Doing Business Outside China: It’s Thailand’s Time

By: John DiDominic*

With all that has been happening with China lately on trade, Thailand is emerging as a highly attractive investment destination. Thailand has consistent and well-defined investment policies, increasing regional connections, and a government committed to improving its transportation infrastructure. It also (for the most part) has had long-term political and economic stability.

Thailand is Southeast Asia’s second largest economy with a well-established market system. In addition to being an attractive production base, its 70 million people make for a dynamic consumer market.

Thailand is well located between India and China and it shares maritime boundaries with Vietnam, Indonesia, and India. Thailand is the anchor economy for the neighboring developing countries of Laos, Burma, Myanmar and Cambodia and it is strategically located to serve markets in and beyond Southeast Asia.

The business climate in Thailand is welcoming to foreign investment and further deregulation and trade liberalization are taking place on many fronts, largely driven by Thailand’s participation in the Association of Southeast Nations (ASEAN) Economic Community (AEC). According to a recent World Bank study Thailand’s business climate has improved considerably since 2013 and it now ranks as the second most promising economy in East Asia. The World Bank rightly describes Thailand as “one of the great development success stories. Due to smart economic policies it has become an upper middle income economy and is making progress towards meeting the Sustainable Development Goals.” The World Bank Group’s 2017 Doing Business report “ranks Thailand in 26^th place among 190 economies in the ease of doing business for small and medium enterprises around the world, up from 48^th place when applying the same methodology to last year’s and this year’s data. The report also recognizes Thailand as one of top 10 economies that have improved most in the ease of doing business in the last year worldwide.” China came in at number 78.

Thailand is already a major destination for foreign direct investment and China’s trade problems have put that into hyperdrive. I moved to Thailand to live and work in 2007 and this is the best I’ve ever seen it.

Thailand 4.0

Thailand’s industrial sector is looking to move up the value chain and expand its capabilities to produce greater value-added products in a variety of modern industries.  These include the fields of Robotics, Medicine, Aviation, Advanced Manufacturing, Biotechnology, Nanotechnology, Advanced Material Technology, and Digital Technology. These efforts are known as Thailand 4.0, a master plan to move the country from one of an abundance of cheap unskilled labor to an innovation-based value economy. This strategy seeks to spur industries to progress up the technology ladder.  Thailand 4.0 mandates broad reforms that address economic stability, ease of doing business, human capital, equal economic opportunities, environmental sustainability, competitiveness, and effective government bureaucracies.

Incentives

In the current competitive global marketplace, simply possessing a favorable geographic location, efficient infrastructure, stable government and stable access to natural resources is often not enough to attract interest from multinational businesses searching for the optimal placement of their next factory. To stay ahead of regional rivals in competing for finite investment dollars, Thailand offers several financial and other incentives for companies keen to set up shop there. These incentives can vary by product and location but include the following:

·         Tax Incentives:

o   Exemption of up to 15 years on corporate income tax for certain industries

o   ASEAN’s second-lowest corporate tax rate (20%)

o   Double deductions for transportation, electricity and water supply costs

o   An additional 25% deduction for the cost of installing or constructing facilities

o   Exemptions on import duties for some essential materials and machinery

o   Tax deductions of up to 300% for qualified R&D expenditures

o   Tax deductions of 200% for qualified expenditures made in intellectual property acquisition and licensing fees for commercializing technology, technology training; donations to specific research and training institutions, and sourcing support

·         Non-Tax Incentives:

o   Special four-year visas for skilled workers and high-level executives

o   The right to lease state land for up to 99 years.

o   Permission to bring in foreign workers, own land, and take or remit foreign currency abroad.

o   Subsidies for energy conservation programs

·         Industrial and Special Economic Zones:

o   infrastructure and logistical advantages, such as electrical power, water supply, transportation, communications and waste treatment

o   Some of these infrastructure expenses are tax-deductible.

o   Easing restrictions on cross-border traffic of goods and labor to establish cross-border supply chains.

Trade Agreements.

·         Country Agreements.  Thailand is a WTO member and has free trade agreements with China, Japan, South Korea, India, Australia and New Zealand.

·         US Treaty of Amity.  U.S. owned businesses enjoy investment benefits through the U.S.-Thailand Treaty of Amity, originally signed in 1833 (This is the United States’ second oldest treaty!).  The Treaty allows U.S. citizens and businesses incorporated in the United States or in Thailand that are majority-owned by U.S. citizens to engage in business on the same basis as Thai companies (national treatment) and exempts them from most restrictions on foreign investment imposed by the Foreign Business Act.

·         ASEAN.  Thailand’s membership in the Association of Southeast Asian Nations (ASEAN) provides businesses in Thailand the advantages of the ASEAN Economic Community, a single market of more than 600 million people covering 10 countries in the region. This enables the free flow of goods, investments, labor and capital within the community.

·         China-ASEAN.  A China-ASEAN free trade deal also helps mitigate the trade-war risk for companies trading with both the United States and China.

Summary.

Is the time right for your business in Thailand? That depends on a variety of factors specific to your business, your industry and, most importantly, your goals. But is the time right for doing business in Thailand? Yes it is.

* John DiDominic spent seven years as a management consultant with the APM Group (Thailand’s leading domestic management consulting company) in Bangkok, Thailand and he has since focused on helping foreign companies navigate and do business in Thailand. For more than a decade, John has been our law firm’s go-to person for just about anything Thailand.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.