Villa resales for foreigners in Thailand’s resort areas

HLB Thailand Tax Team


Offering properties for “sale” to foreigners under a long term registered lease is becoming the norm for new developments in resort areas. Even condo developments limited to offering 51% of their freehold capacity to foreigners may offer the remaining units to foreigners on a long term leasehold.

If however you are considering purchasing a resale villa from another foreigner, you may very well find that it was purchased as a freehold property. As it is not possible for the foreigner to own the land, it would have been acquired in a Thai company in which he has a minority shareholding and Thai shareholders own at least 51% of the share capital and make up the majority of shareholders in number.

Sale structuring

In the current uncertain climate surrounding the interpretation and enforcement of Thailand’s land ownership and foreign investment laws, resales of these types of properties will most likely be structured as a sale of the owner’s Thai company. This way, transferring ownership of the company avoids the scrutiny of the authorities that a freehold sale of the property would otherwise attract which could prevent the sale going through.

The current owner will therefore end up selling his interests in the Thai company i.e. the company’s shares and any debt financing, rather than the property itself. In the past, a buyer may have preferred to start with a fresh Thai company rather than buy into an existing company and its history but these days this is less of an option for many foreign buyers.

Tax considerations

It can end up being very tax effective for a foreign owner to sell his company on to the next foreign owner. A sale of real estate attract a number of transfer taxes when a transfer is registered at the Land Department office and the gain made from the sale will be subject to corporate income tax of up to 30% and the payment of any gains out of the company in the form of a dividend will attract another 10% tax. It quickly becomes apparent to a seller that the sale of the corporate structure is the best exit strategy, as well as being probably the only viable route in most cases for foreign buyers.

One issue the new owner will face is that the Thai company will continue to record the value of the property in its books at the property’s original cost price and not the value that the new owner has paid. As a result, when the new owner comes to sell the property in the future he too will likely prefer selling the company on as well, otherwise a sale of the property out of the company will mean he ends up making a taxable gain that is equal to the real gain made by him plus the gain made by the owner before him.

The tax on the unrealised capital gain inherited from the seller may not necessarily be a problem in the future, if the current legal environment concerning foreign ownership persists and the sale of the company remains the most practical option. It is an important issue to be aware of however when taking over a company, especially if the property has been held for some time and it has appreciated considerably since it was first purchased. It is of course possible to record a revaluation of the property in the accounting records to reflect the current price paid for the property but this has no affect on the cost base for tax purposes.

Price considerations

The taxes saved by the seller needs to be appreciated early on by the buyer in the sales negotiations. Knowledge of this should give the buyer the ability to negotiate a price that takes into account the Thai tax savings that the seller will achieve from the sale, potentially at the expense of the buyer because of the unrealised taxable gain in the company that he inherits, so that both parties effectively end up sharing in the tax benefits of the share sale.

Taking over the Thai company owning the property will require the usual legal, financial and tax due diligence to understand what exactly the new owner is buying into and whether or not there are any potential liabilities or material issues that might pass over to the new owner. On the tax side for example, if the property has been used as a holiday home by the current owner, he should have been paying some rent to the company – there may otherwise be under declared income for tax purposes. Also the payment of house and land tax of 12.5% on the rental value of the property – payable regardless of whether rents have in fact been paid – should also be reviewed.

Leasehold option

A new owner may consider registering a lease over the property for the maximum term of 30 years to secure his rights to possess the property in the long term. This does not mean he ends up paying for the property twice – the rental can be payable on an annual basis over the lease term and will in many ways be akin to paying rent to himself.

Holding a leasehold interest in the property can then put the new owner in a position similar to many of the leasehold developments on offer – bearing in mind that many of the new developments offered as leasehold may also face the same freehold land ownership issues in the end.

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Thai rental properties and personal income tax

HLB Thailand Tax Team


Foreign investors looking to purchase rental properties in Thailand will often have the choice of purchasing the property in their own name or in an offshore company. The preferred ownership structure will require a careful analysis of the respective costs and benefits, taking into account the particular circumstances of the owner.

