Japan has been Thailand’s leading investor for the past five years, according to the Foreign Business Operations Act of 1999. (FBOA). The Thailand Board of Investment (BoI) is the government agency in charge of giving investment incentives. According to its latest announcements, Japan leads the list of FDI source nations in 2021. Business inflow from Japan has a total investment value of THB 80.7 billion (USD2.4 billion) for 178 projects. Therefore, it is quite evident that there are a great lot of avenues of business in Thailand for Japanese.
Motor vehicle production, electronic components, aluminum and aluminum products, and rubber tyres and tubes were the prominent industries in 2021. When investing in Thailand, you must examine various considerations. These includes the type of investment, business operation constraints, and investment advantages and incentives.
Most Common Business Entity in Thailand for Japanese
A Private Limited Company is the most typical business entity used by Japanese investors for FDI in Thailand. It is because of its limited liability and flexibility in controlling activities. For example, shareholder liability has restrictions to the value of unpaid shares. Additionally, governance is flexible through articles of association if the articles do not contradict public order or Thai laws. Investors can choose to form a new company or purchase an existing one through an M&A transaction. It can be a share acquisition, an asset acquisition, or a merger.
Mergers & Acquisitions in Thailand for Foreigners
The simplest type of acquisition is when a buyer buys shares in a target firm. A buyer does so to gain and continue the business under its current licenses and assets. However, share purchases are risky. It is because the buyer also takes on all of the target’s obligations and liabilities. Additionally, the obligations and liabilities are of its holding companies as well. In terms of taxes, the seller will be responsible for capital gains taxes. Additionally, he is responsible for the stamp duty as well depending on the transfer price or par value.
Asset acquisitions, which allow the acquiring company to be more selective. It is possible by purchasing only some or all of the target’s assets and liabilities of a firm in Thailand. Employee transfers, unlike stock purchases, require the permission of all employees. Business transfers that match the requirements for a whole or partial hand-over scheme may be tax-free.
Amalgamation is a merger of two or more firms after dissolution of all merging entities. This leads to the formation of a new business entity altogether with new rights and obligations. Thai authorities may compel the amalgamating company that currently holds a license to apply for a license transfer or reapply. Foreign investors rarely utilize amalgamations in mergers and acquisitions.
Mergers, which are the consolidation of two or more firms. In this case, one company takes all of the rights and duties of the other target companies. However, the House of Representatives passed a bill that will change the Civil and Commercial Code to recognize mergers. The Senate is currently reviewing it.
Foreign Investor Concerns of Thailand
Restrictions on Foreign Business Operations:
Foreigners cannot operate certain businesses in Thailand under the FBOA. They must have an authorization to do so lawfully. A Foreign Business Licence (FBL) or a foreign business certificate (FBC) are such authorization.
The FBOA defines foreigner as:
(1) a foreign individual;
(2) a juristic person not registered in Thailand; and,
(3) a corporate entity in Thailand with 50% or more of its foreigner-owned share capital. It can be Thai juristic entities with 50% or more of foreign share capital.
The percentage of foreign capital is determined according to the ratio of capital and not voting rights.
Investors should assess if their investment shareholding structure qualifies them as a foreigner under the FBOA. Additionally, they must check whether their business operations are eligible for foreigners. Many investors collaborate with local or strategic partners. They do so to form a Thai firm with a Thai majority shareholding structure in some situations. As a result, the entity will be exempt from the FBOA’s foreign business prohibitions.
It’s vital to understand that the FBOA forbids “nominee arrangements.” Local or strategic partners must make a significant investment. There are no specific guidelines for evaluating “nominee arrangement” of an ownership structure. Any company if engages in such an arrangement has to face investigations of the Ministry of Commerce.
Restrictions on the Right to Own Land
Foreigners cannot own land under the Land Code unless specific laws and regulations allow it. It’s vital to note that the shareholding percentage requirement differs from the FBOA requirement. The code takes into account the share structure at all levels of the investment. It covers all from the initial investment to the eventual beneficial shareholder.
Investment Incentives for Foreign Investors in Thailand
The BOI promotes investment in Thailand under the Investment Promotion Act of 1977 (IPA). The Thai government grants foreigners with full ownership rights under the IPA. It is for them who make large investments and transfer technology to Thailand.
Grants of BOI rights are typically for manufacturing items as well as some non-manufacturing activities. Foreign nationals must transfer a specific quantity of capital, technology, and equipment technology into Thailand. They must do so within a certain time frame and under certain conditions in order to qualify for BOI promotion.
In general, the BOI provides two types of benefits:
Tax-based Incentives, such as tax holidays and tariff exemptions on imports; and,
Non-tax benefits are the following:
- Ability for foreign nationals to acquire 100% of a company,
- Own land, and,
- Take advantage of favorable visa and work permit laws.
All BOI-promoted projects, regardless of location or industry type, are eligible for the non-tax benefits.
The tenure of BOI to review applications is usually on the basis the investment value. Furthermore, it also depends on the level of completion of am application with all necessary documentation. However, it can take anywhere from 40 to 90 working days as a general guide. Additionally, it depends on the investment value and the nature of the business.
If a company qualifies for a BOI promotion permitting 100 percent ownership. However, if it qualifies for benefits under the JTEPA or JCEPA, it can acquire a certificate from the MOC.
Most Recent BOI Measures for Foreign Investors in Thailand
There is BOI approval for a set of investment acceleration measures to promote Thailand’s economy and encourage firms to use digital technologies.
- Within 12 months of the date of issuance of BOI promotion certificate, investments in target industries of value of at least THB 1 billion can avail an additional 50% CIT deduction for a term of five years. This is on top of the typical CIT exemption period of five to eight years that the BOI usually grants.
- The BOI has extended the deadline to apply for the special incentive programme for special economic zones in ten provinces. Kanchanaburi, Chiang Rai, Trat, Tak, Nakhon Phanom, Narathiwat, Mukdahan, Songkhla, Sa Kaeo, and Nong Khai are the provinces. The BOI is granting 14 target industries an eight-year CIT exemption and a 50% CIT deduction for another five years.
- Similarly, the BOI has extended the application time for the special incentive plan for the southernmost five provinces. Narathiwat, Yala, Pattani, Satun, and four districts in Songkhla are the provinces. This extension is valid until the last working day of 2022. The proposals include a THB 500,000 minimum investment requirement, an eight-year CIT exemption, and a further five-year CIT reduction of 50%.
- The Burapha University-based Genomics project is designated as a promoted zone for special activities. For investments made in these zones, the BOI is proposing a CIT exemption for 5-8 years. Additionally, BOI also proposes 50% CIT reduction for another two years.
- The BOI grants eligible investments a CIT exemption for 50% of investment value for a period of three years to encourage use of digital technology into the operation of new or existing projects. Eligible candidates have until the last working day of 2022 to apply. Therefore, there is still time to start a business in Thailand for Japanese investors.
The Bottomline
If you are from Japan and want to invest in Thailand, we can help you throughout the process. You must note that local legal and administrative help is always necessary for successful incorporation of your Japanese firm in Thailand. To get access to this, you may book a free round of consultation with us or email us at [email protected]. Post COVID, now it is a great time to multiply the capital by investing in a business in Thailand for Japanese investors.
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