News and developments
Tax Incentives for the Investment in Thai Startups.
To promote Thailand as one of the best hubs for new startups and to improve the country competitiveness, it requires amendment of certain legislations to allow businesses and investors to enjoy some more incentives. With incentives offered to businesses and investors, Thailand could compete with other jurisdictions e.g. Vietnam, Singapore and the Philippines.
For instance, Thailand’s Board of Investment (“BOI”) is empowered to promote qualified business with tax and non-tax incentives granted to businesses. Yet, such tax incentives are limited to corporate income tax exemption and dividend tax exemption. Income tax on capital gains derived from disposal of shares held in the startup business will not be exempt under BOI promotion. With the new tax incentives for startups, the Thai government via the Cabinet’s resolution on 8 March 2022 additionally provides investors who make an investment in startup business with income tax exemption on capital gains arising from disposal of their shares in the startup.
Incentives Package Offered for Investment in Startup.
Back in 2016, the Thai government introduced the Royal Decree Issued under the Revenue Code regarding the Exemption of Taxes (No. 597) 2016 (“Royal Decree No. 597”). Hence, the tax incentives for the investment in startups is not new. It is interesting to note that, according to the Royal Decree No.597 issued on 10 February 2016, when a Corporate Venture Capital (“CVC”) invested in the business operating in the targeted industries, the following incentives were granted to the CVC on a condition that the CVC must registered with the Thai Securities and Exchange Commission (“SEC”) by 31 December 2016:- exemption from corporate income tax on dividend; and
- exemption from corporate income tax on capital gains derived from the disposal of shares.
- dividend paid from CVC to its shareholders;
- capital gains from the disposal of shares in CVC to its investor; and
- gains derived from the return of capital due to the dissolution of CVC.
The Renewal of Tax Incentives for the Investment in Startups.
Due to the impact of the COVID-19 which severely affects national GDP and Royal Decrees No.597 and No.636 are no longer valid, many measures to promote inbound investment in technology and startup business are being brought back to the Cabinet by the Digital Council of Thailand. The Digital Council of Thailand demanded another series of tax incentives to be given to the startups for technology related businesses following the government policy to drive Thai economy more rapidly and recently the Thai Ministry of Finance proposed a bill with respect to tax incentives and measures to promote fund raising for startups to the Cabinet. On 8 March 2022, the Cabinet approved the principle of the tax incentives and measures to promote investment in startups of certain businesses especially technology related businesses following the government policy. It is expected that all tax incentives similar to the Royal Decrees No. 597 and No. 636 are to be granted, i.e. to encourage the investment in startups and to increase more opportunities for startups to raise capital and find potential business partners. Interestingly, as the Thai government has experienced the hurdles after the launch of Royal Decrees No.597 and No.636, the bill is aimed to improve certain conditions under those Royal Decrees by providing exemption for the capital gains derived from the disposal of shares in a “targeted company” for investors in Thailand and outside Thailand.Targeted Company.
Although the definition of a “startup” has not yet been clearly stated, this bill is to deal with startups in particular. According to the bill, a startup will be referred to as a “targeted company”, i.e. the business operating in the government-promoted industries which, at present, are the following 14 industries:- Next-generation automotive
- Smart electronics
- Affluent tourism
- Agriculture and biotechnology
- High valued food processing
- Robotics
- Aviation
- Biofuels and biochemical
- Digital
- Medical hub
- National defense
- Circular economy
- Human resource development and research and development for the target industries
- Other industry that is in accordance with the 20-Year National Strategy approved by the Committee on Policy to Increase of National Competitiveness for Target Industries
Tax Incentives under the Bill.
The given tax incentives are based on the form of investment as follows:- Direct Investment
- Investment through a Thai CVC
- Incentives for a Thai CVC
- Incentives for shareholders of the CVC
- Investment through a PE Trust
- Incentives for unitholders of a PE Trust