Production and Sale of Agricultural Machinery and Technology in Thailand
The member states of the Association of Southeast Asian Nations (ASEAN) offer interesting investment opportunities for European manufacturers of agricultural machinery and technology. Due to its central location in the heart of ASEAN, its excellent infrastructure and its leading position as an exporter of agricultural products worldwide, Thailand has huge potential to become the leading Asian hub for the production and sale of agricultural machinery and technology.
Foreign Investment Law
Foreign investments are usually implemented by setting up a limited company. The limited company must have at least three shareholders, but it is possible that two of them only hold one share each. The liability of the shareholders is limited to their respective subscribed shareholding. The company is managed by the Board of Directors.
Foreign Business Act
The Foreign Business Act stipulates the legal framework for business activities of foreigners in Thailand, which require a so-called Foreign Business Licence for most activities. With regard to agricultural machinery and technology, the following conditions apply:
- The production and sale (wholesale and retail) of goods manufactured by a Thai subsidiary are not restricted by the Foreign Business Act and therefore do not require a Foreign Business Licence.
- Wholesale and retail of products not manufactured by the Thai subsidiary require a registered and fully paid-up capital of THB 100 million (approx. EUR 2.5 million) or a Foreign Business Licence.
- After-sales services also require a Foreign Business License.
Investment promotion provided by the Board of Investment
Companies receiving investment promotion from the Thai Board of Investment generally receive the following non-tax incentives:
- Streamlined procedure to obtain a Foreign Business Licence for promoted activities
- Exemption from import duties on machinery used for production purposes
- Easier procurement of work permits and visas for foreign experts
- Profits can be repatriated without restrictions
- Option of owning land for business purposes
The following promotion categories exist for agricultural machinery and technology:
|Promotion Category||Trade and Investment Support Office (TISO – No. 7.7)||Manufacture of Machinery, Equipment and Parts (No. 4.5)||International Trading Center (ITC – No. 7.6)||International Headquarters (IHQ – No. 7.5)|
– Profits from procurement and sale of goods abroad (“out-out”)
– Profits from services provided to affiliates abroad (“in-out”)
– Profits from services provided to affiliates in Thailand (“in-in”)
– Profits from procurement and sale of raw materials from Thailand to affiliates abroad (“in-out”)
Table 1: Investment promotion offered by the Board of Investment for agricultural machinery and technology
The aforementioned investment promotions can be combined. For additional activities (e.g. retail trading in Thailand), additional licenses or a capital increase of THB 100 million (approx. EUR 2.5 million) is required.
Free Trade Agreements
The production company in Thailand can make use of the wide array of multilateral and bilateral free trade agreements in order to avoid or reduce import duties when exporting goods to other countries. In this context it is also worth mentioning that the ITC promotion grants 15 years of corporate tax exemption on profits derived from so-called Drop Shipping transactions, i.e. products shipped from a production facility outside of Thailand to a third country without entering Thailand.
On the one hand, Thailand offers an interesting domestic market for the agricultural machinery and technology industry. On the other hand, Thailand also offers attractive investment incentives for using the country as a hub for local production and/or regional trading. Even with an existing production facility in Asia (e.g. China or India), trade can be channelled through a regional trade centre in Thailand to save tax (ITC promotion). Foreign management personnel of ITC or IHQ companies benefit from the 15% flat personal income tax rate.
Authors and Contact:
- Till Morstadt, German Attorney-at-Law, Managing Partner, Lorenz & Partners – Bangkok, Thailand
- Dr. Constantin Frank-Fahle, LL.M., German Attorney-at-Law, Senior Associate, Lorenz & Partners – Bangkok, Thailand
Lorenz & Partners maintains offices in Bangkok, Hong Kong and Ho Chi Minh City. The law firm specializes in the holistic consulting of foreign investors in Southeast Asia.