged to serve a prison sentence (except where such sentence arose due to negligence or petty offence)

An employee terminated without a valid cause as stipulated by law is entitled to receive the following severance pay:30 day’s wages where the employment period is at least 120 days but is less than three years.

• 90 days’ wages where the employment period is at least three years.
• 180 days’ wages where the employment period is at lest three years but is less than six years.
• 240 days’ wages where the employment period is at least six years but is less than ten years.
• 300 days’ wages where the employment period is ten years or more.

In the event that the employer relocates its place of business that essentially affects the normal living of an employee or his / her family, the employer must notify the employee of the relocation at least 30 days in advance or pay an amount in lieu of the advance notice equal to 30 days’ wages. In this connection. If the employee refuses to move and work in the new location, the employee has the right to terminate the employment contract and is entitled to receive a special severance pay of not less than 50 per cent of the prescribed rates of severance pay.

In the event that the employer terminates the employment of an employee as a consequence of streamlining the work units, production process and distribution service, due to the introduction or change of machinery or technology which thereby results in the reduction of the number of employees, the employer must notify the Labor Inspector and the employee concerned at least 60 days before the date of termination of the employment or pay in lieu of the advance notice to the employee an amount equal to 60 days’ wages. The terminated employee will be entitled to the prescribed severance pay. Moreover, if the terminated employee, has worked consecutively for over six years, the employee would be entitled to an additional special severance pay at the rate of 15 days’ wages per one full year of service, calculating from the start of year seven onwards. However, the total amount of this additional special severance pay is limited to the equivalent of 360 days’s wages.Patents, trademarks, and copyrights
Patents
Although Thailand is not a member of the Paris Union or signatory to any other international convention for reciprocal protection of foreign patents, it has a number of bilateral agreements entitling citizens of those countries to file patent applications in Thailand and vice versa. Under the patent Act (no.3) of 1999, patents for inventions have 20 years’ validity, petty patents are valid for six years and can be extended twice for two year period each and a product design patent is valid for 10 years.

Certain inventions are not patentable in Thailand, including:

• Naturally existing microorganisms and their components, animals, plants or animal or plants extracts,
• Scientific or mathematical principles and theories,
• computer programs,
• Diagnosis methods or treatments of human beings or animals,
• Inventions which are against public order, morality, health or welfare.

Trademarks
Trademarks are provided protection under the Trademarks Act of 2000 and other ministerial regulations. Registration of a trademark may be accomplished by the trademark proprietor himself or through an agent. Application for registration must be made on official forms duly signed either by the proprietor or the agent. If an application is approved, the registration will be published in the Trademark journal. Once published and not opposed. The proprietor has the exclusive right to use the registered mark for all the products of the classes in which registration has been granted. Registration remains effective for 10 years from the date of the registered trademark must be made within 90 days before the date of expiration.
The Trademark Act allows the protection of Service Marks, Service Names, Collective Marks, Certification marks, and Trade Names.

Copyright
The Copyright Act 1978 was repealed and replaced by the Copyright Act 1994. The types of creative work qualified for protection under this Act are literary work, dramatic work, artistic work, musical work, audiovisual material, motion picture, sound recording, sound and picture broadcast, or any other works in the field of literature, science, or arts. A copy right is under protection for the period of the life of the creator plus 50 years from the date of creation, or 25 years where the copyright is of applied art.

Thailand is a member of the Berne convention for the Protection of Literary and Artistic works. This allows certain copyrights registered in other Berne Convention countries to be enforced in Thailand.

Foreign exchange regulations
From April 1, 1991, Thailand has substantially relaxed its control of foreign exchange transactions. The relaxation of controls effectively allows authorized banks to conduct majority of foreign exchange transactions without government control.

Thai residents must exchange foreign currency or place these on deposit in a foreign currency or place these on deposit in a foreign currency account with an authorized bank within seven days of receipt. The daily balance of a Thai resident’s foreign currency account must not exceed US$ 5 million for juristic persons and US$ 500,000 for an individual.

