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A classic BoI issue: Management awareness

Suradech Hongsa

Suradech Hongsa

For many decades, the Board of Investment has been facilitating direct investment from overseas by granting both tax and non-tax privileges to investors, and has enjoyed success, with substantial amounts of investment coming in every year. Companies that are promoted by the BoI enjoy exemption from, or reduction of, corporate income tax and import duty, and enjoy certain non-tax privileges, such as non-quota work permits, land ownership and remittances in foreign currency.

This would appear to be a very advantageous situation for promoted foreign investors because of the many incentives provided by the Thai government via the BoI. However, in real life, some of them have run into difficulties because they overlooked the importance of self-monitoring the utilisation of their BoI privileges, especially with regard to corporate income tax.

There is insufficient space in this article to describe the many possible errors and oversights that could cause problems for BoI-promoted companies. But there is one key issue that frequently arises and will remain the classic case for a very long time.

The issue is related to the amount of corporate income tax exemption that is granted by the BoI, which is based on the sum to be invested as stated in the project plan presented in the BoI application. The amount of corporate income tax will be specified in the BoI Certificate, together with the eligible period, such as three, six or eight years.

The problem arises when the tax exemption utilised is greater than the actual qualified investment, which will be determined by the BoI officers when they visit for inspection after three years of operation has passed. Many BoI companies ignore the monitoring of their qualified assets, which are most often structures and machinery, and misunderstand that they may utilise the full amount of corporate income tax exemption stated in the certificate.

This misconception is a serious and potentially very costly error. The BoI's officers often find that a promoted company's assets are unqualified, either because their cost is lower than estimated, or else some assets are shared for use by another project. This could come as a big surprise to the company's management, because the excess tax exemption already utilised will be liable to be repaid to the Revenue Department. The company's cash flow might be adversely affected if the figure is very high.

Some BoI companies might be lucky enough that their management would grant the allocation of additional investment to the project, so that the extra investment can cover the tax exemption already utilised. But if such additional investment is not approved by the company's management, the outcome could be tragic, with the company having to return the excess tax exemption utilised to the Revenue Department. Unfortunately, most such cases end up this way.

The most practical step for every BoI-promoted company to take is to perform close monitoring of the values of its investment and fixed assets, to ensure that they are duly qualified, and compare them with the amount of tax exemption utilised each fiscal year before requesting permission to use their corporate income tax exemption from the BoI and filing a tax return with the Revenue Department. The company would have to assign a person to be responsible for taking care of this matter. This would be a simple concept but would not be easy to do in practice. Every company would prefer to enjoy a smooth and trouble-free operation until its investment promotion period comes to an end. Self-monitoring is the best way to avoid the risk.

Suradech Hongsa is a manager at PricewaterhouseCooper.


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