Looking abroad: Regulatory changes aim to encourage international business

A commitment to meet current global business needs by following the trend towards liberalisation continues after the change of government in July 2011. Even the flooding of major parts of the country, which inundated seven major industrial estates and temporarily slowed down manufacturing, did not change Thailand’s general course of attracting foreign investment by bringing its legislation in harmony with international norms. The government has introduced important legislation over the last few years, such as the Financial Institutions Business Act and the Deposit Protection Agency Act, as well as amending both the Securities and Exchange Act and the Civil and Commercial Code.

EXPORTS: With exports of goods accounting for roughly 60% of GDP, international trade is a significant factor in Thailand’s economic stability and growth. The Thai government takes an active role in creating incentives to attract foreign investors. Thailand was the first country in Asia to introduce legislation to promote foreign investment through such initiatives as the Board of Investment (BOI) and the Industrial Estates Authority of Thailand (IEAT). Under these programmes, foreign investors are allowed to hold full ownership in most qualified projects and are afforded both tax and non-tax benefits, including facilitation of visas and work permits and the right to own land (which is restricted under Thailand’s Land Code). The BOI’s main concern is to give priority to projects engaging in agriculture, technology, infrastructure and human resources development, conservation of natural resources, as well as other targeted industries. Special consideration is generally given to investment projects located outside Greater Bangkok, with an emphasis on decentralisation of investment into regional areas. The IEAT, meanwhile, is the state enterprise primarily responsible for overseeing national industrial development policy.

TAX BREAKS: The government has taken steps to provide further tax incentives for selected activities. The Bank of Thailand and the Ministry of Finance will commence with the second phase of the Financial Sector Master Plan over the course of 2010-14, which grants waivers on income tax (both corporate and for individual shareholders), Specific Business Tax, and stamp duty for earnings on mergers and acquisitions activities. Regional operating headquarters are currently also being granted waivers on their corporate taxes for up to 15 years. This is in addition to extensions on the reduced rate of value-added tax, which will remain at its current rate of 7% for at least another year.

FOREIGN OWNERSHIP: Of particular importance for foreign investors is the Foreign Business Act (FBA) of 1999, which serves as the legal basis governing foreign business participation in Thailand. The FBA reserves certain business activities, classified into three lists, for Thai nationals. Under the FBA, a company is considered foreign if half or more of its shares are held by non-Thai natural or juristic persons. Foreign ownership restrictions on manufacturing activities have already been relaxed. While the FBA has not been revised, there is a push to liberalise certain other industries to allow for more foreign participation.

FREE TRADE AGREEMENTS: On a macro-level, Thailand has also been making efforts to open up international trade, particularly when it comes to negotiating free trade agreements. A founding member of ASEAN, Thailand is a signatory to the ASEAN Free Trade Area (AFTA), which came into force in 2010 for the six original ASEAN members (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand), resulting in even greater market access within South-east Asia. The remaining four ASEAN countries (Cambodia, Laos, Myanmar and Vietnam) will join AFTA in 2015, leading to the formation of the ASEAN Economic Community, with the result that import duties will be effectively be reduced to zero throughout the whole of the region.

Thailand has free trade agreements with Australia, China, India, Japan and New Zealand – markets which, when combined, represent nearly half the world’s population. Thailand also acceded to the Patent Cooperation Treaty (PCT) in 2009, as the 142nd contracting state.