EL ENCARGO DE PROMOCIÓN Y EXPLOTACIÓN

Thailand has not yet implements investment regulations and policies for cross border area since the Special Economic Zone Law has yet to be approved by Parliament. Normally, the Board of Investment (BOI) is the government agency responsible for offering incentives to investors. Investment incentives can also be offered by Industrial Estate Authority of Thailand in cases that apply to industrial estates.

Investment Policy: The Board of Investment (BOI) has traditionally divided the country into three

zones and adopted regional zone system to give more benefit to the companies which are located away from the greater Bangkok area as a means of developing local areas through company investments in those locations. For the southern border provinces, this system has meant being classified under Zone 3 and having the following incentives:

• Eight years of exemptions from corporate tax. • 50% reduction in corporate income tax for 5 years.

• Double deduction of transport, electricity and water supply costs.

• 25% deduction allowance from net profit for facility installation and construction costs, in addition to normal depreciation.

In 2013 the BOI adopted an investment strategy report for 2013-2017 that targets ten key areas of business activity covering basic infrastructure and logistics (e.g., industrial zones, basic industries like steel, petrochemicals, pulp and paper, machinery and alternative energy and environmental services). Under this new strategy, the BOI is targeting the following sectors that are to benefit from special investment promotion:

o Agricultural and agro-industry o Mining, ceramics and basic metals o Light industry

o Metal products

o Electronics industry and electrical appliances o Chemicals, paper and plastics

o Services and public activities

NESDB is currently evaluating whether to extend the three-zone system to a fourth zone that would be classified as Zone 3+ for border areas, like that for the Thai-Malaysian border area that would extend additional preferential measures and investment incentives to companies. A decision is expected in mid-2014.

Investment Promotion Zones: Special BOI tax privileges are given to projects in three

Investment Promotion Zones to encourage industrial development in provincial areas in Thailand. Investment promotion applies only to new projects or the expansions of existing

33 ones. Likely investors are those who export products that use domestic materials, are located in designated provinces, and apply labor-intensive production methods. Different investment privileges are given to investors based on economic factors such as the availability of infrastructure in the designated area. The criteria for granting tax and duty privileges are as follows:

• Exemption of duty on machinery imports.

• Exemption of corporate income tax for 8 years, provided that a project has a capital investment of 10 million baht or more (excluding cost of land and working capital) and that it obtains ISO 9000 or similar international standard certification within 2 years from its start-up date; otherwise the corporate income tax exemption is lowered to 1 year.

• Exemption of import duty on raw or essential materials used in the manufacturing of export products for 5 years.

In addition, for projects in Songkhla Province, the following additional criteria apply. (a) A project located within industrial estates or promoted industrial zones is entitled to

the following privileges:

o 50 per cent reduction of corporate income tax for 5 years after the exemption period.

o Double deduction from taxable income of transport, electricity and water costs for 10 years from when revenue is derived from the promoted activity.

(b) For a project located outside industrial estates or promoted industrial zones, a deduction can be made from net profit of 25% of the project's infrastructure installation or construction cost for 10 years from the date of initial 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.

Industrial Estates: The responsibility for investment promotion in industrial estates lies with the

Industrial Estate Authority of Thailand (IEAT). Industrial estates are classified as being either a General Industrial Zone (GIZ) or an Export Processing Zone (EPZ).

The GIZ consists of an area designated for industrial activities or other activities beneficial to or connected with industrial activities. The privileges and incentives for a GIZ are as follows:

(i) Foreign investors are eligible to own land, properties, factories, and infrastructure. (ii) Foreign technicians and experts are eligible to work and live in Thailand.

(iii) Foreign technicians, expert’s spouses and dependents can live in Thailand.

An EPZ consists of an area designated for industrial activities, trading or services for the purpose of exporting products. In addition to having the same benefits as the GIZ, it also benefits from the following:

(iv) Relief from special surcharges, taxes and duties; machinery equipment tools and supplies including parts entering the EPZ for the purposes of producing goods and constructing, assembling or installing a factory or building within the EPZ are not subject to special surcharges under the Investment Promotion Act, import duty excise tax or VAT. Similarly materials brought into the EPZ for the purposes of manufacturing have the same relief.

34 (v) Relief from export duty, excise tax and VAT: goods imported under Section 49 of

the Industrial Estate Tax will not be subject to export duty, excise tax or VAT provided they are exported.

(vi) Entitlement to export tax refund/exemption schemes: merchandise entitled to export tax refund or exemption schemes when exports qualify for such schemes after being removed from the EPZ.

(vii) Zero tax rate on sale of services and goods among industrial operators in EPZs, sale of services or goods between industrial operators.

In case of cross-border zone development in Songkhla province, IEAT encourages the development of the area by supporting the SBEZ. In the past, the NSEDB has proposed the following incentive for the zone (NESDB, 2009):

(a) The Special Economic Zone along the border area between Songkhla Province, Thailand and Kedah State, Malaysia should be in the form of Hybrid Export Processing Zone similar to Laem Chabang Industrial Estate in which the IEAT is able to apply the IEAT Act without having to enact new laws or regulations.

(b) The administration of such Special Economic Zone should be operated by IEAT or a private entity under the supervision of IEAT according to IEAT Act.

(c) The establishment of National Single Window for Customs procedure connecting to ASEAN Single Window and the implementation of Single Stop Inspection under Cross Border Transport Agreement (CBTA) should be introduced in the Special Economic Zone.

(d) Tax incentives and privileges should be provided in the Special Economic Zone according to BOI regulations and the IEAT Act.

Furthermore, the NSEDB proposed the following support to logistics activities:

(a) IEAT to be the authorized facilitator of One-Stop-Services (OSS) that offers investment consultations, facilitates and gives permission to bring in foreign technics and experts to work and live in the country.

(b) Operators who invested in an industrial estate to be provided with environmentally friendly production systems.

(c) Public transportation systems to be available to across the Thailand and Malaysia border.

(d) Privileges for investors to include:

o Exemption of tax incentives under the Investment Promotion Law.

o Bond warehousing service for operators in an industrial estate are except for value added tax (VAT).

o Permission is given for foreign investors to own in an industrial estate. o Permission is given for foreign investors to remit earnings abroad.