Thailand Free Trade Zones: Introduction
Thailand Free Trade Zones have 2 main types: General Industrial Zone and Special Economic Zones (SEZs). The Thailand General Industrial Zone is more commonly known as an industrial estate in Thailand. Currently, there are 62 industrial estates and 10 SEZs in Thailand.
Generally, industrial activities are conducted within an industrial estate while a SEZ specialises in both manufacturing and exporting activities. A Thai Free Trade Zone encourages business operations beneficial to the country by removing manufacturing barriers in Thailand.
Businesses that set up within the Free Trade Zones are able to enjoy multiple tax advantages such as exemption from customs duties and excise duties, as well as less stringent quality control standards. Simultaneously, businesses are encouraged to utilise Thailand services and raw materials and employ local workers for their operation.
Types of Thailand Free Trade Zones
Thailand Industrial Estates
- Typically, business owners will choose to set up their company in an industrial estate for industrial or commercial activities, or to provide services to companies within the estate.
- Investors in the estate are able to own land for carrying out industrial activities. Foreign employees in the area can also apply for a dependant visa for their family members and remit currency abroad.
- Businesses that set up in an IEAT-operated area will enjoy exemption or refund of customs import duty, value-added tax (VAT) and excise tax on imported equipment and raw materials.
- The tax benefits in other regions will depend on the authority managing it.
Thailand Special Economic Zones
- There are currently 10 Special Economic Zones (SEZs) in Thailand, spread across the provinces of Chiang Rai, Narathiwat, Tak, Nong Khai, Trat, Kanchanaburi, Mukdahan, Songkhla, Sa Kaeo and Nakhon Phanom.
- The Tak province consists of a special economic development zone with 14 sub-districts.
- With a strategic location on the East-West Economic Corridor (EWEC), the Western region of Tak facilitates the transport of goods and resources from the Free Zone to Yangon, the economic centre of Myanmar.
- The Mae Sot Airport is an international airport located in the Tak Province that is connected to two domestic locations.
- There are plans by the IEAT announced in the news, to construct new industrial estates in Tak province in 2022.
Sa Kaeo Province
- The Sa Kaeo Special Economic Zone is situated in the GMS Southern Economic Corridor, which acts as an important avenue for Thailand to transport products to Phanom Penh and Southern Vietnam.
- The SEZ can benefit from co-production with the Poipet-O’neang Special economic development zone in Cambodia since many Thai businesses have labour-intensive factories in the Cambodia Free Zone.
- Well-known as a tourism destination, the Trat province is an attractive Free Zone for businesses seeking to set up in the tourism and service industries.
- The Free Zone is also linked to the Koh Kong Special economic development zone in Cambodia.
- It has 1 commercial airport and is connected by road to the Laem Chabang sea port and Sihanoukville sea port in Cambodia.
- Situated on the East-West Economic Corridor (EWEC), the SEZ links Thailand to nearby Asian countries such as Japan, South Korea and Taiwan.
- The SEZ is an important avenue for transportation of goods and raw materials to Vietnam and Southern China.
- Established in the Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT), the Songkhla Special Economic Development Zone is situated close to the Penang Sea Port, Klang Sea port of Malaysia and a railway linking Thailand with Malaysia.
- In 2021, industries estates have been successfully built in the Zone.
- In addition, the province has a joint Special Economic Development Zone with Sadao and Bukit Kay Hitam in Malaysia, providing a wider range of opportunities for investment in the manufacturing and service sectors and encouraging investments from Malaysia.
- The Zone hosts many production networks that are connected with Malaysia, facilitating the transport of rubber, seafood and electronics between the two counties.
Chiang Rai Province
- The Chiang Rai Special Economic Zone is connected to the Yunnan Province in Southern China by both land and sea, allowing for more efficient trade between the two countries.
- Due to the high quality of its logistic services and its popularity as a tourist destination, the Chiang Rai Province is a popular place for business owners seeking to incorporate in Thailand.