There is no restriction on the amount of investment funds or foreign loan funds that may be remitted into Thailand. Records of inward remittance should be maintained to expedite subsequent outward remittance. Foreign exchange capital investments and loans must be converted into Bath or deposited in a foreign exchange account within seven days of receipt by a Thai resident,.

Repatriation of capital in vestments, loan funds, profits, interest, and dividends out of Thailand is not restricted, although tax is generally withheld on remittances of profits, interest, and dividends. The amount of Thai currency that a traveler may take out of Thailand is limited to 50,000 bath.

Thai residents can repatriate funds offshore for international capital investments and loans up to US$ 5 million per year but approval of the Bank of Thailand must be obtained as a matter of formality.

Proceeds of exports from Thailand in excess of Bath 500,000 must be collected within 120 days and converted into Thai currency or deposited in a foreign currency account within seven days of receipt.

Export and import regulations
Although Thailand’s exports and imports generally proceed with a minimum of regulation, certain items are subject to restrictions in the form of outright prohibition, imposition of duties, or licensing of dealers. Thus, export of unmilled rice and rice bran is expressly prohibited. Other goods. However, such as rubber, timber, rice hides and skins, silk yarn, and iron scrap may be readily sold to foreign buyers, but duties must be paid on them. To export certain items such as gold, cattle or sugar, one must secure a license from the pertinent government authorities

With the exception of some specified items considered to be in direct competition with domestic products, goods may be freely imported into Thailand. A license to import any of the specified items must be secured from the Ministry of Commerce. Application for the license must be accompanied; by a supplier’s order, confirmation, invoice, and other pertinent documents. One must secure additional special permits from government authorities other than the Ministry of Commerce to import certain articles subject to controls under other laws and regulations.

Source: American Chamber of Commerce in Thailand and Thailand Opportunities Magazine, Jul-Aug 2002

Related Documents
Labor Costs Regulations

Related Links
Ministry of Labour and Social Welfare
Department of Intellectual Property
Immigration Office, Police Department Department of Consular Affairs
Ministry of Foreign Affairs

Challenges ahead
With the economy bottoming out in late 1998,Positive growth began in the first quarter of 1999, with real GDP finishing 0.2 per cent above the same period in 1998 and continuing to make gains throughout the year. Real GDP for the year reached 4.2 per cent and the Thai government has projected growth of 4.5 to five per cent for 2000.

The most important drivers of the economic expansion were increased domestic consumption and exports. Private consumption rise 3.5 per cent in 1999 and exports by the end of 1999 and exports by the end of 1999 were up by 7.4 to five per cent for 2000. exports climbed 30 per cent over the same period in 1999 and the government revised their forecast for export growth to 9.6 per cent for the year.

Manufacturing, trade and services are expected to be major contributors to growth, but public enterprise investment is expected to increase and the fiscal deficit is likely to continue at least through 2001. Thailand is making significant progress in addressing remaining obstacles to solid economic growth over the medium term and given continued progress and the absence of major external shocks, such as a major US downturn, the Thai economy should again expect moderate growth in 2001.

Political framework
Thailand is a constitutional monarchy ruled by King Bhumipol Adulyadej (Rama IX), a much revered monarch who has reigned since 1946. The King plays little part in day-to-day government operations, but serves as a powerful symbol of Thai national identity and commands enormous moral authority, which he has used on occasion to resolve internal crises or to draw the government’s attention to pressing social problems.

Real power, however, lies in the hands of democratically elected government led by a Prime Minister. Since World War II, Thailand has alternated periods of democratically-elected civilian governments with authoritarian rule, brought about by coups d’etat. The military last seized power in 1991, but after middle-class protests and royal intervention, civilian rule was restored in 1992. since then, the military has taken pains to avoid interfering in the operation of civilian government.

