Thailand’s incentives for renewable energy investment

Government’s incentives play an important role in driving renewable energy development in the country. It impacts a go or no-go decision to any project.

With attractive incentives in place, more local businesses would be incentivized to develop their own electricity generation systems. More factories would install solar panels on unused roofs, more pig farms and starch mills would generate electricity off biogas, or districts would build small waste-to-energy plants to rid of long-accumulated municipal waste from landfills (or open dump sites!).

Not only it attracts domestic players, government’s promotion also attracts international investment. On a regional level, countries compete for foreign investment.

Renewable energy development, be it from domestic or international players, will also impact other parts in the energy supply chain. For example, more self-generation means less demand on the system, and more solar every means even less demand during the day, therefore planning and operation of traditional power plants will consequently be affected. All this is, partly yet significantly, because of the government’s incentives.

What are current incentives in developing a renewable energy project in Thailand? In terms of investment incentives, let’s look at renewable energy projects in two different types.

A. Renewable energy project as electricity production business: This refers to a new business that produces electricity from renewable sources and makes revenue from selling electricity

B. Renewable energy project as improvement to existing business: This refers to an existing business that produces electricity from renewable sources for its own consumption

Note: This article is to update the current tax incentives for investment in renewable energy projects in Thailand as of the time of writing (May 22, 2019). Regulations might change, so renewable project developers need to keep an eye on the ones in place at the time of application.

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[A] Renewable energy project as electricity production business

Renewable energy production business may qualify for incentives according to Thailand’s Board of Investment (BOI) announcement no. 2/2557. There is slight difference in incentives, depending on the renewable fuel types, where waste such as municipal solid waste (MSW), industrial waste, or refuse derived fuel (RDF) get slightly better incentives than other renewable sources (solar, wind, biomass, biogas).

In general, incentives can be grouped into two types: tax incentives, and non-tax incentives. The former, tax incentives, can also be categorized into basic incentives (also called “activity-based incentives”) and additional incentives (also called “merit-based incentives”).

Tax incentives (i) activities-based incentives:
  • 8-year corporate income tax exemption
    • For waste-to-energy projects: the amount of tax exemption is not subject to any cap
    • For solar, wind, biomass, and biogas projects: the amount of tax exemption is capped at 100% of investment (excluding cost of land and working capital)
  • Exemption of import duty on machinery
  • Exemption of import duty on raw or essential materials used in manufacturing export products for one year, which can be extended as deemed appropriate. (Note that this might not apply to renewable energy projects as there is no export products. Listed here for completeness)
Tax incentives (ii) merit-based incentives:

Additional incentives will apply if the project qualifies for one of the merit-based measures. I will summarize details for measures that deem applicable for renewable energy projects and omit details for other measures (still list measure categories for completeness).

