A presentation on the BOI criteria for the next 8 years was recently released on their website.
Here is a quick summary of changes/details:
- The big winner is “knowledge based activities, with a focus on R&D and Design” – I suspect we shall see many applicants in this category
- Zones have been done away with – but there are now SEZ – special economic zones, notably in the south.
- Corporate income tax incentives are available for many different types of industries. The standard length is 8 years with other options to extend.
- Import duties can be eliminated or alleviated if your project meets certain criteria.
- The projects will only need a minimum of 1M Baht investment, which is a great sign and clears up misunderstanding where some people misunderstood guidelines.
- There is an additional clause about hiring foreign workers, if done for a knowledge intensive position that has A1 incentives, minimum spending must be 1.5M per year on salaries.
Other Things of Note: {updated after BOI meeting}
- agriculture and digital sector and crossovers between the two are highly attractive projects
- the government is aiming to create a situation where innovation can also be used domestically, as a benefit to Thailand
- Headquarters is still an attractive remedy for tax and work permit
- the government is looking to have electronic 90 day checkins
- The Bank of Thailand may be helping with Foreign exchange (FOREX).
- ministry of comerce has promised to reduce time needed for liscense for BOI companies
- Almost any country can claim a HQ if the HQ owns at least 25% of that subsidiary
- The emphasis is now placed on type of location more than region – as regions are abolished
- There are now incentives for “clusters” in the poorest 20 provinces in GDP per captia, the min. investment threshold for businesses in these areas is 500k baht and other additional incentives are provided
- Software companies get 5 year tax exemption + an additional 3 years are possible
- There was constant talk of cleaning up all corruption, and aims to be globally competitive
There is still a rather intensive process to obtaining a BOI license in Thailand. We are experts at obtaining that license and helping you create the business plan and get it into the right hands at the board of investment.
Please view the infographic below for full details on the process, and drop your information in the form below to receive more information.
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Take a look at the infographic below that outlines all the steps in BOI company formation. As you can see, there are many individual steps to take, but don’t worry because we’ll walk you through it. If you’re ready to begin the journey and form your own Thai BOI company please fill in the form at the bottom of the page so we can start getting to work setting up your company.
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The Thailand Board of Investment (BOI) is able to provide special tax privileges to those companies that it promotes. It therefore can be very advantageous—especially for startup companies—to seek promotion from the BOI.
The two main tax benefits that the BOI is able to grant are:
- Exemption of corporate income tax for a period of 8 years
- 50% reduction in corporate taxes for 5 years following the period of exemption
What it Means in Practice
The exemption from corporate income taxes and other benefits derived from being awarded a BOI certificate can be very strictly controlled in practice. For example, if a promoted company splits their operations between a promoted and a non-promoted business, then the special tax exemption will only apply to the activities of the promoted business. This would require the company to keep separate accounts and records for each of the two businesses. Therefore, a promoted company will have to pay close attention to make sure all of their business activities are within the scope of those promoted by the BOI if they want the tax exempt privileges to count for the entire company.
Debt forgiveness is another area that promoted companies need to be aware of. Since the release or forgiveness of debts by a creditor is not counted as a tax exempt business operation, the amount of debt forgiven can be considered income and is subject to income tax. However, net losses that are incurred during the period of tax exempt status can be carried forward and deducted as expenditure from the net profits acquired during the subsequent five year period.
Value Added Tax
Companies receiving BOI promotion are still subject to VAT, however, they can have a guarantor or deposit security to guarantee the VAT amount on imported goods, rather than paying the amount of the VAT. A letter from the BOI can be used as a letter of guarantee as opposed to a regular letter of guarantee from a bank. In regards to VAT on imported machinery, BOI promoted companies are exempt from import duties on machinery and equipment that gets approved by the BOI.
Withholding Tax
BOI promoted companies are not subject to withholding tax during the period of corporate income tax exemption since withholding tax is essentially just an advance payment of income tax. A copy of the company’s BOI certificate should be sent to any entity that will be giving payment to the company before such payment is given.
Multiple BOI Certificates
In the case where a company has been given more than one BOI certificate, the net profit and loss incurred under all the BOI certificates need to be combined as a single amount. If during the tax exempt period, this net amount is a profit, this amount will be not subject to income tax. However, if the net amount is a loss, then the company is allowed to carry this amount forward into the following five year period, where it can be deducted as expenditure from the net profits starting from the end of the tax exempt period.