Nong Khai Province
- The province is a channel for cross-border trade between Thailand and Laos. With the completion of the FTZs in Laos, goods can be more easily transported between the FTZs.
- The Free Zone has a well-integrated transport network, include facilities to aid travel by road, rail and air.
Nakhon Phanom Province
- The Free Zone is a commercial route through Vietnam and South China (Guangxi) that facilitates the efficient and effective deliverance of products to faraway eastern countries like Japan, Korea, Hong Kong and Taiwan.
- Nakhon Phanom Province is known for producing good quality agricultural products such as rice, sugar cane and cassava.
- The province is connected with the Special Economic Development Zone of Myanmar and the eastern seaboard of Thailand.
- The Free Zone has the potential to facilitate transport between Thailand and Tawai in Myanmar through sea routes.
- The province is connected to Malaysia through the Asian Highway No. 18, which also connects to Singapore.
- Known as a commercial port for transporting fishing products, wood products, consumer goods and other kinds of products, the province largely exports boats and other consumer products.
Advantages of Thailand Free Trade Zones
Tax benefits of Thailand Free Trade Zones
- Companies incorporated in a targeted industry in a Thailand SEZ are exempted from corporate income tax for the first eight years. Thereafter, they will receive additional 50% corporate income tax deduction for 5 years.
- Imported merchandise necessary for operations of companies in a Thailand Free Zone is not subjected to import duties, VAT, excise tax and alcohol tax if applicable. Imported merchandise eligible for exemption includes machinery and equipment, foreign products and goods transferred from other FTZs.
- Domestic goods transferred to a FTZ are exempted from VAT.
Facilitation of export activities
- Imported goods or domestic raw materials transferred to a FTZ for business operations are exempted from standard quality control requirements and any other similar requirements if the final product is re-exported to other countries.
- Typically, there is no import tax or internal taxes and duties on scrap, waste and yield loss from an imported component in a Thailand Free Zone.
Access to skilled labour in Thailand Free Trade Zones
- Since many MNCs are found in the Free Zones in Thailand, there will be a transfer of managerial or technical skills to local Thailand employees when MNCs hire local employees.
- Many MNCs are also willing to invest in job training programmes to upgrade the skills of their local employees.
Provision of support infrastructure in Thailand Free Trade Zones
- Many Free Zones have a well-integrated transport and communication network to support activities within the region.
- They also offer warehousing, distribution and other storage facilities to support export and import activities.
Alternatives to Thailand Free Trade Zones
Board of Investment Promotion
- Companies that conduct specific business activities in the following sectors can apply for a Board of Investment (BOI) Promotion:
- Agriculture and Agricultural Products
- Mining, Ceramics and Basic Metals
- Metal Products, Machinery and Transport Equipment
- Electronic Industry and Electric Appliances
- Chemicals, Paper and Plastics
- Services and Public Utilities
- Technology and Innovation Development
- Generally, only companies with minimum capital investment requirement of at least THB 1 million for a project in a qualifying sector will be considered for the BOI Promotion.
- Companies that qualified for BOI Promotion will be able to enjoy corporate tax exemption for 8 years and 50% tax deduction for 5 years afterwards.
- They will also be exempted from import duty and taxes on raw materials and machinery used in R&D activities.
- Additionally, a BOI certified company can be wholly foreign owned and are able to hire foreign workers without restrictions.
Eastern Special Development Zone (ESDZ)
- Known more commonly as the Eastern Economic Corridor (EEC), the ESDZ was established in 2017 to promote economic interconnectivity and ties, and positioned between the Chonburi Province, Chachoengsao Province and Rayong Province. The government in Bangkok has identified and supported numerous investment projects to develop public utilities, transportation systems, logistics and human resources, as well as improve connectivity and facilitate investment in the region.
- The ESDZ is the biggest project in Thailand and actual investment is expected to reach up to US$10 billion in 2021.
- Although the ESDZ is considered a Free Zone in Thailand, it is guided under a separate legislation: the Eastern Special Development Zone Act. Companies that set up in the ESDZ enjoy different incentives and have access to a more well-developed support infrastructure.
