The laws behind special economic zones in Thailand

Investors with adaptable business plans will find that establishing or expanding their business in one of Thailand’s recently designated special economic zones (SEZs) will allow them to assemble the most valuable package of governmental incentives.

In addition to the incentives offered by the Board of Investment (BoI) and the Revenue Department, the Industrial Estate Authority of Thailand (IEAT) offers added incentives to promote business development in SEZs. The IEAT’s industrial estates have two zones: a general industrial zone and a free zone. The free zones carry the benefits of exemptions of import and export duties, value-added tax (VAT) and excise taxes on businesses making products for export. There are 56 industrial estates in operation, most of which are jointly operated with private developers.

Ten areas adjacent to Thailand’s borders have been designated for development as SEZs. The purposes for developing the SEZs include the acceleration of border trade, increasing border security, promoting the greater distribution of income, and enhancing Thailand’s competitiveness in the ASEAN Economic Community. Development has already started in five initial zones in Tak, Mukdahan, Sa Kaeo, Trat and Songkla provinces. The IEAT’s initial plans are to develop new industrial estates in the first five zones, which will start operations in 2018.

Target Industries

There are 13 target industries that can qualify for the highest level of SEZ incentives depending upon the zone. These are:

• Agriculture, fisheries and related industries;
• Ceramic products;
• Textile, garment and leather products;
• Furniture manufacturing;
• Gems and jewellery manufacturing;
• Medical equipment manufacturing;
• Automotive, machinery and related parts;
• Electronics and electrical appliances;
• Chemicals and plastics;
• Pharmaceuticals;
• Logistics businesses;
• Industrial zones or estates; and
• Tourism businesses.

BOI Incentives

If the proposed SEZ business activity is among the list of 13 targeted industries, the incentives can include corporate income tax exemptions for up to eight years, corporate income tax reductions of 50% for another five years, exemptions from import duties on machinery, exemptions of import duties on raw or essential materials used in manufacturing export products, and enhanced deductions of certain operating and project infrastructure costs. If the SEZ business is on the BoI’s general list of promoted activities but is not one of the 13 targeted SEZ industries, the corporate income tax exemptions may vary from three to eight years. Otherwise, the additional incentives will be the same as for the 13 targeted industries. For investments that do not qualify for BoI promotion, businesses seeking to operate in a SEZ may apply to the Revenue Department for a reduction in corporate income tax from 20% to 10% for 10 years, subject to conditions.

IEAT Incentives

For businesses operating in SEZs’ industrial estates, the IEAT can grant foreigners the right to own land in the industrial estate, visa and work permits for technicians and experts, and relaxed requirements for remitting currency abroad. For operations in an IEAT free zone, there are exemptions from import duties, export duties, VAT and excise taxes, as well as relaxation of import restrictions for goods or materials that are intended for export.

The government has committed to the development of infrastructure for transport and utilities and to build expanded Customs checkpoints for the first five SEZs at a cost of BT10bn ($301m) during 2015-16.