From a tax perspective, this will require consideration of the tax laws in Thailand as well as the tax laws in the owner’s home jurisdiction and an analysis of the impact on the investment returns after tax if an offshore company is interposed between the owner and the property.

An important tax issue to consider is the taxes payable on rental income.

Taxes on rental income

Foreign individuals are subject to Thai personal income tax on rental income generated from real estate situated in Thailand. 

In most cases, 15% withholding tax applies to rental income paid to foreign individuals that are not tax residents of Thailand. 

How to pay less than 15% tax

The tax withheld is not a final tax.

A foreign property owner residing outside Thailand could actually end up paying much less than 15% tax in Thailand if he has purchased the property in his own name.

For a foreigner to pay less than 15% tax on rental income, the first step will be to file personal income tax returns with the Thai Revenue Department to declare the rental income. The withholding tax deducted from rents can then be used as a tax credit to offset the tax payable on the return. The reward for filing a tax return is that the taxpayer can then request a refund of surplus withholding tax credits from the Thai Revenue Department.

Preparing and filing a personal income tax return in Thailand is not a difficult exercise.

A property owner is allowed a standard deduction of 30% against rental income, no questions asked. A personal taxpayer does have the option of claiming the actual expenses incurred in deriving the rental income which are necessary and reasonable, but the expenses claimed must be supported by documentary evidence, which may very well need to be furnished for audit before the tax refund is approved.

The refund is not automatic. You will need to specifically request a refund on the return otherwise the Revenue Department will not consider refunding the excess tax paid. if you don’t make the request on the return, it is still possible to make a request within 3 years of the return filing deadline.

Tax rates

A personal taxpayer can earn net income up to Baht 150,000 (approx. USD 5,000) in a tax year and not pay income tax in Thailand. Unlike some countries that seek to tax foreigners at higher rates or deny them the tax free threshold, the tax scales for residents and non-residents are the same in Thailand.

Individuals are liable to personal income tax in Thailand on their net income, after deduction of expenses and allowances, at the following rates:

As the rates of tax are greater than 15% for net income over Baht 750,000 (approx. USD 25,000), there will come a point where the tax payable will be greater than the withholding tax credits.

By my reckoning, the property would need to be generating around USD 140,000 per annum in gross rentals before it came to the point where the withholding tax credits would not be enough to cover the income tax payable when the personal income tax return is filed.

The benefit of filing a tax return is best illustrated by an example. Let’s take the case where a property generates gross rental income of Baht 1,000,000.00 (approx. USD 33,000) for the tax year. The following tax calculation for a typical property owner illustrates the potential tax refundable in this case.

The tax payable in this case is just under 5% of the gross rental income, resulting in more than two-thirds of the withholding tax deducted from rents during the year being refundable.

 The figures speak for themselves and clearly demonstrate one distinct tax advantage for foreigners owning Thai rental properties in their own name.



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Real estate taxation – common area charges



Residential developments in resort areas come in various forms, but they mostly have one thing in common – common areas.

The framework governing the management and use of common areas will depend in some part on how the development is structured under the law. For example, Thailand’s Condominium Act contains provisions governing the framework for the use and management of common areas of condominiums. Housing estates developed in accordance with the Land Allocation Act will also have a statutory framework to follow.

Residential developments in Thailand’s resort areas that are marketed to foreign buyers may not be structured in accordance with such laws, due mainly to the restrictions on foreign ownership of land and condominium units. Under the law, a condominium is a building that is registered under the Condominium Act, which then allows the building to be divided up into units and owned by separate persons. In resort areas, a building that looks and feels like a condominium could in fact just be an apartment building with one owner, with foreign tenants taking possession under long-term leases. Common area services and charges may then be established by contract instead, often mirroring the statutory framework to some extent.

Where the management and use of common areas is governed by contract rather than statute, a number of tax issues will come into play, which may translate into higher common area charges for owners.

Income tax considerations

Owners paying common area charges under a contract will typically pay their common area charges to a corporate entity that is liable to corporate income tax on its profit, which can be as high as 30 percent. Such charges will be considered assessable income of the company for income tax purposes.

