In the past, political upheavals in Thailand have in general caused only a short-term impact on the economy.

Thailand's current political situation however coincides with a global economic slowdown, proposing a far greater challenge than in the past to attract foreign investors to Thailand.

The Board of Investment (BOI), the government agency responsible for providing incentives to stimulate investment in Thailand, has announced that its top priorities for 2009 will include new investment promotion measures, overseas road shows and the establishment of more overseas offices.

The Department of Export Promotion, the Office of the BOI, and the Tourism Authority of Thailand are planning to arrange road shows to the Middle East and Asia to restore confidence in the Thai economy and promote Thailand's tourism industry. The Prime Minister will be invited to lead the road shows, to be organized from January to April 2009.

Investment Promotion

Thailand's Investment Promotion Act, overseen by the BOI, provides investment incentives in the form of guarantees, protection measures, tax incentives and permissions.

Foreign investors typically establish a Thai company if they wish to seek BOI promotion for their business. Companies that receive BOI promotion may obtain special taxation incentives for a number of years from the commencement of operations.

Depending on a project's characteristics, eligible projects may obtain tax incentives that include the following:

• Exemption or reduction of import duties on imported machinery.
• Exemption or reduction of import duties on imported raw materials and components.
• Exemption from corporate income tax for three to eight years with permission to carry forward losses and deduct them as expenses for up to five years after expiry of the tax exemption period.
• Exclusion from taxable income of dividends received from promoted enterprises during the corporate income tax holiday.
• 50 percent reduction of corporate income tax for five years.
• Double deduction of transportation, electricity and water supply costs.
• 25 percent deduction from net profit for facility installation and construction costs in addition to normal depreciation.

For foreign investors, some of the attractivenon-tax incentives include:

• The right to own land for the project which might otherwise be prevented by the foreign ownership restrictions under the Land Code.
• The ability to operate their business as a wholly foreign owned enterprise, which might otherwise be prevented by laws that prohibit foreigners from participating in specified business activities.
• Permission to employ foreigners and access to the One Stop Service Centre for Visas and Work Permits.

Tax incentives for tourism

The BOI has announced that it will introduce a special package to promote the tourism industry. Currently, service activities promoted by the BOI include:

• Tourism promotion services such as ocean marinas and tour boat or yacht rental services.
• Activities to support tourism, including hotels.
• Long stay businesses that provide a variety of services, such as lodging, health care, travel services, etc.
• Hospitals including retirement homes and care centres.

Although real estate development for residential use is not an activity that currently attracts promotion (with the exception of medium or low income housing), it might be possible to access the privileges of existing promoted service activities under the right conditions.

For example, it might be possible to structure a residential development that is being developed for investment purposes rather than home ownership to operate as a hotel in order to access the investment privileges granted to hotels. Real estate developments targeting foreign retirees could consider the feasibility of accessing the incentives offered for retirement home and care centre projects.

Criteria for granting tax incentives

The criteria for granting tax and duty privileges for promoted projects are primarily based on the location of the project. The provinces in Thailand are divided into three investment zones based on economic factors such as the level of income and the availability of infrastructure in each province.

Different tax and duty privileges are also specified for particular types of activities. It is therefore important to consider not only the location of the project but also the classification of the promoted activity.

For example, promoted tour boat or yacht rental service businesses will receive a 50 percent import duty reduction on machinery and a 5 year corporate income tax exemption, regardless of location.

The incentives offered to hotel operators on the other hand are more restrictive. Projects located in Zone 1 (the six central provinces), Zone 2 (including Chonburi, Rayong and Phuket), Hat Yai district or Muang district of Chiang Mai will receive only non-tax privileges.

Projects located in 18 selected provinces of Zone 3 will receive privileges according to the BOI Announcement No.1/2543, including tax privileges based on location.

Projects located in other provinces will receive only an exemption of import duty on machinery and non-tax privileges. These include provinces such as Chiang Rai, Mae Hong Son, Chiang Mai, Phangnga, Krabi and Surat Thani.

A new hotel development eligible for promotion must also have at least 100 rooms.

Foreign property developers looking to invest in tourist locations should consider how they might be able to structure their developments to access the incentives offered by the BOI. It will be interesting to see what new measures the BOI decides to introduce to promote Thailand's tourism industry and how beneficial they will be to foreign investors.