Thailand is providing tax incentives for investments in 12 different industries. This article intends to provide you with all the details that you must know before investing in local startups in Thailand. The information comprises the eligibility requirements, targeted industries, and tax incentives.
The Thai cabinet granted Income Tax exemptions for investments in Thai startups, whether made directly or indirectly through people, businesses, or corporate venture capital, in March 2022. (CVC). The company must work in one of the government-backed industries.
Thailand was placed 50th out of 100 nations for the best startup ecosystems in the Global Startup Ecosystem Index 2021. After Singapore (10th), Malaysia (40th), and Indonesia (45th), the country is rated fourth in ASEAN. Additionally, Bangkok moved up 19 places in the world, from 90th to 71st.
Tax exemptions might result in 320 billion baht (US$9.3 billion) in capital for Thai entrepreneurs by 2026, resulting in 400,000 direct and indirect jobs.
These advantages will last until June 30, 2032.
Who are Eligible?
The following types of investments are eligible for income tax incentives:
Direct Investments: Individuals, Thai-registered companies or partnerships, and foreign-registered companies or partnerships are all involved.
Investment through Venture Capital: Comprised of corporate venture capital (CVC) funds, private equity (PE) trusts, and CVC fund and PE trust stockholders.
The CVC fund or PE trust might be set up in Thailand or elsewhere. Note that, if a CVC or PE is formed under Thai law, it must register with the Securities and Exchange Commission. Additionally, it must have a paid-up capital of at least 20 million baht (US$581,000) on the last day of the accounting period.
If the CVC fund or PE trust does not match this requirement, their tax exemption rights may be removed.
What are the Target Industries?
Only startups engaged in ‘targeted industries/activities,’ as defined by the Committee on Policy for National Competitive Enhancement for Targeted Industries, are eligible for investment. Note that, the National Innovation Agency (NIA) and the National Science and Technology Development Agency (NSTDA) are the government agencies in charge of certifying the target activities.
The targeted industries are divided into three groups:
New S-Curve Industries:
- Aviation and logistics;
- Biofuels and biochemicals;
- Robotics;
- Digital economy; and
- Medical hub.
Existing S-Curve Industries:
- Smart electronics;
- Medical and wellness tourism;
- Affluent tourism;
- Agriculture and biotechnology; and
- Food for the future.
Additional Industries:
- Defense and education; and
- Human resource development.
What are the Tax Benefits?
Direct Investment
For revenues resulting from the transfer of shares in local startups in Thailand, an individual or company registered in Thailand or overseas will be eligible for individual income tax or corporation income tax (CIT) exemption.
The shareholder must have held the shares for at least 24 months before transferring them. Before the transfer of shares, the startup must also engage in one of the target industries and obtain at least 80% of its income from the target activities for two consecutive accounting periods.
Investment through Venture Capital
The tax benefits granted to venture capital investments vary depending on the level of investment made by the CVC fund or PE trust. Additionally, it also depends on the amount invested by CVC fund shareholders and PE trust unit holders.
Tax benefits for CVC Funds and PE Trusts
CIT does not apply to the private equity trust. Therefore, for earnings obtained from the transfer of shares in Thai startups, CVC funds are eligible for CIT exemption. Anyways, before the transfer of the shares, the Thai startup must have generated at least 80% of its income. Additionally, it must be from the specific target activities for two consecutive accounting periods.
Tax Benefits for Shareholders of CVC Funds and Unitholders of PE Trusts
CVC fund shareholders and PE trust unit holders gets eligible for personal and CIT tax exemptions on capital gains from the sale of CVC fund and PE trust shares. However, the tax breaks are proportional to how much they invested.
The shareholder must have held the CVC fund or PE trust shares for at least 24 months before transferring them. Furthermore, for two consecutive accounting periods, the CVC fund or PE trust must have invested in a startup that generated at least 80% of its income from the specified activities.
Furthermore, gains from the dissolution of CVC funds and PE trusts are eligible for personal and CIT exemptions for owners and unit holders.
Did you find it difficult to understand the inner technicalities? We are here to help you. So, book your round of free online consultation with us today to know about this more deeply. Moreover, you can also leave us an email at [email protected] with your details after you decide to invest in local startups in Thailand.