Twice a year the company will have to file a corporate tax return and pay tax in respect of its taxable profit. Although the common area charges are being collected to meet on-going expenditures, the way that revenues and expenses are recognised for tax purposes could result in the company recording a profit upon which it has to pay tax. 

This is particularly evident when sinking fund charges are collected at the start for meeting large repairs or capital expenditures in the future. Sinking fund charges will typically be recorded as revenues for tax purposes when they become due from owners.  At the same time, as these funds are being collected to meet future expenditures, there will likely be little or no direct expenses to offset the revenues in the year that they are subject to income tax.

In addition, some outgoings might not be allowed as an expense in the year of purchase but instead may be considered capital in nature and so will have to be capitalised and depreciated over their effective life.

In the case of a condominium however, the juristic person formed under the Condominium Act tasked with the responsibility of managing the condominium and receiving common area charges, is not an entity subject to income tax under the Revenue Code. Funds can therefore be collected from owners without having to consider any income tax implications.

VAT considerations

Another issue faced by providing common area services under contract is 7 percent VAT. Although the rental of immovable property is specifically exempt from VAT, service charges relating to the use of common areas will be subject to VAT. This means that 7 percent VAT must be added to the common area fees charged to owners.

The chance of making errors – and hence liability to tax penalties – normally increases once you enter the VAT system and are running VAT and non VAT businesses.

Small developments might be able to avail themselves of the small business exemption. Where the annual turnover from services chargeable to VAT does not exceed Bt1.8 million, the business does not have to register for VAT. This means the business could legally stay out of the VAT system and not add 7 percent VAT to any of the amounts charged to owners.
As you might have guessed, the treatment for a condominium is the exact opposite. The courts and a Board of Taxation Ruling have confirmed that the funds collected from owners to meet the costs of common area expenses and public utilities are not subject to VAT.

Where the use of common areas is provided under a service contract, such agreement may be a hire of work agreement as defined under Thailand’s Civil and Commercial Code and subject to stamp duty under the Revenue Code.

It is evident that by establishing the framework for the management and use of common areas through contract, a number of tax issues will also have to be managed. Understanding and planning for these tax issues can reduce additional costs that owners might face as a result.

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Capital gains and the Thai tax system

HLB Thailand Tax Team

Foreign property owners interested in maximising the financial returns from their foray into the Thai property market should take a moment or two to understand the impact taxes will have on their financial returns.

A savvy investor will often seek tax advice about tax planning that can be done – in compliance with the prevailing laws – to mitigate the taxes payable.

An important aspect of tax planning for property investment is the mitigation of tax liabilities arising upon disposal of the property. Tax planning to maximize the capital gain on exit normally requires planning at the start.

Depending on where you get your tax advice, you may think that Thailand does not have capital gains taxes. While that may be true, there are certainly taxes on capital gains, which may be as high as 35%! The point being that capital gains are taxed just like other forms of income from investment or trading.

Taxes on capital gains

Your liability to Thai income tax when you sell real estate in Thailand and the level of tax payable will depend on a number of factors, including:

  • Whether you have bought the property in your own name, through a Thai company or in the name of a foreign company – personal tax and corporate tax rules differ significantly.
  • The legal form in which the property is held, which can vary due mainly to the restrictions on foreign ownership of land e.g. an apartment held on a long term lease, freehold land and villa owned via a Thai company or a lease over land combined with freehold ownership of the villa on the land, to name a few of the legal forms used.
  • How you structure the deal on exit – there can be different aspects to the sale that may need the sales price to be apportioned, which can affect the liability to tax. Sometimes the deal ends up being structured as the sale of the corporate vehicle holding the real estate rather than the property itself.
  • Whether the sale needs to be registered with the authorities in Thailand, and if so, whether there will be some form of withholding tax imposed.
  • Whether or not a double tax agreement exists between Thailand and the seller’s country of residence – this might be overlooked because double tax agreements often don’t help when it comes to real estate. However if the deal involves a leasehold or sale of a corporate vehicle, then a double tax agreement may have a substantial impact.

So you can see that there are a number of factors that can affect whether or not you pay tax in Thailand on a capital gain and the level of tax payable.