Dividends
Dividends that are distributed by a BOI promoted company can be exempt from income tax provided that these dividends were distributed during the period of tax exemption and that they come from the company’s net profits.
Intellectual Property
If a BOI promoted company receives any remuneration from ownership of copyrights or intellectual property, the company will be exempt from owing income taxes on such income for a period of five years provided that the agreement on intellectual property income is approved by the BOI.
Utilities
Electricity and water expenses, as well as transport can be deducted as expenditures at double the actual amount spent.
Thailand and Malaysia are a pair of emerging Asian “Tiger Cub” economies that each have their own system for encouraging foreign investment. To attract foreigners to set up businesses in each country, we have the Thailand Board of Investment (BOI) promotion one one side and the Malaysia Labuan Company on the other. Each of these types of company setup has it’s own specific advantages, so if you’re thinking about moving to Southeast Asia and starting up a company, it’s good to compare these two setups—along with the other advantages and disadvantages of living and working in each country.
First off—the basics. What exactly is a Thailand BOI promoted company and a Malaysia Lauban Company?
Thailand BOI Promoted Company
The Thailand BOI has authority to promote companies that it deems will be beneficial to the country by allowing special privileges and tax benefits that normal Thai companies don’t get. These include a Corporate Tax holiday for up to 8 years, elimination of VAT duties on import of machinery, and giving exceptions to restrictions on foreign ownership. The BOI is promoting heavily in the manufacturing and high tech sectors, especially where there can be displayed a transfer of technology to Thai people and employment of Thai workers in these areas. The new chairman of the BOI has also indicated that projects applying for BOI promotion should be green and not damaging to the environment.
Getting a BOI company set up requires going through several steps that could take between 2-6 months. You’ll need to have a minimum of three company shareholders with a minimum capitalization of one million baht. However, only 25 percent of this needs to paid initially, with the rest required to be shown within the first three years of operation. You will also most likely need to apply for and obtain a Foreign Business License particularly if a foreigner is a majority shareholder. The benefits are you’ll be able to obtain visas and work permits for foreign employees and shareholders, and the BOI has authority to grant exceptions to the 4:1 Thai to foreigner employee ratio that is required for obtaining work permits in regular Thai companies.
With a Thai BOI promoted company, you can enjoy operating tax free during the crucial startup phase of your company while based in a country with relatively low overhead and payroll costs. For example, you can find local software developers straight out of university for under $500 per month, and even those with 5+ years of experience are available to hire for $1000 per month. Rent for office space will be much less than it would be in the US or other developed countries. Also, you can extend your runway greatly by paying yourself a much smaller salary than you’d need to live on in a western country. Most people could live quite comfortably on $1000 a month in a city like Chiang Mai while still enjoying a good life—eating fresh tropical fruit everyday, going out to enjoy movies, having drinks with friends, getting massages, great coffee, trips to the beach using cheap local flights, etc.
Malaysia Lauban Company
The island of Lauban is a federal territory just 8 km off the shore of Borneo in Eastern Malaysia. Under the Labuan Companies Act of 1990, residents and non-residents of Malaysia alike are permitted to establish Labuan companies. These companies are intended to bring in foreign capital and turn Labuan into a major offshore financial center in the region. One of the key features of a Labuan company is that they must conduct business a currency other than Malaysian Ringgit. One of the main benefits of a Lauban company is a low Corporate Tax on net profits of either 3 percent with an annual audit or a flat RM20,000 annually with no required audit. A Lauban company is also quick to set up and requires virtually no capitalization. A single individual can act as both the director and single shareholder, and there is a minimum of just one share required, with no restriction on share price. This means that a Labuan company can be established with just $1 of paid up capital. There is also a minimum registration fee of RM1500 that needs to be paid, but the registration process is relatively simple and can be completed in about a week.
A Lauban company is not required to maintain a physical office, which makes it an ideal company setup for e-commerce and consulting businesses. This company setup is also well-suited for import and export businesses, for which no trade licenses are required. Labuan companies are exempt from VAT and Sales and Service Tax, and there is no Withholding Tax for interest and dividends. Those with a Labuan company are able to apply for a 2-year, renewable business visa that allows them to reside in Labuan or anywhere else in Malaysia.