Because Thailand has so many political parties, each civilian government has been a multiparty coalition and inherently unstable. No elected government has yet completed a four-year term. Following democratic reform, Chuan Leekpai of the Democrat party came to power in November 1997 and led the government until the last general election on 6 January 2001, which was decisively won by the Thai Rak Thai party led by Thaksin Shinawat, a prominent and highly successful businessman, The new Prime Minister and his government will assume power in February 2001 and have promised major reforms. However, most observers do not expect major government economic policy changes that would affect business prospects for foreign investors, regardless of the composition of the incoming government.

Doing business in Thailand can be challenging, but the government appreciates the need for foreign investment and this is certain to remain a central tenet of Thai economic policy basic strengths and the government’s policy initiatives should provide better opportunities for US investors and business over the medium term as the economy recovers from the economic crisis that began in 1997.

External political view
Thailand’s external political view is increasingly centered on development of strong regional economic and security forums. Thailand is a major force in the Association of southeast Asian Nations ( ASEAN), of which it held presidency in 2000, and plays an active role in economic organizations such as the Asia-Pacific Economic Cooperation forum (APEC) and world forums such as the World Trade Organization (WTO) of which former commerce minister Supachai Panitchpakdi was Deputy Head. In 1996, Thailand hosted the first Asia-Europe Summit (AEM), which brought together heads of government from 25 countries in the European Union (EU) and East Asia. With little immediate military threat to its sovereignty, Thailand has focused its international policy on trade development and investment, while addressing security regional dialogue known as the Asean Regional Forum (ARF).

Trade and security relations
Thailand’s trade relations have traditionally been oriented toward distant markets, particularly those in North America and Europe though more recently also that of Japan,

Implementation of an Asean Free Trade Area (AFTA) is contributing to growing trade between Thailand and its ASEAN partners. This trend will likely continue as AFTA is fully implemented by 2003. Thailand has already implemented the first round of duty cuts on very high-tariff goods imported from ASEAN countries.

Principal growth sectors
Thailand’s economic recovery from the 1997-98 economic crisis is led by exports, and these sectors currently have the brightest prospects in the Thai economy. Principally, the electronics manufacturing and assembly and the automotive sectors are driving Thailand’s export boom. Significant new foreign in vestments in plant and equipment have occurred in these industries, with a number of major companies buying out their Thai manufacturing partners. Others have invested in making Thailand their regional manufacturing hub for Southeast Asia.

Exports have continued to demonstrate a strong growth rate of 30 per cent through the first quarter of 2000. Thailand’s export strength is found in both traditionally strong sectors such as electronic parts and integrated circuits, fisheries products and apparel, a well as new sectors, notably the automotive industry, where exports of finished vehicles and auto parts and components exceeded US$ 1 billion in 1999 .New large-scale investments in Thailand’s automotive sector continue to be made, with a new General Motors assembly plant opening in mid-2000 and other firms, such as Volkswagen, establishing assembly plants and new parts makers also entering the market. Automotive related industries are expected to play an increasingly larger role in the growth of the Thai economy.

Thailand is also seeing an emphasis on improving its information technology infrastructure, in response to growth in internet-related services demand, the requirements of supply chain management systems and increased integration o f suppliers in global manufacturing network. Most industry experts foresee strong growth in both the hardware and soft ware markets in industrial, commercial and consumer applications in the IT sectors

Some leading sectors from pre-crisis times remain as primary targets for government programs, most notably the agricultural sector, where programs to increase productivity remain priorities on the public agenda. These include a large-scale program to improve water resource management which is being funded by a loan from the Asian Development Bank.

Thailand: Key economic indicators

Government role in the economy
Government has played a major role in setting the framework and establishing conditions for Thailand’s economic recovery, particularly in the financial arena. However, with the exception of state enterprises in utilities, transportation, energy, tobacco and commercial banking, the government plays little role in the economy. The government’s policy to privatize state enterprises announced in 1998 has encountered significant opposition and progress has been slow. The major exception has been in the financial sector where the government re-privatized two banks, now majority owned by foreign banks, and the sale of another two banks is likely in 2001.

