Thailand offers to Indian companies highly attractive investment opportunities, but not the other way round.
Dr. Ulrich Eder is a member of the Global Advisory Board (GAB) of Indian Law Associates, a platform for Indian and international lawyers to exchange views and interact on Indian business opportunities and laws.
The business relations between Thailand and India are for certain reasons a one-way-street. Thai companies focus their foreign investments mostly to Myanmar, and there is no real potential that Thai investors enter the Indian market, buy Indian businesses or invest in Indian real estate. Whether you like it or not, this is the factual situation. However, India is coming closer to Thailand. Recent legal and economic developments increase the appeal of Thailand as an investment jurisdiction for Indian companies.
#1. The India-ASEAN Trade in Goods Agreement was signed in August 2009, had come into force in 2010 and liberalized tariffs on over 90% of items. The long-delayed free trade agreements in services and investments between India and ASEAN came into effect on July 1, 2015. The bilateral trade between India and ASEAN grew from USD 68.4 billion in 2011 to USD 71.6 billion in 2012 and USD 76 billion in 2013. The target has been set at USD 100 billion by 2015. The agreement will boost movement of Indian professionals in the ASEAN region besides facilitating investments. It will also promote more investments in the services sector.
India and Thailand, located in each other’s extended neighborhood, share a maritime boundary in the Andaman Sea.
The next step will be the signing of a mega free trade agreement by India and other “ASEAN plus six” partners. The Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement (FTA) among the ten ASEAN member states and the six states with which ASEAN has existing FTAs (Australia, China, India, Japan, South Korea and New Zealand). This regional trade deal could boost India’s strategic and economic position in the Asia-Pacific and will cover a broad spectrum of issues such as trade in goods, services, investment, competition, intellectual property rights, and other areas of economic and technical cooperation.
#2. India’s ‘Look East’ policy (since 1993), and Thailand’s ‘Look West’ policy (since 1996) have been complementary in consolidating bilateral relations including economic and commercial linkages.
Manufacturing in Thailand opens the doors to a customs-free distribution within the whole ASEAN region under the protection of the ASEAN Economic Community which had been implemented 2015. Also, under the ASEAN-China Free Trade Agreement, it is possible to source semi-finished products and raw materials customs-free as well. Traditional target industries for Indian investments in Thailand are auto parts, agro and food processing, IT and software, textile and pharmaceutical.
#3. Thailand offers a generous investment promotion for foreign investments. With effect from January 1, 2015, Thailand re-invented its investment promotion legislation as a substantial part of its overall national industrial policy, political control and economic governance.
#4. In Thailand, there are several production facilities which base on German and European technology and product engineering and might be a rewarding target for Indian company buyers. They could even consider moving the trademarks, technologies and production facilities to India.
#5. Thailand is a preferred investment market for real estate. Although there are some limitations for foreign buyers, the acquisition can be structured in a way to circumvent the restriction to assure a sustainable investment.
#6. Compared with other Southeast Asian countries, Thailand has the highest electricity demand, with plans for increased imports from neighboring countries. Investment in renewable energy is one of the country’s priorities, given its goal to reduce its energy imports. This invites Indian alternative energy companies to invest in Thailand’s energy sector for a handsome reward.
#7. The India-Thailand Asian superhighway is part of AH 1 (Asian Highway No. 1) and runs from Moreh in India to Thailand’s Maesot via Myanmar’s Tamu, Mandalay, and Myawaddy.
Tax planning considerations
The double taxation agreement has been adjusted. The new DTA came into force in January 2017. It reduces withholding tax on interest from the domestic rate of 15% to 10% (or in privileged cases to 0%).Withholding tax on royalties has been reduced from 15% to 10%. Art 13 DTA has new rules for the taxation of capital gains. The old rule that capital gains are taxed in the country of the transferor is modified to allow a taxation in the country in which the property is located.
To obtain tax benefits under the new DTA, India requires Thai companies first to apply for a PAN (Permanent Account Number) from the Indian Income Tax Department before they can receive a tax relief under the DTA.
There are additional aspects and business opportunities which attract Thailand as an investment hub to Southeast Asia. Now the time seems to be right for Indian companies to evaluate the legal, financial and investment framework of Thailand in more detail. And this not only in the business districts of Mumbai (Bombay), Delhi, Bangalore, Hyderabad, Ahmedabad, Chennai (Madras), Kolkata (Calcutta), Surat, Pune (Poona) and Jaipur.
PUGNATORIUS Ltd. is a Bangkok-headquartered specialist provider of bespoke transactional legal and tax advice in the corporate and property legal and taxation industry sectors.