Thailand has released new incentives for investments in research and development (R&D), semiconductor manufacturing, smart packaging, and other digital technologies, as the government seeks to capitalize on soaring global demand for products in the sector due to supply chain disruptions caused by COVID-19 . Thailand's Board of Investment (BOI) approved the incentives at a meeting on June 30, 2021.
Thailand is already a major player in Southeast Asia's semiconductor industry, which analysts expect to grow rapidly in the coming years. The market research firm Fortune Business Insights projects ASEAN's semiconductor market to grow at a compound annual growth rate of 6.1 percent from 2021 to 2028, rising from US$26.9 billion in 2020 to US$41.9 billion by 2028.
Given the broader region's momentum in developing its semiconductor industry, foreign investors entering ASEAN should situate Thailand's incentives alongside a number of other factors when determining where to invest.
Incentives for R&D and HR development
The R&D and human resource (HR) incentives apply to companies making large investments in innovation.
Eligible companies will benefit from extended tax holidays lasting up to 13 years without a corporate income tax exemption ceiling. In other words, these companies will be exempt from Thailand's headline corporate income tax rate of 20 percent.
Further, companies that adopt apprenticeship programs or invest in advanced technologies will be eligible for similar incentives. For example, semiconductor projects with additional investments in R&D may be eligible for a tax exemption of up to five years.
Moreover, companies hiring Thai workers for software development, digital services platforms, or digital content may qualify for a tax holiday of eight years. The corporate income tax exemption ceiling for this incentive depends on the number of Thai workers hired for these roles, as well as associated expenses for training and acquiring international certifications.
Incentives for semiconductor manufacturing
In addition to the R&D and HR development incentives, the BOI approved measures to promote investment in manufacturing, with a focus on semiconductors.
Per the BOI's incentives, front-end capital and technology-intensive manufacturing will be given tax holidays for 10 years. This includes front-end semiconductor investments, such as in electronics design, silicon wafers, and wafer FAB.
Back-end semiconductor investments, such as in wafer SORT, die bank, assembly, and integrated circuit testing, qualify for tax holidays of eight years with machinery investments of at least 1.5 billion baht (US$45.7 million), and five years with machinery investments below 1.5 billion baht (US$45.7 million).
Machinery investments worth at least 1.5 billion baht (US$45.7 million) in the advanced printed circuit board (PCB) manufacturing are eligible for tax holidays of eight years, while investments worth less than 1.5 billion baht (US$45.7 million) qualify for tax holidays of five years.
Finally, machinery investments in printed circuit board assembly (PCBA) worth at least 500 million baht (US$15.2 million) can enjoy a five-year tax holiday. Investments worth least than 500 million baht (US$15.2 million) may qualify for a three-year tax holiday.
Incentives for smart packaging
The BOI also approved incentives for companies producing smart and environmentally friendly packaging, in line with the government's Bio-Circular-Green (BCG) model. Smart and environmentally friendly packaging includes digitally-enabled packaging and packaging made from recycled materials, among others.
Companies manufacturing active and intelligent packaging may qualify for tax holidays of eight years. Active packaging refers to packaging that maintains the quality of the product, while intelligent packaging refers to packaging that can sense the quality of the product.
Further, companies creating smart packaging or parts thereof may be eligible for a tax holiday of three years. Smart packaging refers to packaging made from "special substances".
Strengthening Thailand's tech sector
Thailand's R&D and HR development incentives aim to boost the country's already strong tech sector and promote higher-value investments amid spiking global demand. Currently, Thailand is the 13 th largest exporter of electronic products and parts worldwide.
However, economic disruptions caused by COVID-19 have thrown supply chains into disarray, leading to factory closures, labor shortages, and build-ups in demand for products like semiconductors and electronic components. Further, the increased usage of semiconductors in automobiles and other products has also increased demand.
The Thai government seeks to capitalize on the global appetite for semiconductors by promoting Thailand as a reliable exporter of electronics. In announcing the incentives, Duangjai Asawachintachit, head of the BOI, said , "The semiconductor industry has experienced demand hike and companies are looking for more resilience in the global supply chain."
Thailand is not the only player in ASEAN's semiconductor industry, as Vietnam, Malaysia, and Singapore also produce such products. Accordingly, foreign investors in electronics in ASEAN should consider factors such as supply chain integration, labor costs, talent availability, and incentives when determining which country or sub-national region to target.
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