Apartment lease

The best way to illustrate how the Thai tax system works is to run through an example. Let’s consider the case where you take a long term lease over an apartment, which is a common structure used in resort areas catering exclusively to foreign buyers.

If you make the lease in your own name, Thailand’s Revenue Code provides that an individual deriving assessable income from property situated in Thailand is liable to personal income tax, regardless of whether such income is paid within or outside Thailand and whether you are a tax resident of Thailand or not.

The Revenue Code does not prescribe under what circumstances property will be considered “situated in Thailand”. It is a pretty safe bet though that the lease, which is a form of property distinct from the real estate under lease, would be considered property situated in Thailand for tax purposes.

Personal tax on transfer of a lease

The gain on transfer of the lease would be subject to personal income tax at the marginal tax rates ranging from 5% to 35%. There won’t be any tax withheld when the lease transfer is registered, so it will be up to the seller to file a personal income tax return. Obviously the tax authorities may face difficulties collecting tax from a foreign seller if a return is not filed – there are provisions however that impose a duty on the agent appointed to manage the property to file tax returns on behalf of the property owner which could be enforced.

Double tax agreements

Thailand has a comprehensive collection of double tax agreements, with over 60 countries currently signed up to prevent double taxation of their residents.

These agreements normally prevent double taxation by either allowing one country only to tax the income or granting taxing rights to both, in which case the foreign taxpayer will only pay tax in his home country if the tax paid in Thailand is insufficient to offset his tax liability at home.

So how would the transfer of an apartment lease be taxed under a double tax agreement? Much depends on the terms of the particular agreement, because although the agreements generally follow a similar form on the whole, the taxation of capital gains is one area where the terms do vary from country to country. It will be important to properly characterize the lease to determine which provisions of the double tax agreement apply to the gain.

Where a double tax agreement does provide protection from Thai tax on capital gains made from the transfer of a lease, greater attention will be given to mitigating the taxes payable in the taxpayer’s country of residence. Of course, this will not be an issue for those living in countries with no capital gains taxes!



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What’s the difference between a Master file and a Local file?

Rohit Sharma, Principal, Transfer Pricing


In July 2017, the Organisation for Economic Co-operation and Development (OECD) incorporated and updated the guidelines on Transfer Pricing, aligning the recommendations from Action Plan 13 of the Base Erosion and Profit Shifting (BEPS) Inclusive Frameworks for Multinational Enterprises.

Understanding these changes is essential for taxpayers with related party transactions.

Under Chapter V of the 2017 OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, a three-tiered approach to Transfer Pricing documentation has been incorporated for taxpayers with related party transactions. 

The approach includes the preparation of three documents: Master File, Local File, and the Country-by-Country Report.

Why the three-tiered approach?

In order to standardise the Transfer Pricing documentation process, the three-tiered approach aims to:

​Ensure taxpayers give appropriate consideration to Transfer Pricing requirements, to establish prices and other conditions for transactions between associated enterprises, and in reporting the income derived from such transactions in their tax returns. The goal is to:

  1. Provide tax administrations with the information necessary to conduct an informed Transfer Pricing risk assessment.
  2. Provide tax administrations with useful information to employ in conducting an appropriately thorough audit of the Transfer Pricing practices of entities subject to tax in their jurisdiction, although it may be necessary to supplement the documentation with additional information as the audit progresses.

These objectives provide guiding principles to both taxpayers and tax administrators.

With these guidelines, the taxpayers are able to:

  • Prepare appropriate Transfer Pricing documentation.
  • Carefully evaluate Transfer Pricing methodology at or before the time of filing a tax return, and the compliance with the applicable Transfer Pricing rules. 

The tax administrators are able to:

  • Assess the information needed to conduct a Transfer Pricing risk assessment, to make an informed decision on whether to perform a Transfer Pricing audit.
  • Access or demand, on a timely basis, all additional information necessary to conduct a comprehensive audit.

Master file and a Local file

What is a Master File? 

There’s no getting around it. The OECD and G20s Transfer Pricing policies have made it mandatory for Multinational Enterprises to prepare a Master File. 

