Possible Software Development Exemption
The Thai government has recently announced amendments to the Foreign Business Act, which include removing ten service businesses, such as software development, from the restricted list.
What Software Development Will Be Exempted According to the Draft Regulation?
Software development businesses, as defined by the draft regulation, will enjoy exemptions from the requirement to obtain a Foreign Business License (FBL) or Foreign Business Certificate (FBC) under the following conditions:
- The business must be a juristic person registered in Thailand.
- The primary income must come from software developed within Thailand.
The exempted business activities include:
- Developing Software for Data Analysis and Integration: This includes creating solutions for Big Data, Data Analytics, and Predictive Analytics.
- Developing Software for Information Security and Cybersecurity: This covers the creation of applications aimed at protecting information and securing cyber environments.
- Developing Software for Controlling or Integrating Advanced Technology Devices: This pertains to software that manages or integrates with advanced technological devices.
- Developing Industrial Software for Manufacturing Support: This includes software that supports manufacturing processes, particularly those requiring advanced technology or equipment in their development.
Important Update: Revised Investment Incentives for Software and Data Centers
Revised Investment Incentives for Software and Data Centers
On March 15, 2024, Thailand’s Board of Investment (BOI) issued Announcement No. Por. 12/2566, updating the investment incentives for software development and data centers. This significant update has led to the replacement of the previous categories (8.1 for software and digital platforms, and 8.2.1 for data centers) with new classifications, reflecting the evolving landscape of the IT and tech industries in Thailand.
Awaiting Further Clarifications
While we have detailed these changes in a separate blog post, it’s important to understand that further clarifications from the BOI are expected. Therefore, some of the rules and incentives currently in place may be subject to change. Stay tuned for the latest updates as we continue to navigate through these modifications.
Incentives for IT/Tech Business in Thailand
IT/Tech businesses in Thailand can avail themselves of incentives offered by the Thailand Board of Investment (BOI). The BOI is a leading government organization aimed at stimulating investments in Thailand. It provides various tax and non-tax incentives and preferences to both Thai and foreign companies in accordance with the Investment Promotion Act.
New Digital Technology Business Category
Categories Defined
Under the newly defined “8.1 Digital Technology Business” category, the BOI differentiates between businesses focused on the creation of new digital solutions and those aiming to enhance existing ones. This category is divided into:
8.1.1 Business of developing software or platforms for digital services or content.
8.1.2 Business of improving software or platforms for digital services or content.
Definitions of Supported Activities
Software, Platforms, and Digital Content
In Announcement No. Por. 12 / 2566, the BOI defines supported activities as follows:
- Software: Computer programs, applications, systems, or a set of commands written in computer language, designed to instruct a computer or electronic device to operate as specified.
- Platform for Providing Digital Services: Systems, channels, or processes used to deliver digital services. These platforms facilitate the exchange of information, goods, or services between developers and users through the internet or other electronic networks.
- Digital Content: Computer-generated animations, encompassing video games, animations, Augmented Reality (AR), and Virtual Reality (VR).
Main Requirements for Software Development, development of platforms for digital services, development of digital content
The BOI sets forth two primary requirements: development must occur in Thailand, and there is a minimum investment requirement based on the annual salaries for Thai IT staff.
Development in Thailand
The development of software, digital service platforms, or digital content in Thailand must commence anew after applying for promotion. If a project introduces pre-developed products before applying for promotion, it must then develop new, distinct functionalities subsequent to the application.
Minimum Investment Requirement
Projects must allocate a minimum annual salary expense of THB 1.5 million for Thai IT personnel. This requirement encompasses salaries for both permanent and temporary employees hired after the application for promotion has been submitted.
Specifics on Thai IT Personnel
Eligible IT personnel include job roles such as Developers, Programmers, System Analysts, Software Engineers, Testers, Front End/Back End Developers, Project Managers, Animators, 2D/3D Artists, Game Designers, Visual Artists, and Computer Graphic Designers etc.
The qualifications of Thai IT personnel will be verified by the BOI based on evidence demonstrating IT skills. This includes academic transcripts, work experience of at least one year verified by previous employers, certificates from relevant training courses of at least six months duration from credible institutions, and professional qualification certificates or certificates approved by the office.
The hired personnel must be newly added to the company’s payroll after the application for the BOI incentives and must not be rehired staff who were let go less than a year before their new hiring date.
Employment of Thai IT staff must be confirmed through tax filings, specifically forms PND 1 or PND 1 Kor, to be considered towards the minimum investment requirement.
Other Essential Requirements
Project Start Deadline: Operations must commence within 12 months of receiving the promotion certificate, with no extensions for beginning operations or importing machinery.