- Investment projects in the ESDZ can enjoy tax holidays, ranging from 5 to 10 years, depending on the industry.
- There are also no import duties on machinery and raw materials used in production and R&D activities within the ESDZ.
- Additional tax deductions may be granted for certain R&D expenses.
- Furthermore, foreigners that set up in the ESDZ are able to apply for a business visa for up to 5 years and do not have to apply for an additional work permit to work in Thailand.
- The ESDZ in Thailand consists of different zones for specific industries. Targeted industries in the ESDZ include Next-Generation Automotive, Intelligent Electronics, Advanced Agriculture and Biotechnology, Food for the Future, High-Value and Medical Tourism, Automation and Robotics, Aviation and Logistics, Medical and Comprehensive Healthcare, Biofuel and Biochemical, Digital, Defence and Education and Human Resource Development.
- The ESDZ also consists of numerous industrial estates to facilitate related activities in the area.
How to proceed with registering a company in Thailand Free Trade Zones?
What are the types of Free Trade Zones in Thailand?
- There are mainly two types of Free Trade Zones in Thailand: Industrial Estate and Special Economic Zones. Generally, industrial estates are created with the purpose of facilitating activities through warehouse, storage facilities and other support infrastructure. Companies that set up in these areas can also enjoy tax benefits with regards to the import of raw materials.
- Special Economic Zones, on the other hand, tend to be located near key transport networks to facilitate exporting activities and the transport of goods and services. Besides granting tax advantages on imported materials, they also offer corporate tax holidays for companies incorporated there.
What are the benefits of setting up in a Free Trade Zone?
- The main benefit of setting up in a FTZ is the tax benefits accorded to companies that incorporate in the region. There are no import duties, VAT and excise tax imposed on customs and merchandise delivered to the FTZ. Imported goods and domestic raw materials transferred to a FTZ for business operations are also exempted from standard quality control requirements at customs if the final product is re-exported to other countries.
- Business owners also prefer to set up in a FTZ because it provides access to experienced workers with specific skillsets and support infrastructure to facilitate business activities.
Which Free Zone should I set up my company in?
- Tetra Consultants will assist you with FTZ company incorporation based on your company’s business activities and long-term goals. Generally, Tetra Consultants recommends that you set up a company in the Eastern Special Development Zone (ESDZ) because of the large amount of government and private investment in the region, the ease of obtaining a business visa and the numerous tax benefits under the governmental policy granted to companies that incorporate in the area. Hence, it is beneficial to incorporate in ESDZ if your company meets the eligibility condition.
- Although the ESDZ is not regarded as one of the ten special economic zones in Thailand, the ESDZ is considered to be a FTZ governed separately by the Eastern Special Development Zone Act.
How to set up a company in a Free Trade Zone?
- Different FTZs in Thailand have different eligibility conditions. Before you set up a company in a FTZ, you will have to register your Thailand company with the Department of Business Development. Generally, your business operation must mainly revolve around industrial activities to set up in an industrial estate; or the export and import of merchandise if you wish to set up in a Special Economic Zones. If your company satisfies the qualifying conditions for the specific FTZ, you can apply for a Free Zone License from the relevant governing authority.
Can a company in a Free Trade Zone be wholly foreign owned?
- Yes, companies that set up in a Free Trade Zone in Thailand can be wholly foreign owned. Typically, there are restrictions to foreign ownership in a Thailand company such that only a maximum of 49% of shareholders can be foreigners. Companies that are certified by the BOI will also qualify for 100% foreign ownership.
What is the purpose of a Free Trade Zone?
- The main purpose of a FTZ is to allow goods and commodities to be transported to and from the FTZ without being subjected to tariffs or customs regulations. This will simplify and quicken the transfer of goods and services between the FTZ and other regions or countries. As the Free Trade Zone’s main aim is to facilitate the distribution, storage and transport of goods, it will typically have the relevant distribution and storage facilities.