The standard three-tiered approach requires Multinational Enterprises to articulate a high-level group overview along with the details of Transfer Pricing policies for their intercompany transactions. 

This assists tax administrators to assess the Base Erosion and Profit Shifting related, or Transfer Pricing risks.

The Master File is a document containing high-level information about the global business operations, global supply chain, geographical locations (where the Group has footprints), description of the business activities of members of the Group, the Group’s intangibles, and financing arrangements within/outside the Group. 

Chapter V of the OECD’s Transfer Pricing Guidelines requires the Master File to include:

  • Group’s organisational structure
  • Group’s business or businesses, including details about their supply and value chain
  • Group’s intangibles, research & developments along with its Transfer Pricing policies
  • Group’s financial activities along with its Transfer Pricing policies
  • Group’s financial and tax positions (details of advance pricing arrangements etc.).

The Master File is to be prepared by the ultimate parent entity of the Group or a surrogate as appointed by the ultimate parent entity, within 12 months of its fiscal year-end or any country-specific requirement. 

The Master File should be made available to all relevant tax authorities in the jurisdictions where the Group has a presence. Furthermore, the Master File may be prepared for the Group as a whole or on a segment basis, based on the specific guidance/requirement of the local jurisdiction.

The threshold for filings of the Master File

The threshold suggested by the OECD has consolidated group revenues equal to, or more than EURO 750 million or a near equivalent amount in domestic currency. 

This threshold, however, varies across jurisdictions. In the Netherlands, for example, the threshold is exceeded if the consolidated group revenues are equal or over EURO 50 million.

In Indonesia, the threshold is exceeded if, during the previous year, one or more of the following is reached: 

  • Gross revenue is above IDR 50 billion
  • Tangible goods of affiliated party transactions are above IDR 20 billion 
  • Any class of non-tangible goods related to party transactions are above IDR 5 billion

Or, if any of the related party transactions were with a tax jurisdiction, with a tax rate lower than the Indonesian corporate tax rate of 25%, in the current fiscal year.

 The timeline for filings of the Master File

The OECD suggests that the Master File needs to be prepared within 12 months of the fiscal year-end. 

For some countries, like Indonesia, the Master File will need to be prepared within four months of the end of the fiscal year.

It is, therefore, integral for Multinational Entities to consistently monitor local requirements.  

What is a Local File? 

A Local File is Transfer Pricing documentation already prepared in the local jurisdiction of a member of a Multinational Entity’s group. 

While the Master File provides an overview, the Local File is more detailed. It’s an analysis of the local entity’s intercompany transactions, and is expected to be prepared and lodged with the local tax authority as per the local rules. 

Although the requirements may vary from country to country, specified by the local tax authorities, typically, the Local File will contain the following:

  • Management/department structure of the local entity
  • A detailed description of the business and business strategy pursued by the local entity along with the functions performed by the counterparty(ies)
  • Key competitors of the local entity
  • Financial information of the local entity 
  • Details of intercompany transactions along with its Transfer Pricing policies
  • Detailed functions performed, risks assumed and assets utilised by the local entity with respect to the intercompany transactions
  • Economic analysis:
    • Selection of Transfer Pricing methodology 
    • Selection of tested party
    • Selection of years for comparison
    • Selection of comparable companies
    • Selection of the most reliable profit level indicator
    • Adjustments for accounting and other factors
    • Determination of an appropriate range of results
    • Comparability analysis and adjustments performed, etc.

The thresholds and timelines for preparing and filing the Local File vary from country to country, so it’s crucial to have an understanding of the local legislation in each country an entity operates in.

The objective of the Local File is to ensure that the local entity is remunerated based on the functions it performs and risks it assumes with regard to the intercompany transaction(s), with the objective of satisfying the Arm’s Length principle.

Update on the Local File in Thailand 

When it comes to preparing a Local File in Thailand, taxpayers need experts that know the local jurisdiction. Here’s how Thailand has updated the Local File requirements.

Arms Length

According to Section 65 bis (4) and Section 65 ter (15) of the Revenue Code, all transactions are to be undertaken at an Arm’s Length price.