Retail and Wholesale Exclusion: Investment promotion is not granted for retail and wholesale of all kinds of goods.
Machinery Use: Permits the use of existing or secondhand machinery.
Projects Not Eligible for Approval
The following types of software, platforms, and/or digital activities are not eligible for incentives:
- Development of a website that is not a web application
- Consultancy services
- Sale of goods or services through a platform, i.e., wholesale and retail trade, transportation, lending, etc.
- Enhancement of software or platforms that do not lead to the development of new features, i.e., user interface, transformation, or addition of other languages to the software or platform, etc.
- Acquisition, installation, configuration, or maintenance of equipment or software from other service providers
- Data analysis services without developing data analysis tools
- Software testing services without using the applicant’s own development resources
- Creation of computer graphics or visual effects for movies, dramas, commercials, or documentaries (visual technologies)
- Video editing
- Audio editing to create sound effects
- Digital drawing, i.e., web caricatures, stickers, etc.
- Services related to cryptocurrency that are not platform development, for example, initial coin offerings (ICOs), etc.
- Software or platform development for providing digital services or content for use within the organization
- Other procedures not related to the development of new products or features. The BOI will consider such applications on a case-by-case basis.
Application Process for BOI IT Incentives
Applicants must submit an application to the BOI containing at least the following details:
- Background and objectives of the business
- Information on where the product was developed before applying for incentives, details about the functions of the software, digital platform, or digital content
- Details and functions of the software, digital platform, or digital content to be developed after applying for the incentives
- Technologies used in development
- Development plan and timeline
- Information about customers, distribution channels, and business model
- Information about management and IT team
To implement the project, it will be necessary to open a company in Thailand.
Non-Tax Incentives
Non-tax incentives include:
- 100% Foreign Ownership: Allows full foreign ownership, which is an exception to the usual restrictions on foreign businesses.
- Simplified Employment of Foreigners: Streamlines the process for hiring foreign employees.
- Equipment Usage: Permits the use of both new and secondhand equipment.
- Land Ownership: Offers limited opportunities to acquire land ownership.
- Currency Repatriation: Facilitates the repatriation of profits and capital in foreign currency.
Tax Incentives for Software Development and Digital Services in Thailand
Businesses involved in software development, the creation of platforms for digital services, and the development of digital content may be eligible for Group A2 incentives, as classified by the Thailand Board of Investment (BOI).
Group A2 Incentives Include:
- Exemption from corporate income tax (CIT) for 8 years, covering up to 100% of the investment amount (excluding the cost of land and working capital).
- Exemption from customs duties on equipment imported for use in the project.
- Exemption from customs duties on raw materials used for research and development purposes.
- Exemption from customs duties on raw materials or essential materials used in the production of goods for export, applicable for a period of 1 year. This period may be extended if deemed appropriate by the BOI.
Specific Conditions:
- The maximum CIT exemption can be calculated based on the expenses incurred after the submission of the application for BOI incentives and within the year for which the exemption is claimed. Eligible expenses include:
- 100% of the payroll costs for newly hired Thai IT personnel.
- Expenses on technology-related training.
- Costs associated with obtaining quality standards such as ISO 29110 or CMMI Level 2 and above.
- Revenues exempt from CIT must be generated from sales or services directly related to the software, digital platforms, or content developed in accordance with BOI criteria. Eligible revenues include license fees, subscription fees, and pay-per-use fees.
Specifics for Improvement Projects
For improvement projects, the BOI offers specific incentives but not CIT exemptions. Here are the key criteria:
- Salary Requirement: You must spend at least 1,500,000 THB annually on salaries for Thai IT personnel, including temporary hires made after applying for the promotion.
- Improvement Plan Submission: A detailed plan for software, platform, or digital content improvements must be submitted to the BOI.
- Category Stability: After choosing a business category during the application, you cannot change it.
- Machinery Usage: The use of existing or secondhand machinery for the project is allowed.
- Operational Initiation: The project must start within 12 months from receiving the promotion certificate, without any deadline extensions.
- Machinery Importation: No extensions are allowed for importing machinery.
- Land Ownership: Owning land for the promoted business is not permitted.
These rules are essential for projects looking to get BOI incentives for making improvements.
Discover more:
How to Obtain Incentives from the Thailand Board of Investment (BOI)
Thailand Updates Investment Incentive Criteria for Software Development and Data Centers
How to Start a Business in Thailand
How to Register a Company in Thailand
If you have questions about how to start an IT business in Thailand and receive BOI incentives, please email me, or use the form below.
Photo by Ryutaro Uozumi on Unsplash