The financial crisis led to some budget retrenchment, although this was relatively modest in local currency terms. The 2000 budget was set at US$ 22.6 billion and a budget of US$ 23.9 billion has been projected for 2001. Spending by category remained broadly similar to previous years with education claiming over 25 per cent of the budget. Social services and general administration were allocated 11 and 12 per cent, national security and public order received 16 per cent, while agriculture, communications and transportation, and public health received approximately 7.5 per cent each. The government’s proposed 2001 budget, which calls for a deficit of US$ 2.8 billion to continue stimulating domestic demand, is expected to have similar allocations.

Balance of payments
Thailand traditionally had a balance of payment surplus in which foreign investment and foreign borrowings outweighed a deficit in the current account. In 1997, however, the positions of the capital and current accounts reversed. The current account deficit declined dramatically and the capital account turned negative as foreign investment plummeted and foreign borrowings were repaid. In 1997 the overall balance of payments fell to US$ 10.6 billion, its first deficit in decades, but in 1998 the balance of payments had returned to a surplus of US$ 1.7 billion with a current account surplus, a modest export revival and very weak imports out-weighing a continued deficit in the capital account. The same conditions applied in 1999,with a current account surplus averaging almost US$1 billion per month combining with lower capital outflows to yield an overall balance of payments surplus of US$ 4.6 billion.

Officially, the government expects the balance of payments surplus to decline to US$ 0.2 billion in 2000 based on a current account surplus of US$ 1 billion and implied capital outflow of around US$ 7.5 billion. Overall, foreign reserves are expected to remain comfortably above US$ 30 billion, enough to cover seven to eight months of imports and equal to nearly three times Thailand’s remaining stock of short-term external debt.

Trade barriers
During 1999, Thailand’s average effective tariff rate was 3.81 per cent, a marginal increase over the previous year, but down significantly from 5.5 per cent and 6.7 per cent in the preceding years. The lower rates reflect Thai government policies to reduce rates in line with the ASEAN Free Trade Area (AFTA) and World Trade Organization commitments. Import tariffs in 1999 accounted for 9.35 per cent of government revenues, significantly down from 14.9 per cent in 1996.

Thailand has been working to rationalize a complicated tariff regime, with a multitude of rates, with a system that will dived products into three categories of primary, intermediate and finished goods. In general most imported goods are now divided into six categories as follow: goods such as medical equipment and fertilizers at O per cent; raw materials, electronic components, and vehicles for international transport at one per cent; intermediate goods at 10 per cent; finished products at 20 per cent; and goods where competing Thai products are regarded as needing protection, such as some fabrics, clothing, refrigerators and air conditioners, at 30 per cent.

Since 1997 duties on over 4000 items have been reduced and the governments, in July 2000, announced plans for reductions on a further 542items (mainly chemical products and machinery) to improve the competitiveness of Thai producers. A previous round of reductions. Targeted at stimulating industrial production, was announced in August 1999.

Anomalies in the Thai tariff schedules remain. In some cases import duties on component parts and materials destined for assembly in Thailand are higher than on the finished products. Most of these problems are expected to be addressed as Thailand completes its adoption of the new simplified system.

Investment climate
The Thai governments has long maintained an open, market-oriented economy and encouraged foreign direct investment as a means of promoting economic development, employment and technology transfer. Thailand welcomes investment from all countries and seeks to avoid dependence on any one country.

Over the past three years, in concert with the IMF, the Thai government has embarked on an economic reform program intended, in part, to foster a more competitive and transparent climate for foreign investors and creditors in an effort to stimulate investment. A primary focus of this Property Leasing Act, which will to some extent liberalize restrictions on property ownership by non – Thais.

Of more direct interest to non-financial investors is the new alien Business Act which became law in early 2000 and governs most investment activity by non-US nationals, opens additional sectors to foreign investment, and increases maximum ownership stakes in some sectors above the current 49 per cent limit. The ministerial regulations that will guide implementation of the Act are currently under review.

Many aspects of the reform measures enacted in the aftermath of the crisis were controversial and strongly resisted by the political opposition and other powerful elements of Thai society. The fact that the government was able to persevere with its reform agenda in the face of strong domestic opposition is indicative of its commitment to economic reform and an open investment climate.

