In this 2013 update, we would like to focus on a selection of interesting steps taken by Thailand, in its legislative and regulatory production, to move forward into an ensuing phase of economic security and long-term sustainable growth. In view of further reinforcing its economic recovery, Thailand confirms the tax-base stimulus for businesses set out the previous year while providing additional stimulus for individuals. In combination with an approach of general economic consolidation, certain legal developments reveal Thailand's search for a new region-leading position in the arena of high value specialised services in particular. Finally, with the long-awaited reform of its public-private partnership (PPP) legislation, Thailand seems to demonstrate that it will not limit itself to a couple of short-term, tone-up, accessory measures and is determined to enter into those substantial reforms and structural adjustments necessary to allow the country to address its infrastructure needs and consumption appetite.

Confirmed and expanded tax incentives

Thailand is continuing to rebound from the worst floods in recorded history by extending the temporary income tax reliefs of 2011-2012. Initially, the corporate income tax rate was lowered from the standard 30% to an incentivised 23%, to help businesses cope with production losses and has since been further reduced from 23% to 20% for the 2013 fiscal year. In addition to the reduced rate, small and medium enterprises and limited partnerships with registered capital less than or equal to five million baht are enjoying extended terms of the tax exempt net profit ceiling, which has since been doubled.

From 2013 the incentivising measures are also directed at resident individuals. Net income is taxed on a progressive basis, according to levels of net income. The former standard progressive rates were ranging from 0% to 37%. The 2013 reform has narrowed each level of net income and reduced the rates applicable to each group,, therefore lowering the personal income taxes for almost everyone. The maximum tax rate was also reduced from 37% to 35%. Non-resident individual taxpayers (who stay in Thailand less than 183 days in a tax year) deriving service-type income or professional fees in Thailand continue to be subjected to a reasonable final personal income tax rate of 15% on gross.

Facilitating foreign investment in high value financial services

A 2013 ministerial regulation adopted under the Foreign Business Act provides for an exemption from the requirement to obtain a Foreign Business License for the benefit of services related to financial activity, which include financial consulting, asset and mutual fund management, securities, stock market exchange, and brokerage businesses (limited to the Stock Exchange of Thailand). In practice, any investor that wishes to acquire an entity offering such services or to develop a new company in this sector will be free to do so without being subject to the administrative turpitude of the Foreign Business License procedure or any 49/51 minority partnership arrangement.

This reform occurs in a context where facts indicate that capital markets in Thailand have not evolved as fast as other regional neighbours; representing only 84% of GDP in 2011 versus 256% and 147% for Singapore and Malaysia respectively. The newly decided Foreign Business License exemption for the financial services industry certainly shows a renewed ambition to become more competitive in Asian capital markets by utilising the technical support and expertise of foreign operators.

Moving to a stronger public-private partnership (PPP) concept

In April 2013 the Private Joint Investment in State Undertaking Act B.E. (the 'Act') came into force. Many expect this amendment of the 1979 original legislation to breathe new life into public-private infrastructure investments. The Act clarifies many of the previous inconsistencies, and aims to streamline the entire process by establishing a national PPP committee that is directly responsible for project approval and the drafting of various rules pursuant to the Act. Processing time from the initial feasibility study to the groundbreaking ceremony has also been significantly shortened; from a lengthy four years under the previous act to a more manageable 7-12 months. This immediately provides a more attractive climate for private sector investment into PPPs.

Another significant change is the introduction of the Committee of Private Investment in State Undertaking (the 'Committee'), which is empowered to act as a central agency responsible for all facets of PPP projects including the setting standard procedures, approvals, support, and promotion of each project. The objective of the Committee's establishment is to ensure more efficient services to the public through compliance with fiscal discipline and adherence to provisions of appropriate risk allocation between the public and private sectors. Furthermore, the Act includes strategic planning guidelines to ensure that PPP projects comply with the fundamental policies of the Constitution and the National Economic and Social Development Plan. All PPP projects require assessments conducted throughout the development process to confirm adherence to the Act by a Supervision Committee that specifically tasked to monitor the project with the assistance of professional consultants.

Protections upon completion are provided for as well. At least five years before any PPP agreement is terminated, the relevant government agencies are required to conduct a comparative analysis, holding the best interest of the public central, to determine the best method of dispensing the project's services; either through government operations, through the private sector, or a combination of both. Additionally, to avoid conflicts between various government authorities over PPP projects, the Act exempts petroleum- and mineral-related projects, as well as any project governed by specific legislation.

The range and nature of changes taking place in Thailand during first part of 2013 seem to reflect a comprehensive focus on both immediate fiscal injection and a policy outlook of long-term sustainability. As Thailand begins to embark on a number of 'Mega Projects' including a national high-speed rail system and plans for mass transportation in other major cities, such dynamism is certainly very welcomed. Interestingly, the dynamic highlighted in this update arises concomitantly with the official launch of the negotiation process for the making of a Thailand-EU free trade agreement; another interesting mid-term perspective to be watched.