It also provides specific powers to the assessment officers to impose Transfer Pricing adjustments in respect of income or expenses arising from non-Arm’s Length transactions.

 The Instruction 

In 2002, specific Transfer Pricing guidelines were issued in the form of Departmental Instruction No. Paw 113/2545 – also known as “the Instruction”. 

The Instruction provides the assessing officers with guidelines for interpreting the existing Transfer Pricing laws when conducting tax examinations, and outlines the approach that taxpayers should follow when establishing Transfer Prices. 

The Instruction is, broadly speaking, consistent with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

The recent addition of the “Notification of the Director-General of the Revenue Department on Income Tax (No.400)”, provides further clarity for taxpayers about the transfer pricing documentation they’re expected to maintain. It is effective for accounting periods commencing on or after 1 January, 2021.

 New provisions

Recently, the National Legislative Assembly strengthened the enforcement of Transfer Pricing regulations by adding more provisions to the Revenue Code.

This included Section 71 bis, Section 71 ter, and Section 35 ter. 

Section 71 bis defines the term “related parties” and authorises the assessment officers to assess and adjust the revenue and expenses of such companies with related parties when they’re not being priced appropriately. The pricing of transactions should be determined as if the related companies were acting independently of each other. 

Section 71 ter requires companies with revenue exceeding THB 200 million in an accounting year to submit a Transfer Pricing disclosure form and prepare supporting documentation together with its annual corporate income tax return (PND 50) for accounting periods commencing on or after 1, January 2019. 

Entities failing to comply with the legislation are subject to a penalty of no more than 200,000 baht as stipulated in Section 35 ter.

Our observations

Since joining the OECD’s BEPS Inclusive Framework, Thailand has committed to implementing the four minimum standards of its package, including the three-tiered Transfer Pricing documentation structure, Country by Country report, Master File, and Local File as mandated by the Action Plan 13.

Taxpayers will need to ensure that they can demonstrate the substance behind their existing tax structures and arrangements, especially if those structures have transactions with low tax jurisdictions.

For further insight on Thailand’s most up to date approach to Transfer Pricing documentation, refer to our article on implications of the recent “Notification of the Director-General of the Revenue Department on Income Tax (No.400)”.

This additional information will help the Revenue Department assess whether activities undertaken by the taxpayer in relation to the counterparty to the transaction support the Transfer Pricing policies and the Arm’s Length principle

The tax administrators will want to analyse the current Transfer Pricing policies in order to conduct an informed Transfer Pricing risk assessment, determining where to target their Transfer Pricing audit activity. 

On 13 April, 2020, the Thai Revenue Department released a public consultation document on the Country by Country report. 

We believe that the law will be introduced shortly and should conform to the global standard of the three-tiered approach.

Watch this space for our comments on the public consultation document released by the Thai Revenue Department on Country by Country report.

If you want to learn more about Transfer Pricing, check out our article “Everything you’ve ever wanted to know about Transfer Pricing in Thailand (with examples)”.

HLB’s Transfer Pricing specialists are here to help. 

Thailand’s transfer pricing rules are complex, and can differ greatly from those in neighboring countries. To stay compliant, book a meeting with Rohit Sharma and his team of local transfer pricing experts at HLB Thailand today. 

Read More: The impact of COVID-19 on your Transfer Pricing arrangements

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How is the Covid-19 pandemic impacting Thailand’s medical hub ambitions?

Oxford Business Group

As Thailand begins to gradually ease coronavirus-related restrictions, the government is looking to cement the country’s position as an advanced medical hub in Asia.

From May 3, small retailers, street food vendors, restaurants outside malls, parks and outdoor sports venues have been permitted to reopen as policymakers look to kick-start economic activity that has been curtailed by lockdown measures.

Alcohol sales have resumed for home consumption, while restaurants that have reopened may only serve soft drinks and must ensure that customers are seated at least 1.5 metres apart.

Although some restrictions have been lifted, Thailand has also extended its state of emergency until May 30. International flights remain suspended and bars, cinemas, department stores and indoor sports facilities are among the popular entertainment attractions that are still closed.