Income distribution
Thailand’s GDP totaled US$ 123 billion in 1999.Compared to some of their neighbors, Thai citizens enjoy a comparatively rich per capita income of US$ 2,370. In Thailand’s largest city, Bangkok, residents enjoy a rich per capita income of US$ 6,000 and in this country of abundant food and natural resources, a level of purchasing power parity exceeding that of many countries with higher income levels of abundant food and natural resources, a level of purchasing power parity exceeding that of many countries with higher income levels. According to the World Bank, Thailand is expected to attain its pre-crisis level of output in 2002 and its pre-crisis level of welfare in 2003.

The minimum daily wage is equivalent to roughly US$ 5.80 per day in the Bangkok area, slightly less in outlying provinces.

Labor force
The Thai government projects a labor force in 2000 of 33.06 million workers out of a population of 62.7 million. This figure includes all Thais 13 years of age or older who are actively seeking work. A government survey in February 2000 estimated unemployment at 4.3 per cent, compared to 4.2 per cent in 1999.

In 2000, official estimates are that 39.8 per cent of the employed Thai work force was still engaged in agriculture, either on a par-time or full-time basis. It is common for rural laborers to take jobs off the farm during slack periods in the planting and harvest cycle, or to carry on a small business in addition to farm work. The shift of workers from the agricultural sector is continuing; the proportion of those working the land continues to drop, especially in the northeast where agricultural productivity and investment is marginal. As a consequence, recent years there has been a constant flow of rural, generally unskilled, Thais seeking work in Bangkok and the more industrialized regions, both as seasonal workers and on a permanent basis. This avail-ability of migrant labor has contributed to Thailand’s rapid industrial growth, particularly in the light manufacturing and construction sectors, but has created its own social problems in both the rural areas where young people have left their traditional communities and in the cities to which they have migrated.

The economic downturn has stemmed the shortage in the labor market of workers with at least a secondary education. When Thailand’s economy recovers, however, it is likely that highly skilled and experienced engineers, technicians and managers will again be in short supply.

Thailand’s education system is still geared toward the needs of a largely agrarian, traditional economy and society, and lags behind the country’s contemporary skill requirements. The government has made great progress over the last two decades in providing basic education. Primary enrollment in Thailand is now about 95 per cent and the adult literacy rate is reportedly one of the best in the region. However, compulsory education is only through grade six, and a plan to introduce legislation to raise compulsory education to the north grade was abandoned because of resistance in rural areas and budget concerns.

Thailand’s social security system is considered inadequate by Western standards and does not cover unemployment compensation. The labor relations climate is generally peaceful with strikes relatively infrequent. Less than two per cent of the total labor force is unionized, with about 10 per cent of the industrial workforce organized. In 2000 the union right of state enterprise workers were restored and state enterprise labor unions were being re-certified and electing new union leaders.

Opportunities and best non-agricultural sector prospects
Given the Thai economy’s long-term dynamism and diversity, there are many industry sectors with attractive opportunities for US companies. As a general observation, companies that made long-term strategic decisions to invest and manufacture on Thailand have not changed their minds about the merit of their strategy, although many have revised their short-and medium-term tactics to cope with the financial crisis. Nonetheless, the combination of industrial growth and developmental growing pains means significant opportunities for American firms interested in taking on the challenge of this complex, but rewarding, market.

Among the most promising sectors for investment are; airport and ground support equipment, water resources equipment, automotive parts/ services equipment, medical equipment, laboratory and scientific instruments, education/ training services and supplies, franchising, food processing equipment, computer software, computer services, electronic components, computers and peripherals telecommunications equipment, leasing services, and electronic industry production/test equipment.

Following are some of the sectors that may be of greatest interest. A more complete listing and in-depth information on each sector are avail-able from the Us Embassy’s Commercial Office.

