The latest BOI regulations have set forth several key requirements for software businesses to be eligible for promotion, with a focus on local development, hiring Thai IT professionals, and using advanced technologies. These regulations also provide clarity on how companies can include software developed before applying for BOI promotion, provided they continue to innovate and improve the software within Thailand.
In this article, we will outline the key eligibility requirements for software businesses seeking BOI promotion, as well as the significant incentives available, including tax exemptions, foreign ownership privileges, and special work permit and visa rules.
A. Eligibility Requirements for Software Businesses
Software businesses fall under the BOI-promoted category of 8.1: Development of Software, Digital Platforms, or Digital Content. The business must meet several specific criteria to be eligible for BOI promotion.
1. Software Development Process Must Be Done in Thailand
- Local Development Requirement: A critical condition for BOI approval is that the software development process must be carried out in Thailand. The software development, including coding, testing, and deployment, must be handled by the company’s IT team based in Thailand. This ensures that the economic benefits of software development, such as job creation and technological advancement, stay within the country.
- In-House Development Team: The company must have an IT team in Thailand dedicated to software development. The team should be responsible for creating and improving software products or services that meet the company’s business needs.
2. Software Developed Before BOI Application
- Adopting Pre-Developed Software: The BOI allows companies to apply for promotion even if some of their software was developed before applying for the BOI. However, further developments or improvements to this software must be carried out in Thailand after the company applies for BOI promotion.
- Detailed Comparison Required: To qualify for BOI promotion, the company must provide a comparison between the software developed before the application and the improvements or updates made after receiving BOI approval. This comparison must include the following minimum details:
- Name of Software/Product: The name of the software or product being developed or improved.
- Features or Functions of the Software: A list of features or functions of the software, both before and after the improvements.
- Structure of the Software or Digital Platform: An outline of the software’s architecture, modules, or platform structure, showing the changes made.
- Tools and Programming Languages Used: A description of the tools, software libraries, and programming languages used in the development, highlighting any updates or changes since the initial development.
- Name of Software/Product: The name of the software or product being developed or improved.
3. Requirement to Hire New Thai IT Personnel
- Hiring Thai IT Professionals: The company is required to hire new Thai IT personnel as part of its workforce. This ensures that the software industry in Thailand benefits from a skilled local workforce.
- Salary Expenditure Requirement: The company must have a total salary expenditure of at least 1.5 million Baht (THB) per year for the Thai IT personnel employed in software-related roles, such as developers, engineers, or system analysts.
- Qualifications of Thai IT Personnel: The qualifications will be evaluated based on evidence demonstrating relevant IT skills, including transcripts, training certificates, or an employment certification letter from a previous employer confirming employment in an IT-related role.
4. Use of New Machinery (Computer Hardware and Equipment)
Software companies must invest in brand-new computer hardware to support their development activities. The use of outdated equipment or second-hand hardware is not eligible for BOI incentives.
The amount of investment in hardware and software tools must be consistent with the size of the software development team. This ensures that the company’s technology infrastructure is aligned with its operations and supports development activities.
5. Separation of Non-BOI Activities
If a company involved in BOI promotion intends to engage in non-BOI activities (businesses not related to software, IT services, or digital platforms), it is critical to separate these activities from the BOI-approved business operations. To ensure compliance and avoid complications with the BOI, businesses have two options:
- Option 1: Establish a Separate Company for Non-BOI Activities: The most straightforward approach is to set up a separate company for conducting non-BOI activities. This ensures that the non-BOI activities do not interfere with the company’s eligibility for BOI incentives and that the activities are clearly segregated.
The new entity would operate within the same corporate structure but would be treated independently from the BOI-approved entity, ensuring that its operations do not affect the BOI promotional status.
- Option 2: Separate Accounting for Non-BOI Activities within the Same Company: If a company prefers to operate both BOI and non-BOI activities under the same legal entity, it must separate the accounting records for each activity. This means that:
- Costs, revenues, and profits associated with BOI-approved software activities must be accounted for separately from those related to non-BOI activities.
- The financial records should clearly distinguish between the two categories to ensure that the BOI-approved activities meet the necessary criteria and that the company remains compliant with BOI requirements.
- This includes maintaining separate bookkeeping, financial statements, and tax filings for the two activities, even if they are operated under the same company.
- Costs, revenues, and profits associated with BOI-approved software activities must be accounted for separately from those related to non-BOI activities.
Additionally, if the company is majority-owned by foreign shareholders, it must obtain a Foreign Business License (FBL) for those non-BOI activities.
B. Incentives for Software Businesses Under Thailand BOI Promotion
The BOI offers several significant incentives to software businesses that meet the eligibility requirements.
1. Key Incentives Provided by the BOI
- 100% foreign shareholders
- Special visa and work permit exemptions: These are exempted from the general rules requiring 4 Thai employees and 2 million baht (MB) in capital per work permit.
- Exemption from corporate income tax (CIT) for 8 years: The CIT exemption cap is 100% of the total salary expenses of additional Thai IT personnel who are employed after applying for the promotion, and 200% of the training expenses.
2. Revenues Applicable to CIT Exemption
The following types of revenue are eligible for CIT exemption if they are directly linked to the development of software, digital platforms, or digital content within the BOI-promoted activities:
- Revenue from the development, installation, testing, improvement, and maintenance of software or digital platforms.
- Revenue from the sale of developed software, digital platforms, or digital content.
- Revenue from royalties/license fees for software usage.
- Revenue from subscription fees for ongoing services related to software or digital platforms.
- Revenue from in-app purchases (IAP) for additional features or functionality.
- Revenue from advertising within software, digital platforms, or digital content.
3. Revenues NOT Applicable to CIT Exemption
Revenues that typically involve activities or services not directly related to the core development of software, digital platforms, or digital content are not eligible for CIT exemption. Examples include:
- Revenue earned in the form of commission.
- Service fees not directly related to the software or digital platform of the promoted projects, such as consultation fees.
- Revenue from hardware procurement services.
- Revenue from selling goods and services in both retail and wholesale trading, including goods transportation.
- Earnings from data distribution or data analysis reports without software development within the project.
C. Excluded Activities from Investment Promotion
The investment promotion for the development of software, digital platforms, or digital content does not cover certain types of activities, even if they involve some form of digital technology or content creation. These activities are considered outside the scope of BOI promotion:
- Website Development: Developing a basic website without the involvement of complex software development or digital platform creation is excluded from promotion.
- Provision of Data Analysis Services Without Development of Tools
- E-commerce Trading, Transportation, and Financial Services: Such as credit extension provided through a platform.
- Conversion or Addition of Languages for Software or Platforms
- User Interface (UI) Development or Improvement
- Computer Graphics or Visual Effects for Media: These activities are generally considered part of the media and entertainment industry rather than software or digital platform development.
- Video and Audio Editing
Conclusion
It is important for businesses to maintain proper documentation to prove that the revenue earned is directly linked to the promotion’s qualifying activities. This will help ensure eligibility for the corporate income tax exemption, which encourages companies to invest in software development, digital innovation, and technology-driven services.