Comparison of Thai BOI and Labuan Companies
| Thailand BOI Company | Malaysia Labuan Company | |
|---|---|---|
| Capitalization | 1 million baht minimum, with 25% initially paid up | 1$ minimum |
| Ownership | Up to 100% foreign ownership possible with approval from BOI | 100% foreign owned allowed |
| Shareholders and Director | Minimum of 3 shareholders and 1 Director who can also be one of the shareholders | Minimum 1 shareholder and 1 Director, can be the same individual |
| Invoice Currency | Any | Any except for Malaysian Ringgit |
| Taxes |
|
|
| Business Visa | Shareholders and employees eligible for renewable 1-year visa | Renewable 2-year visa for up to 5 foreign employees |
| Company Setup Time | 2-6 months for company set up and BOI approval | 1-2 weeks |
Other Factors
The Labuan company is quicker to get set up and requires minimal paid capitalization, while the Thailand BOI company has the advantages of a 0% Corporate Tax rate and the possibility of hiring a larger number of Foreign employees. One also has to consider the potential advantages and disadvantages of basing yourself and your business in either Thailand or Malaysia. Thailand has an advantage in overall lower overhead costs, employee salaries, and cost of living expenses. Malaysia has slightly better infrastructure and a larger portion of the population with good English ability.
At the beach on Malaysia’s Penang island
If you work to live and not live to work, then you may enjoy being in Thailand more. It would be hard to disagree that it is the more fun-loving and laid back of the two countries. Thailand is one of the biggest international tourist destinations for good reason. It has excellent beaches, fantastic food, charming people, and an interesting Buddhist culture. Malaysia is predominantly Muslim, so alcohol is heavily taxed and the local people don’t party as hard as the Thais do. While it is true that Malaysia also has some beautiful beaches of its own, you may find the number of tourists wearing burkas outnumber those in bikinis. One thing Malaysia does have is plenty of great Indian food thanks to the sizable minority of the population of South Indian descent.
If community and finding a crowd of like-minded people is important to you, then this could also influence where you decide to establish a new business from. Both Kuala Lumpur and Bangkok have large expat communities, but you’ll probably find a larger number of western entrepreneurs calling Thailand their home.
The first meeting of Thailand’s new Board of Investment (BOI) was held on Wednesday, June 18. After taking over control of the country in a military coup, Gen. Prayuth Chan-ocha assumed chairmanship of the new 18-member board. The old BOI had accumulated a backlog of projects awaiting approval. Mirroring the quick action it has taken in other areas of governance since coming to power, the military jumpstarted administration of the new BOI by approving new projects worth 120 billion baht, or approximately US$3.7 billion.
This comes after the junta successfully distributed—in a matter of weeks—nearly 90 billion baht in overdue payments to about a million rice farmers who had failed to receive any compensation for many months from the previous government when the funds from a controversial rice-pledging scheme were mismanaged and mysteriously dried up.
The biggest winner in the announcement from the BOI was Toyota Motor Corp, which is planning to spend 51.5 billion baht to expand its production of pickup trucks and parts.
The projects winning approval were mostly industrial in nature. Some of the other projects receiving approval included:
- A tire production plant in Rayong by LLIT receiving 9 billion baht of investment
- A glass bottle production plant in Saraburi worth 1.9 billion baht
- A plant for producing laminated steel plates in Rayong receiving investments of 10 billion baht.
- A ceramics plant in Saraburi with an investment of 1.7 billion baht
- Cold storage projects by CPF in Nakhon Ratchasima, Chachoengsao and Samut Sakhon totalling around 2.7 billion baht.
- A new auto plant built as a joint venture of China’s SAIC Motor and Thailand’s CP Group worth 9.2 billion baht
- A data center by Luxemburg’s Supernap International for a 6.9 billion baht investment
The project approvals are a welcome shot in the arm to the Thai economy after approval for BOI projects had reached a backlog under the previous government of former Prime Minister Yingluck Shinawatra.
The good news for investors is that this is just the beginning for the newly revamped Thailand BOI, which plans to continue to support both domestic and foreign investment in the country.
General Prayuth listed four principals that he thinks investors should be mindful of:
- Research work by Thais and a transfer of technology to Thai people should be encouraged.
- Thailand’s raw materials should be used more for adding value to products for both domestic consumption and export.
- Projects applying for BOI investment support need to have made some effort to reduce their energy consumption, including making use of alternative energy sources.
- The manufacturing processes used in the proposed projects must not be destructive to the environment, and any large-scale projects need to have a full environmental impact study pass evaluation.
The announcement of the newly approved projects is encouraging for the future of investment in Thailand. Applications for BOI projects had dropped by 42% during the first five months of 2014 while the political deadlock brought uncertainty and slowed progress down to a halt. But with the military government keen to get the economy moving again, we can expect to see more action being taken by the BOI in the coming months.
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