Airport and ground support equipment
Construction of the New Bangkok International Airport, with a budget of approximately US$ 3.5 billion, has budget of scheduled for completion in late 2004. the construction of this new airport will follow its original master plan of two runways and one passenger terminal designed to accommodate 30 million passengers annually. US companies are strongly encouraged to participate as suppliers from this project since there are no specific requirements for materials, equipment and components. To cope with increasing passenger demand, the government has also decided to invest US$ 118.9 million in expansion and improvement of the existing international airport. The best prospects for Airports and ground support equipment and services, in the near term, are as follow: navigational aid equipment for control towers, instrument landing systems, passenger bridges, baggage handing/detection systems, and aircraft refueling system.

Water resources equipment and services
Water resources development and management has always been a Thai government priority and a budget of approximately US$ one billion is allocated each year for this, with some water resource projects also financed by loans from international financial institutions or by aid from foreign government. There is a growing demand for engineering services and equipment required for water resources development comprises engineering design, construction and equipment and has growth potential for international engineering consultants in the design of projects requiring advanced technology. Best prospects in this US$ 632 million market include; project engineering and management consultancy, and direct investment/participation in state enterprises’ privatized projects.

Pollution control equipment
Thailand’ pollution control equipment market has grown continuously over the past two years, despite the recession. Environmental infrastructure demands such as water treatment processors wastewater treatment systems, solid waste and medical waste disposal facilities, and air pollution monitoring stations are major concerns in the fiscal budgets of government sectors. Best prospects in this US$ 159 million market are; air pollution monitoring devices and instruments, odor control systems and monitors, solid waste medical waste and hazardous waste incineration systems and accessories, solid waste landfill components and equipment, industrial wastewater treatment chemicals/ equipment and sludge de-watering systems, water purification and distillation parts and equipment for industrial processing, and sewerage pipe cleaning machines and equipment.

Automotive parts/service equipment
{add business1.jpg} Thailand’s automobile market recovered in 1999 and is expected to reach the pre-crisis production peak of 600,000 units within five years, with an average growth of 22 per cent a year. Thailand has directed its policies at becoming an integrated automotive hub for the region and this year exports are expected to grow 44 per cent with vehicle exports reaching 180,000 units. With rebounding domestic sales, change of government policies governing the industry, and a competitive after-sales service sector, the US$ 6,520 million market offers opportunities in OEM parts and components, accessories, know how in parts manufacturing, equipment for tire and brake centers, pumps of all kinds, and emission control testing equipment.

Medical equipment
As the economy improves, imports of medical devices are expected to increase with an estimated market growth rate of 12 per cent. This growth will derive mainly from the private sector, as the governments is still cautious in spending on upgrading government facilities. The private hospital sector is recovering and shows good potential for the medical device market. In this US$ 249 million market, the best sales prospects are; heart valves and artificial blood vessels, stents/ cardiovascular equipment and accessories, disposable diagnostic test kits, respiration/ resuscitation devices and accessories, dental hand pieces and accessories, and non-invasive surgical equipment.

Laboratory and scientific instruments
The demand for laboratory, scientific and testing equipment in Thailand is expected to grow by about 13 per cent over the next few years due to upgrading of college and university laboratories, increased compliance with international standards, completion of a Science Park Project under the Ministry of Science, Technology and Environment, and the increasing importance of environmental and pollution issues. Best sales prospects in the US$ 236 million market are: gas analyzers, chromatographs, spectrometers, incubators, wafer meters, and analytical instruments.

Education, training services
As the Thai economy stabilizes, an even larger number of Thai students will seek to study abroad. American education institutions and ESL programs must gain greater exposure to potential students in Thailand in order to maintain their narrowing advantage in this US$ 590 million market. Best sales prospects in this field include; education and training equipment, educational games and toys, English language schools, computer training centers, and examination preparatory schools.

Franchising
The franchise industry is very popular among Thai investors and this is one of the very few sectors expecting average growth of 30 per cent over the next few years. The quality, standards and innovations offered by US franchises are well known to potential investors, although franchising fees are perceived as very high and start-ups require a large capital investment. The best sales prospects for Us franchises in this US$ 1,950 million market are; food and restaurant franchises, retail and convenience stores, hotel chains, service franchises such as automotive after sales services, cleaning and maintenance services, and internet related services.

