20 September 2022
Ever since Thailand has set national goals towards “Thailand 4.0”, a number of tax incentives have been introduced to promote 10 targeted industries, comprising the so-called “First S-curve” industries, i.e. next-generation automotive, smart electronics, affluent medical and wellness tourism, agricultural and biotechnology and food for the future, and “New S-curve” industries, i.e. biofuels and biochemical, digital economy, medical hub, automation and robotics and aviation and logistics.
A company operating the targeted industries (“Targeted Company”) may be eligible for the maximum of 15 years tax holidays under the National Competitiveness Enhancement for Targeted Industries Act B.E. 2560 (2017) (“Act”), with or without a limitation to the amount of exempted corporate income tax (“CIT”) proportionate to the investment value (excluding land and working capital). Dividends distributed from net profits derived during tax holidays will also be tax exempted, provided that the distributions take place by the end of 6 months after the expiration of tax holidays.
On 13 June 2022, the Royal Decree (No. 750) was issued to give further tax attraction to the investors, by exempting CIT and personal income tax (“PIT”) for capital gains from the sale of shares in the Targeted Company, provided that, prior to deriving such capital gains:
(i) the holding period of such shares is not less than 24 months; and
(ii) the Targeted Company derives minimum of 80% incomes from the constant operation of the targeted industry(ies) at least 2 consecutive accounting years.
The tax incentives will also apply where investment is made via Corporate Venture Capital (“CVC”), or Venture Capital Trust (“VCT”), provided that the holding period in CVC’s shares, or VCT’s units, fulfills (i), and:
a. if CVC or CVT does not have retained earnings (“R/E”), the Targeted Company must fulfill (ii) above, with the amount of tax exempted capital gains proportionate to CVC or CVT’s shareholding in the Targeted Company; or
b. if CVC has not less than 80% of R/E from CIT exempted sale of shares in the Targeted Company, or CVT has not less than 80% of R/E from investment in the targeted industries, for the minimum of 2 consecutive accounting periods, the entire amount of capital gains that the investors derives from the sale of CVC’s shares, or CVT’s units, will be exempted from CIT and PIT.
The CVC and CVT must fulfill the required criteria, e.g. CVC must be incorporated under Thai laws, being registered as CVC and CVT with the Securities and Exchange Commission and have the paid-up capital at the end of each accounting period not less than THB 20 million. Also, CVC and CVT must not be granted with the specified tax incentives.
On 6 September 2022, the Notification Director-General of Revenue Department Re: Income Tax (No. 428) was issued with a requirement that, in order for the abovementioned CIT and PIT exemptions to apply, the targeted industry must be certified by either of the following agencies:
– National Science and Technology Development Agency;
– National Innovation Agency; or
– Digital Economy Promotion Agency.
Further, where a Targeted Company operates both the targeted industry, and other business, their net profits (or net losses) must be computed separately, and combined for purposes of the year-end tax return filing. The Targeted Company, CVC and CVT are required to submit the reports regarding the shareholders (for Targeted Company), shareholding in the Targeted Company (for CVC and CVT), and the incomes, within 150 days after the end of each accounting period, and provide the copies to their investors. Where capital gains are derived from the indirect investment in a Targeted Company, and CVC or CVT does not have R/E, in order for such capital gains to be exempted from PIT or CIT, the investor must produce the evidences to prove the proportion of investment via CVC or CVT, in compatible with the abovementioned annual reports.