Less for more: Thailand’s government backs digital services

By Harit Na Pomberja, Silk Legal
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In September 2016, Thailand’s government officially introduced the country’s new economic model known as “Thailand 4.0” with immediate effect. Unlike the previous economic model, which focused on heavy industries, export promotion and inbound foreign direct investment, the Thailand 4.0 model was developed under the “less for more” philosophy, focusing on growth and development in innovation, technology, creativity of the people, and an increase of trade in services instead of goods in order abolish the middle income trap.

The government aims to ignite the economy, with a goal to be on par with other big players’ economic policies, such as the US’s “Maker Nation”, China’s “Made in China 2025”, the UK’s “Design Innovation” and South Korea’s “Creative Economy”, with results expected within three to five years.

Under Thailand 4.0, there are five target industries: (1) Food, agriculture and bio-technology; (2) health, wellness and bio-medicine; (3) smart devices, robotics and mechatronics; (4) digital, artificial intelligence and embedded technology; and (5) creative culture and high-value services.

Harit Na Pomberja Silk Legal
Harit Na Pomberja
Silk Legal

The main underlying philosophy under the Thailand 4.0 model is a transformative shift of the traditional means of doing business in Thailand to include more innovation and technology; for example, to transform traditional farming into smart farming by implementing more usage of robotic machinery, or transforming small and medium-sized enterprises (SMEs) into smart enterprises and start-ups with potential, and transforming traditional services into high-value services while transforming unskilled labourers into skilled workers.

While implementation will take time and significant investment in order to achieve a complete transformation, Thailand’s Board of Investment (BOI) has already issued policies that provide investment incentives and benefits to several digital and innovation-oriented service businesses that are considered to be high-value and beneficial for improving the knowledge of Thai people.

In addition to the existing promoted services, such as software development businesses (embedded software or enterprise software), e-commerce businesses, cloud-based services and data centres, investors can now apply for a BOI investment promotion, i.e., investment incentives and benefits for the following services:

1. High value-added software development. This promoted business concerns the development and service of big data management and data analytics software, cyber security software, and system software for advanced-technology devices including business process management and software used to support manufacturing activities. Under this business category, companies applying for the BOI incentives must allocate at least 1.5 million baht (US$42,000) per annum on IT-related personnel salary. The software development process must be approved by the Software Industrial Promotion Agency (SIPA), and high-value projects with investment of 10 million baht or more must obtain the CMMI certification.

2. Digital services. These are services relating to software platform management, digitally managed services, digital architecture design, and other services for fintech, medtech and agritech, for instance. For this business category, there must be employment of digital specialists, and the investment amount must not be less than 1 million baht. Projects with investment of 10 million baht or more must be ISO 2000 certified.

3. Innovation incubation centres (IIC). It used to be that incubation centres were only a part of the requirement to apply for another BOI promoted business category of “software park”, which is a large-scale business and requires a substantial amount of investment on the system and property. However, given the continued growth of start-ups in Thailand, the BOI has made the IIC a stand-alone business, eligible for investment incentives and allowing companies to work with start-ups and fintech companies in Thailand, as well as companies within the region, to maximize their potential. In order to be eligible for BOI incentives, the IIC must have advanced communications systems, as well as mentors to provide business consultation and technical or technology development training sessions, with plans to establish a technology ecosystem or technology community. The total service area for the place of operation must not be less than 300 square metres.

If approved, investors for the above-mentioned services and ventures will be able to receive an eight-year exemption from corporate income tax, which is the maximum tax incentive, as well as other non-tax incentives such as approval to be majority foreign-owned companies, work permit and business visa flexibility for expatriates, and the ability to purchase land to be used for the applied business.

HARIT NA POMBERJA is a partner at Silk Legal, based in Bangkok

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