Food processing equipment
The recession caused the food processing equipment market to contract by 40 per cent to US$ 317.5 million in 1998 However, the food processing equipment market improved dramatically in 1999, and is expected to continue to grow by 20 per cent annually over the next few years. The best sales prospects in this US$ 457.2 million market include; cooking or heating machinery, water filtering or purifying equipment, fruit/vegetable/herb processing equipment, snack food and confectionery equipment, and fast/ convenience food equipment.

Computer software and services
Thailand’s computer software and services market was the least impacted by the economic crisis compared to other sectors in the IT market and expects the highest growth rate in value, starting at 14 per cent in 1999. Thailand has increasingly accepted IT as a means to enhance its competitiveness as the country moves towards business globalization. The market value ratio of hardware, software, and services for 1999 is projected at 51 per cent, 19 per cent and 30 per cent respectively. The 1999 computer service market represents US$ 52 million for maintenance services and US$ 153 for professional services. The breakdown between revenues of foreign and locally owned companies is roughly 65/35 with the US commanding an 80 per cent share of foreign companies’ revenue. The US is the leading computer service provider with an excellent reputation for quality and enhanced technology.

Economic Outlook 2002- A Summary of NESDB Press Release dated 17 June 2002
(I) First Quarter of 2002
{add bangkokcity2.jpg} The Thai economy expanded at a high rate – 3.9% in the first quarter of this year as a result of domestic stimulus programs and high quantities of export goods.

Internal supporting factors composed of (1) low interest rate which the Bank of Thailand and commercial banks lowered had stimulated durable good consumption (2) higher farm prices leading to greater farm income (3) the rebound of the stock index by 34 % compared with the end of 2001 enhancing shareholders’ wealth and boosting investors’ confidence and (4) successful stimulus program in real estate sector such as lowering transfer fee, and measures supporting civil servants to have their own houses.

External supporting factors consisted of (1) lower oil prices in the world market compared with the same period of last year and (2) the recovery of the global economy, which started to positively affect Thai exports.

(II) Latter Half of 2002
In the latter half of this year, the Thai economy is expected to expand further as domestic demand and export volume remain the main driving forces. Key supporting factors are: the recovery of the world economy, particularly the USA, EU, and Japan, which was mainly caused by expansionary fiscal and monetary policies; low interest rate will help stimulate durable goods consumption and boost private investment; inflation remains subdued; in the first five months inflation rate was only 0.5% as gasoline price was rather stable; stock index is likely to be higher towards the end of the year, which will help generate good atmosphere for consumption and investment; licensed construction areas throughout the country increased by 37% and 68.8% in the fourth quarter of 2001 and the first quarter of 2002, respectively. This reflects high potential growth in real estate sector in next periods.

(III) Economic Projection for 2002
High economic growth in the first quarter of this year is a good start for the year as a whole, particularly, if the pick-up of the world economy in the latter half of this year helps generate balance between internal and external driving forces. Therefore, it is expected that the economic growth in 2002 is in the range of 3.5 -4.%.

Projections by sector for 2002 is summarized as follows: private consumption expands by 3.5%, closed to that of last year; private investment expands by 5.8%; government consumption expands by 8% as government investment grows by 2%; value of exports in US dollar terms is 64.3 billion, growing by 1.7% compared with that of last year. – most of which will be due to increases in quantities rather than prices; value of imports is 63.4 billion US dollars, growing by 4.5%; current account registers a surplus of 4.4 billion US dollars, equivalent to 3.6% of GDP.

Source: American Chamber of Commerce in Thailand and Ministry of Foreign Affairs

Related Documents
Thailand’s road to recovery by Ministry of Foreign Affair
Gross Domestic Product (GDP) : 1Q/2002

Related Links
National Economic & Social Development Board
Bank of Thailand
The Official Gateway and Guide to Thailand for Investors