According to the Thailand Board of Investment (BOI), Japan is a significant investor in Thailand. Notably, these investments are in important sectors like the automobile industry. The Eastern Economic Corridor, or the Eastern Special Development Zone, is an SEZ in three provinces along Thailand’s eastern seaboard. Major investors in this zone include Japanese businessmen. So would you like to join the race? Read this article to know the benefits of Japanese Investors if they start a business in Thailand.
There is a gradual improvement in the World Bank’s Ease of Doing Business rankings for Thailand. This process evaluates the business regulations in 190 economies. In 2020, Thailand received a rank of 21 and an average score of 80.1 out of 100. Therefore, this signifies more comfort to Japanese companies contemplating investing in Thailand. In terms of simplicity in starting a business, Thailand achieved one of the highest rankings by scoring 92.4 out of 100. A Private LLC is the most typical type of business entity in Thailand. One can incorporate it in just one week.
Basic Information for Japanese Investors to Start Business in Thailand
A foreign investor must know about the Foreign Business Act of 1999 (FBA) to understand the restrictions on foreign ownership. Generally, these restrictions apply to many business activities for foreigners in the Thai market. According to the Land Code of Thailand, foreigners cannot acquire land. The BOI promotional privileges can grant 100% foreign ownership. Additionally, it can provide other tax and non-tax privileges. This is one of the methods provided by Thai law for ensuring the legal ownership of businesses. The BOI and the Industrial Estate Authority of Thailand both have non-tax privileges. They allow foreigners to hold land, subject to the relevant terms and conditions in each case.
The provisions of the Japan-Thailand Economic Partnership Agreement (JTEPA) permit a higher level of engagement in a number of industries. This includes retail, wholesale, and restaurant business for Japanese investors. There is a recent expansion of the Japan-ASEAN Comprehensive Economic Partnership Agreement’s (JCEPA) service trade provisions. This makes it possible for up to 70% ownership of Japanese Investors in some service businesses.
Without a BOI promotional certificate and/or foreign business license, the foreign investor may invest in Thailand with Thai business partners. This is possible by forming a private limited company joint venture with a Thai partner.
Below is a brief summary of pertinent FBA provisions, BOI promotional privileges, and recent developments.
Foreign Business Act for Japanese Investors in Thailand
The FBA forbids foreign nationals from operating a number of business activities. Additionally, there are mandates applicable for permission or licenses from the Ministry of Commerce (MOC).
Schedule 1
Schedule 1 strictly forbids foreigners from engaging in a number of key business activities. Normally these activities are crucial to the interests of Thailand. Specifically, these include agriculture, and trading Thai antiquities or items. Overall, a foreigner can never trade anything that holds national and historical significance. Additionally, a foreign investor cannot trade in real estate.
Schedule 2
To run a Schedule 2 business, a foreigner must seek a license from the MOC with the Thai Cabinet’s consent. However, this is possible unless a foreigner has protection under treaties or privileges from the BOI. In Schedule 2, there are three chapters. Businesses crucial to Thai security and safety are in Chapter 1, along with businesses in transportation including shipping and aviation. The final two chapters discuss Thailand’s environment, natural resources, and/or traditional arts, crafts, and culture.
Schedule 3
This Schedule includes a list of industries where Thais do not have the potential to compete with foreigners. Schedule 3 lists several business categories, including wholesale and retail trade as well as the rendering of certain professional services like accountancy or legal counsel. Additionally, it has a general category “Other Services”. Unless a business obtains BOI privileges, protection under a relevant treaty, or in some cases it can rely on a minimum capital exemption. Schedule 3 businesses must obtain a license from the Department of Business Development, under the MOC, before operations can commence legally by a foreigner.
It may take several months to license a business under Schedule 3. The issuance of the license depends on factors like the type of business, the need to grant a license for such a business, etc. The Director General of the Department of Business Development holds the discretion to grant the license. Additionally, it needs the approval of a foreign business committee made up of representatives from various government agencies.
BOI Promotions for Japanese Investors to Start Business in Thailand
Under the Investment Promotion Act of 1977 (IPA), the BOI is responsible to promote investment in Thailand. The Thai government grants complete foreign ownership to foreigners who agree to make significant investments and transfer technology to Thailand under the IPA.
Generally, BOI grants privileges for both specific non-manufacturing activities and the production of goods. Foreign nationals must transfer a certain amount of capital, technology, and equipment into Thailand within a timeframe. Additionally, BOI outlines certain circumstances for foreign nationals to be eligible for BOI promotion.
Generally speaking, the BOI provides two different types of benefits: tax-based incentives like tax holidays and tariff exemptions on imports, and non-tax privileges like allowing foreign nationals to control a corporation at 100%, land, and advantageous visa and work permit regulations. Regardless of location or industry, all BOI-promoted projects are eligible for non-tax benefits. However, tax-based incentives only apply to initiatives that improve national competitiveness. Additionally, it will depend on numerous aspects in relation to the activity in focus.
The length of time it takes the BOI to review an application typically depends on the amount of the investment and the completeness and relevance of the application; however, as a general rule, it can take between 40 and 90 working days, depending on the amount of the investment and the type of business.
A company can get a certificate from the MOC quickly if it qualifies for a BOI promotion that allows 100 percent ownership or if it can take advantage of the benefits provided by the JTEPA or JCEPA.
BOI Measures for Japanese Investors in Thailand
The BOI regularly broadens the range of rights it provides. Various investment acceleration measures received BOI approval on December 21, 2020. The aim is to boost Thailand’s economy and encourage companies to use digital technology by the year 2021.
Tax, Non-Tax & Investment Benefits for Japanese Investors in Thailand
- An additional 50% Corporate Income Tax (CIT) deduction is available for a five-year term for investments. The investment must be in specific target industries amounting to at least THB 1 billion (US$32 million) within 12 months of the date of grant of the BOI promotion certificate. Additionally, the BOI grants up to a five to eight-year ordinary CIT exemption period.
- To December 2022, the BOI has extended the application deadline for the special incentive programme for SEZs in 10 provinces. Additionally, BOI is providing 14 target businesses with an eight-year CIT exemption with extra 5-years of a 50% CIT deduction. These industries include the production of medical equipment, logistics, electrical appliances, and electronics.
- The BOI has also extended the deadline for applications for the special incentive programme for the southernmost five provinces. Narathiwat, Yala, Pattani, Satun, and four districts in Songkhla are the regions. The initiatives include a modest THB 500,000 minimum investment requirement, an eight-year CIT exemption, and a further five years of 50% CIT deduction.
- The Burapha University Genomics Project is a promotional area for unique events like the Eastern Airport City and Digital Park Thailand. For investments made in these zones, the BOI provides CIT exemption for 5-8 years and an additional 50% CIT deduction for two years.
- The BOI provides eligible investments with a CIT exemption for 50% of the investment value, good for three years. This is to encourage the incorporation of digital technology into the operation of new or existing operations. Artificial intelligence, big data, and data analytics are a few examples of digital technologies. Until the last working day of 2022, eligible applicants may submit applications for this investment promotion plan.
The Bottomline
As already declared by the Board of Investment of Thailand, Japan is one of the leading investors in the kingdom. If there is a continuous flow of FDI from one nation to another then that signifies that there is optimum ease of doing business in the destination nation. Japanese investors have always found it comfortable to invest and continue their business in Thailand.
So, if you are from Japan and willing to start a venture in South-East Asia, Thailand will be your best destination. You will get positive vibes as soon as you connect with us. Email us your ideas and requirements at [email protected]. We have specialists to assist Japanese Investors to start businesses in Thailand.