The decision to begin easing the lockdown was prompted by several consecutive days in which new confirmed infections were in the single digits.

As of May 5, Thailand’s cumulative Covid-19 count stood at 2988 cases and 54 deaths.

Upon relaxing measures on May 3, the government said it would closely monitor the situation for two weeks before deciding whether to ease more restrictions or re-impose strict lockdown measures.


Medical hub ambitions

Thailand’s response to the coronavirus pandemic has been aided by a robust health care system.

Indeed, Thailand was ranked sixth out of 195 countries in the 2019 Global Health Security Index, calculated by researchers at the Nuclear Threat Initiative and John Hopkins Centre for Health Security.

This meant Thailand was the highest ranked emerging economy and Asian country in the index, which is specifically devised to measure a country’s preparedness for a pandemic.

Prior to the outbreak of Covid-19, Thailand was already working to establish itself as the medical hub of Asia.

Guided by Ministry of Public Health’s 2016-25 strategic plan entitled ‘Thailand: A Hub of Wellness and Medical Services’, stakeholders have been working to develop an advanced medical industry ecosystem underpinned by innovation and research and development (R&D).

The strategic plan also aligns with the government’s overarching ‘Thailand 4.0’ strategy, designed to help the country escape the so-called ‘middle-income trap’ through the cultivation of innovative, high-value manufacturing and service industries. 

Already popular as an international health care tourism destination, the push to further develop the country’s medical ecosystem was partly driven by Thailand’s ageing population, which is expected to result in increasing domestic demand for quality health care services.

Thailand ranks second in ASEAN behind Singapore in terms of the percentage of the population aged over 60, and this proportion is expected to increase significantly over the next 50 years.


New incentives

As the global pandemic has added further strains to frontline health services and back-end supply chains, Thailand’s Board of Investment (BOI) announced additional measures in April to accelerate investments in the medical industry, which could have positive implications for the sector’s broader strategic goals.

Complementing the pre-existing tax holiday of between three and eight years for qualified companies operating in the medical device, equipment and supply industry, the new measures include a 50% reduction in corporate income tax for a further three years. This additional incentive is available to firms who apply before June 30 and begin production before December 31.

Furthermore, manufacturers that adjust existing production lines to manufacture medical devices or parts will be exempted from import duties on machinery in 2020, provided they apply before September.

Additional tax benefits are being offered to companies producing non-woven fabric used to manufacture medical masks or medical devices.

“These measures are aimed at a fast response to this specific situation, but were designed to also pave the way for longer-term development,” Duangjai Asawachintachit, secretary general of Thailand’s BOI, told OBG.

“We believe that our proven capability to manage the pandemic, as well as enhanced local technological capabilities and strong existing supply chains, will further accelerate investments in medical innovations and biosciences, both in the short and long term,” she said, adding that the number of initial inquiries that the BOI had received in response to the new incentives made her optimistic about investment in the sector in 2020.


Neighbourhood demand

Although Thailand is already well positioned as a centre for medical innovation, it may face more competition as governments re-evaluate their dependency on overseas shipments of essential items.

“Taking into account the disruption in global supply chains, lots of countries within the region will look to become more self-sufficient in producing medical devices and pharmaceuticals that can strengthen their resilience against infectious disease outbreaks,” Paul Ashburn, co-managing partner of business consultancy firm HLB Thailand, told OBG.

“However, Thailand had already made a head start, so it is well placed to capitalise on increased regional demand over the next 12 months,” he added.

Ashburn pointed out that Thailand’s immediate neighbours in the greater Mekong region – Cambodia, Laos, Myanmar and Vietnam – all have lower GDPs per capita and less advanced health care systems.

As such, affluent patients from neighbouring countries are likely to still seek medical treatment in Thailand’s superior medical facilities once border restrictions are eased, even if it may take longer for medical tourists from other core markets in the Middle East, US, Europe and the Indian subcontinent to return en masse.

In addition, as many of Thailand’s neighbours will not be able to immediately count on domestic production to stockpile personal protective equipment and necessary medical supplies in the wake of the pandemic, Thailand will be an obvious source market due to its production capacity and close proximity.

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