Investing in Thailand: What is BOI promotion?

January 11 2012 Categories: Thailand BOI, Thailand Business No comments yet

What is the BOI?

The Board of Investment or BOI is an agency set-up by the government to provide investment incentives to foreign or local investors that invest in promoted or priorities activities.

The two main objectives of the BOI are to decentralize Thailand Industrial’s base and to attract special types of investment (priority activities).

How are incentives attributed by the BOI?

The amount and types of incentives that you may receive will depend of how well your investment fit the governmental goals. If you invest into an activity which is deemed priority and that in addition you locate the investment in the north-east you will receive maximums benefits from the BOI.

To the contrary if you invest into a non priority activity in Bangkok you will receive the minimum benefits or incentives only.

What are BOI key incentives?

Key investment incentives provided by the BOI range from

tax holidays; relief from or reduction of import taxes duties on both machinery and raw or essential materials imported; deduction of transportation, electricity and water costs deduction of project’s infrastructure installation.

Non tax privileges range from:

foreign majority ownership of the business, foreign freehold landownership (for industrial related project only), easier work permits and visas proceedings (One Stop Visa)

How can you check if an activity is promoted or not by the BOI?

If you want to know more about, the BOI and the promoted activities visit http:// www.boi.go.th/english/.

The BOI web site is well conceived, easy to use, full of information and frequently updated.

Because all information you might need about the BOI process are available we will not discuss herein the BOI application process in details but instead focus on other BOI related issues. In other words, I will tell you what the BOI web site does not.

Do you need a lawyer to apply for a BOI promotion?

You can do it without hiring a lawyer because BOI officers are in general very helpful and fluent in English or other languages.

However, be careful because investors that obtain their BOI without a lawyer often do not understand what the BOI promotion is all about.

Is the obtaining of the BOI promotion the end of it?

Foreign investors that handle the BOI process by themselves often think that once they obtained the BOI license the process is completed when the truth is that the obtaining of a BOI license is only the beginning.

BOI promotion is like a marriage. The marriage is not the end but the beginning.

Is BOI promotion subjected to conditions?

BOI is like marriage, and you will have to exchange woes with the BOI.

This mean that you will have to:

actually implement every promise you made into your BOI application and
fulfill whatsoever conditions the BOI has subjected your license to.

For the whole duration of your investment, you will be under the BOI control and you will have to notify the BOI or file application for permissions at many steps of your investment. The BOI will keep himself informed of your business to insure that you fulfill the conditions of your promotion.

Is there a difference of perception between FBA license and BOI promotion?

There is the big difference between Board of Investment (“BOI”) promotion and foreign business licensing.

Foreign investors will not hesitate to go through the BOI process even when there are only a few chances to be promoted but they will rarely go through the process of the foreign business license even if they had a serious chance to get it.

Why is BOI promotion more popular than foreign business license?

The funny thing is that the BOI is also a bureaucracy and that the administrative process shares more than a few characteristics with the foreign license business process.

Despite those common characteristics, foreign investors perceive the BOI like a “door opener”. The BOI’s role is to attract foreign investors and therefore foreign investors are dealing with an administration that welcomes them (with the red carpet) and that will try to do everything in its power to help them to invest in Thailand.

To the contrary, foreign investors perceive (with good reason) the authorities in charge of the foreign business licensing as the “night club bouncer” which only role is to keep them outside. The FBA licensing authority is not here to attract but to limit foreign investment in controlled sectors. This is why foreign investors are always so eager to apply for a BOI promotion or to invest inside an Industrial Business Park under the Industrial Estate Authority and so unwilling to apply for a foreign business license.

Do you need to be wary from the Revenue Department if you are BOI promoted?

To many foreign investors think that because they were granted taxes privileges by the BOI they do not need to worry about the Revenue Department when it is actually the contrary that happens. The Revenue Department keeps BOI companies under constant scrutiny and considers them to be “soft targets” because they paid their taxes fines more easily than non BOI companies (because they are often branch or subsidiary of multinational companies that want to keep a low profile). Accounting and audit companies charge actually more to take care of BOI companies than non-BOI companies.

What are the most common taxes problems BOI companies’ encounters?

The award goes to the privilege of “relief from or reduction of import taxes duties on both machinery and raw or essential materials imported”.

This is the privilege, which bring the most trouble with the Revenue and Customs Departments. Investors do not keep strict records of raw material in and raw material out. For example, an investor will import raw material for production purpose use the raw material to produce goods and then export the manufactured goods.

Now the fact is that I do not know about any industrial processes that use 100% of the imported raw material to produce goods. They are always wastes, and often, investors will resale the wastes resulting from raw material imported under the relief of import taxes and duties on the local market without thinking that the relief is mostly granted upon the condition that the raw material is used for the production of goods to be exported only.In addition, when they do so they always forgot to pay import taxes and duties on the raw material wastes that they resale on the local market.

It seems a small problem but imagine if you have a big factory that produces many raw material wastes. Factor in addition the fact that it takes in general two or three years for the Revenue and Custom departments to catch up with the problem and that sometimes wastes might actually be valuable (precious or semi-precious metals) and you will have an idea of how costly such mistake can become at the end.

Another problem is that BOI companies do more payment overseas than average companies and will often forget to pay withholding taxes on some payments.

I have seen BOI companies running into trouble for the sole reason that they were using a foreign finance director instead of a Thai finance director. The foreign finance director wanted the accounting to be done according to French standards, which unfortunately did not match Thai standards. Especially he wanted certain payments to be entered into the accounting of the company as payment for services (no withholding taxes) while those payments were classified by the Revenue Department as payment of royalties (withholding tax 15%). As he was adamant about it, the Thai accountants of the company followed his instructions until such day when the tax administration noticed the problem. This last problem also occurs to small non-BOI companies as well.

Note: This post is an excerpt of Rene Philippe Dubout next book: “How to Invest Safely Into Thailand” to be published in January 2010

About the Author:

The author Rene-Philippe DUBOUT is a lawyer since 1990 when he was admitted to Geneva bar (Switzerland). He practiced as a litigator there for 10 years until he moved to Thailand in 1999. In 2002 he founded with a group of Thai lawyers Rene Philippe & Partners Ltd a local law firm that specialized in Cross Borders Investments and Real Estate. He has been lecturing in several Thai Universities and a speaker to numerous conferences and seminars. He is the author of a must read book:”How to Purchase Real Estate Offshore Safely: The Case of Thailand”.

http//:www.renephilippe.com

Originally posted 2009-07-21 12:51:10.

Doing Business in Thailand