Thailand Board of Investment Issues New Policy
on Skill, Technology and Innovation (STI)
The Government of Thailand Board of investment (BOI) recently issued a new policy to promote Thailand as a site for future High Tech, Electronic and Software development plus to further reinforce the Country’s position as a major player in the Hard Disk Drive, PCB manufacture and Assembly, Consumer Electronics and other fields. In a departure from previous investment policies of the Thai Government which emphasized the monetary size of investments and which targeted specific industries, the Government of Thailand Board of Investment (BOI) recently adopted a new Skill, Technology and Innovation (STI) Policy, a cross-sector approach to promote investments aimed at improving the skills and capabilities of the Thai workforce plus also increasing the technological sophistication of Thailand’s industries. Officially approved in December 2003 and expanded in early March, the BOI has been actively marketing the new incentive package to investors over the past few months.
The Skill, Technology and Innovation (STI) policy is intended to increase the international competitiveness of Thailand’s industries and support the country’s drive to become a more knowledge-based economy. This is part of a larger Government wide effort to make Thailand an increasing presence in High Tech Industry worldwide. With nations around the world striving toward these same goals, the Board of Investment’s STI policy is designed to increase Thailand’s share of investment in R&D, human resource development, and improvements in supply chain management through development of subcontractors with these skills. Specific programs include developing the technological skills of the Thai workforce and encouraging the manufacture of higher value-added products.
The new BOI policy has designated two groups that fall under the STI policy
(A) companies that promote Skills, Technology and Innovation through minimum expenditures on R&D, human resources and vendor development
(B) Companies engaged directly with STI development by being engaged in eight specified activities, such as the manufacture of scientific equipment.
(A) Companies with STI-promoting elements must qualify in at least one of four conditions:1) Average R&D or design expenses for the first 3 years of operations are not less than 1-2% of annual sales.
2) Employees with at least a Bachelor’s degree in science, R&D, design, or other technology-related field make up not less than 1-5% of the project’s total workforce for the first 3 years of operations.
3) Average training expenses for the first 3 years of operations are not less than 1% of payroll costs.
4) Average expenses for developing Thai vendors or subcontractors or for supporting related educational institutes are not less than 1% of annual sales for the first 3 years of operations.
Because the Government of Thailand recognizes the competitive nature of attracting and retaining companies that meet the above criteria, BOI-promoted companies which fulfill these requirements at the end of three years will receive an additional year of corporate income tax exemption for each of the four requirements fulfilled with a maximum tax exemption of 8 years. They will be treated as engaged in priority activities, and the corporate income tax holiday will not be limited to the amount of investment. In addition, these projects will be exempt from duties on imported machinery.
(B) Companies involved in direct STI development Projects in the following eight areas will be treated as priority activities directly related to STI Development:1) Manufacture of medical equipment
2) Manufacture of scientific instruments
3) Electronic design
4) Research and Development (R&D)
5) Scientific laboratory work
6) Calibration services
7) Human resource development
8) Manufacture or repair of aircraft
Businesses in these activities will be exempt from import duties on machinery and will receive 8 years of income tax holiday, not limited to the amount of investment.
By rewarding companies that are actively transferring technology, improving the skills of the Thai workforce, and encouraging innovation, the BOI hopes to accelerate improvements in the sophistication of the labor force and competitiveness of industries throughout Thailand.
Christopher W. Runckel, a former senior US diplomat who served in many counties in Asia, is a graduate of the University of Oregon and Lewis and Clark Law School. He served as Deputy General Counsel of President Gerald Ford’s Presidential Clemency Board. Mr. Runckel is the principal and founder of Runckel & Associates, a Portland, Oregon based consulting company that assists businesses expand business opportunities in Asia. (www.business-in-asia.com)
Until April of 1999, Mr. Runckel was Minister-Counselor of the US Embassy in Beijing, China. Mr. Runckel lived and worked in Thailand for over six years. He was the first permanently assigned U.S. diplomat to return to Vietnam after the Vietnam War. In 1997, he was awarded the U.S. Department of States highest award for service, the Distinguished Honor Award, for his contribution to improving U.S.-Vietnam relations. Mr. Runckel is one of only two non-Ambassadors to receive this award in the 200-year history of the U.S. diplomatic service.
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