Time for a Rethink
The recent challenges faced by Thailand included not only the Covid-19 pandemic and the ensuing lockdowns, but the supply chain ‘nightmare’ which contributed to dislocations and disruptions to shipping and trade, impacting consumers through shortages and higher prices. In facing successive pandemic waves and these knock-on economic effects, Thailand has done comparatively well through its cautious but responsive approach considering the impacts to its tourism sector, which plays such an important role in its economy. With the country already facing an uptick in tourists having loosened restrictions and reopened on May 1, visitors will also include business travellers as companies focus on bouncing back stronger, in addition to re-evaluating their operations. The new normal has many businesses around the world looking to avoid dependency and considering diversifying their operations geographically.
The Post-Covid Picture
Rebound is taking shape while uncertainties remain with concerns about growth and the spectre of inflation, the reopening (which eliminated the need to quarantine and show an RT-PCR test when arriving in Thailand) signals increased confidence and a sense of optimism on the part of the government, business community and the broader population and heralds a more positive outlook entering the second half of the year. From an economic perspective, it’s an opportune time for Thailand to not only attract companies that want to relocate or reshore, but to focus on specific advantages which highlight the country’s strengths including the more agile landscape that is emerging for international companies beyond just labour costs and incentives. The government’s promotion of International Business Centres (IBCs) and corresponding tax and non-tax incentives can help establish Thailand as a regional hub of ASEAN attracting an increased number of multinationals to locate their headquarters and shared services in the country.
An Enhanced Focus on IBC’s Advantages
The IBC regime offers tax and non-tax measures that promote Thailand as the centre of the Southeast Asian region, also aligning Thailand’s tax measures with international standards improving the country’s competitive standing. The attraction of IBC, defined as “a company incorporated in Thailand that provides, managerial, technical, support or financial management services to its associated enterprises, whether located in Thailand, or overseas,” aside from the competitive incentives, are the additional benefits which Thailand offers, including a qualified and ready workforce, including university graduates who can contribute to the success of IBCs, a popular and attractive destination for expatriates and their families, supported by some of the best private schools and high standard of living at a reasonable cost, and an improved SMART Visa program, which streamlines the application process making it faster and easier for qualified experts, investors and entrepreneurs to live and work in Thailand in targeted sectors – with no work permit requirement and a maximum four-year validity period, together with additional privileges. The Thailand Board of Investment (BOI), which supports the Regional Headquarters business now called IBC, offers incentives which are significant, and a key factor in the decision-making process for international companies opting for IBC as they are exempt from import duties on machinery (used for R&D and training activities), have permission to bring in skilled personnel and experts to work in the IBC’s investment promoted activities, hold majority or 100% foreign ownership of the IBC, and have authorisation to own land for use in the IBC’s business. The BOI also revised the scope for IBC to provide flexible lending to associated enterprises. This includes foreign currency loans to associated enterprises in foreign countries, Thai baht loans to associated enterprises in Thailand, Vietnam and countries bordering Thailand.
Global Companies are Taking the Lead
The BOI is leveraging the growing investor interest in Thailand, notably in the rise in approved projects year-over-year, and sees IBC as further boosting confidence by attracting top talent and crowding-in further investments contributing to the nation’s long-term growth. However, the comprehensive effort of the Thai government must also be taken into account, given the huge levels of investments and policies that have been passed to drive key infrastructure projects in the country providing an important ‘connectivity advantage’ as ports, rail and road networks expand facilitating and improved logistics and integration with both sea and inland transport. Companies that have established an IBC presence in Thailand for their international operations include Toyota, Nestlé, Huawei (ASEAN headquarters), Exxon, Michelin, Suntory, and Nissin Foods, to name a few, spanning a range of industries from around the world. From 2019 to today, the BOI’s IBC has supported a total of 124 projects. The BOI’s data in the last six years indicates a breakdown of IBCs being established in Thailand by sector, with the largest grouping, at about 25 percent, involved in the automotive and electrical & electronics sectors, followed by the food, technology and medical services. Moreover, many companies, once establishing their IBC, decide to make further investments expanding their operations and employee headcount, building on their success. With combined government support, including tax incentives from the Revenue Department, and the BOI’s non-tax incentives and One-Stop Service, the country’s strategic geographic location, leading-edge connectivity and logistics, and a skilled workforce, Thailand is proving to be more than just another market with a clear track record supporting the success of multinationals.