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Executive summary
The Thai Government promulgated Royal Decree No. 750 (the Decree) on 14 June 2022 granting an income tax exemption on gains from: (i) disposal of shares in companies engaged in the target industries; (ii) disposal of shares and the dissolution of venture capital companies investing in companies engaged in the target industries; and (iii) disposal of trust units and the dissolution of trusts investing in companies engaged in the target industries effective from 15 June 2022 to 30 June 2032, provided that the relevant conditions are met. The objective of the Decree is to promote investment in the target industries identified by the Thai Government.
Detailed discussion
The Decree was issued to grant a Thai income tax exemption (including withholding tax) on the gains from the following transactions subject to meeting certain conditions:
Disposal of shares in companies engaged in the targeted industries (Target Companies)
Disposal of shares and dissolution of venture capital companies (VCC) investing in the Target Companies
Disposal of trust units and dissolution of trusts investing in the Target Companies
In this respect, the companies engaging in the target industries are companies or registered partnerships established under Thai law that develop and apply technology or innovation as an important part of their business operations and operate in identified target industries.
The incentive is granted in order to promote the investment in the “target industries” as prescribed under the National Competitiveness Enhancement for Target Industries Act, B.E. 2560 (2017) (the Act).
The Committee on Policy for National Competitiveness Enhancement for Target Industries identifies the following industries as the target industries under the Act:
- Next generation automotive
- Intelligent electronics
- Advance agriculture and biotechnology
- Food for the future
- High-value and medical tourism
- Automation robotics
- Aviation and logistics
- Medical and comprehensive healthcare
- Biofuels and biochemicals
- Digital
- Defense
Education and human resource development
More specifically, the following gains are exempt from income tax (including withholding tax), subject to certain conditions:
(1) Gains from the transfer of shares of a Target Company that has earned at least 80% of its total income from business operations in the target industries in each of the two consecutive accounting periods prior to the share transfer date;
(2) In the case of investments through a VCC or a trust, gains from the transfer of shares of a VCC or trust units established for the purpose of engaging in venture capital business (i.e., a venture capital trust), under the following conditions:
(a) If the VCC or trust has no accumulated profits, gains are exempted from income tax in proportion to its investment in Target Companies that have earned at least 80% of their total income from business operations in the target industries in each of the two consecutive accounting periods prior to the share transfer date.
(b) If the VCC or trust has accumulated profits from its investment in Target Companies that have earned at least 80% of their total income from business operations in the target industries in each of the two consecutive accounting periods prior to the share transfer date, gains are fully exempted from income tax.
In determining whether a VCC under (a) or (b) has accumulated profits, earnings distributed to the legal reserve (as required under company law) are to be excluded.
(3) Gains realized by the shareholders or unitholders upon the dissolution of a VCC or trust are exempted from income tax in proportion to the amount of accumulated profits attributable to investment in Target Companies that have earned at least 80% of their total income from target industries in each of the two consecutive accounting periods prior to the dissolution date.
In the cases of (1) and (2), investors must have held the shares or trust units for at least 24 months prior to the transfer.
To be eligible for the exemption for (2) and (3), the VCC or trust must also meet the following criteria.
| Criteria | |
| VCC | Incorporated under the laws of Thailand. |
| Minimum paid-up and registered capital of THB20 million | |
| Registered as a VCC with the Securities and Exchange Commission (SEC), subject to the SEC’s guidelines | |
| Has not applied for tax exemption under previous Royal Decree (i.e., Section 5 Octodecim of Royal Decree 10 (1957) as amended by Royal Decree 481 (2009), Royal Decree 597 (2016) or Royal Decree 636 (2017)) | |
| Trust | Registered as a trust for joint venture investment with the Securities and Exchange Commission (SEC), subject to the SEC’s guidelines |
| Minimum paid-up capital of THB20 million on the last day of each accounting period. | |
| Has not applied for tax exemption under Royal Decree 597 (2016) or Royal Decree 636 (2017). |
Note: If a VCC/trust does not meet any of these qualifications in any particular tax year or accounting period, suspension of the right to claim the exemption for the shareholders and unitholders is limited to that tax year or accounting period.
The periods of the income tax exemption on gains under the Decree will be effective for the transactions that take place from 15 June 2022 to 30 June 2032.
Implications
The tax incentive under Royal Decree No.750 is beneficial for companies who wish to invest in companies operating in Thailand that develop and apply technology or innovation in businesses that have been identified as target industries by the relevant authority as announced by the Director-General of the Revenue Department and is notably available until 30 June 2032. However, investors should ensure that all the specified conditions are met, and that relevant guidelines are followed. In particular, in the case of VCCs and trusts, it should be confirmed that they have not previously utilized the income tax exemptions available under other specified regulations.
For additional information with respect to this Alert, please contact the following:
EY Corporate Services Limited, Bangkok
- Yupa Wichitkraisorn
- Kasem Kiatsayrikul
- Kamolrat Nuchitprasitchai
- Pathira Lam-ubol
- Su San Leong
Ernst & Young LLP (United States), Thai Tax Desk, New York
- Pariyanuch Ngamcherdtrakul
Ernst & Young LLP (United States), ASEAN Tax Desk, New York
- Bee-Khun Yap
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
- Chris Finnerty
- Gagan Malik
- Dhara Sampat
Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago
- Pongpat Kitsanayothin
Ernst & Young LLP (United States), Asia Pacific FSO Tax Desk, New York
- Russell Nicholas
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.