  • Merit on competitiveness enhancement
  • Merit on decentralization: Projects located in specified investment promotion will receive additional incentives
    • Investment promotion zones:
      • Twenty provinces with low per-capita income: Kalasin, Chaiyaphum, Nakhon Phanom, Nan, Bueng Kan, Buri Ram, Phrae, Maha Sarakham, Mukdahan, Mae Hong Son, Yasothon, Roi Et, Si Saket, Sakhon Nakhon, Sa Kaew, Sukhothai, Surin, Nong Bua Lamphu, Ubon Ratchatani, and Amnat Charoen
      • Special economic development zones
      • Science and technology parks that are promoted or approved by BOI
    • Additional incentives:
      • Three additional years of corporate income tax exemption shall be granted. However, the total period of corporate income tax exemption shall not exceed 8 years. Renewable energy projects are already granted 8-year corporate income tax exemption shall instead receive a 50% reduction of corporate income tax on net profit derived from promoted activity for 5 years after the corporate income tax exemption period expires
      • Double deduction for transportation, electricity and water costs for 10 years from the date of first revenue derived from the promoted activity shall be granted
      • Deduction from net profit of 25% of the project’s infrastructure installation or construction costs shall be granted in additional to normal depreciation. Such deduction can be made from the net profit of one or several years within 10 years from the date of first revenue derived from the promoted project
  • Merit on industrial area development: Projects located within industrial estates or promoted industrial zones shall be granted one additional year of corporate income tax. However, the total period of corporate income tax exemption shall not exceed 8 years. (Note that qualified renewable projects are already granted 8-year exemption from activity-based incentives)
Non-tax incentives:
  • 100% foreign ownership
  • Permit to own land
  • Permit to bring in skilled workers and experts to work into Thailand
Criteria for project approval:
  • The value-added of the project must be at least 20% of revenues
  • Activities must use advanced technology
  • Adequate and efficient guidelines and measures to protect the environment and to reduce environmental impacts must be included
  • Minimum capital investment:
    • One million baht for each project (excluding cost of land and working capital)
    • For newly established projects, debt-to-equity ratio must not exceed 3:1. Expansion projects shall be considered on a case-by-case basis
    • For projects with investment value of 10 million baht or higher (excluding cost of land and working capital), projects must obtain ISO 9000 or ISO 14000 certification or similar international standard within two years from the full operation date, otherwise corporate income tax exemption shall be reduced by one year
    • For projects with investment value over 750 million baht (excluding cost of land and working capital), the project’s feasibility study must be submitted with details as specified by BOI

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[B] Renewable energy project as improvement to existing business

Improvement of production efficiency by upgrading technology and machinery for energy conservation, alternative energy utilization, or reduction of environment impacts may qualify for incentives according to Thailand’s Board of Investment (BOI) announcement no. 9/2560.

Tax incentives:
  • Three-year corporate income tax exemption on the revenue of an existing project, with corporate income tax exemption cap not exceeding 50% of the investment capital (excluding cost of land and working capital). Corporate income tax exemption period shall start from the date of revenue derivation after promotion certificate issuance
  • Exemption of import duty on machinery
Criteria for project approval:
  • This applies to existing businesses only, be it BOI or non-BOI businesses. In the case of non-BOI businesses, the activity must be eligible for investment promotion by BOI at the time of application
  • BOI-promoted businesses can apply after the corporate income tax exemption or reduction period has expired, as well as businesses which have not received the corporate income tax exemption
  • The applicant must submit an investment plan for machinery replacement or upgrade to save energy, to introduce alternative energy into the business, or to reduce environment impacts by implementing one of the following:
    • Project must invest in upgrading machinery to modern technology that reduces energy consumption at the stipulated ratio
    • Project must invest in upgrading machinery to use alternative energy at the stipulated ratio to the total energy consumption
    • Project must invest in upgrading machinery to reduce environmental impacts; namely, reducing waste, waste water or exhaust air according to the stipulated criteria
  • Application shall be submitted by December 30, 2020, and project must be implemented within three years from the date the promotion certificate is issued
  • Minimum capital investment:
    • One million baht for each project (excluding cost of land and working capital)
    • 500,000 baht (excluding cost of land and working capital) for Small and Medium Enterprises (SMEs)
  • SMEs project qualifications:
    • Total net fixed assets or total investment (excluding land and working capital) must not exceed 200 million baht
    • Thai nationals must hold shares not less than 51% of the registered capital

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Some takeaways

If it is very certain for a renewable energy project how it will be structured e.g. as an electricity production business (type A as mentioned above), or as an improvement to an existing business (type B), or where about the project will be located, then the applicable incentives will be quite straightforward.

However, there could be a situation where there is some flexibility how the project is structured e.g. it could be a self-consumption to a BOI-qualified business, or it could also be a new business that produces and sells electricity. If so, it will be very interesting to see how each option plays out in project returns.

What are key differences in type A and type B incentives?

Skipping minor details, key differences of the two incentive packages described above are:

A. Renewable energy project as electricity production business:
8-year corporate income tax exemption capped at 100% investment (no cap for waste-to-energy). Note that the exemption applies to “corporate tax of electricity production business”
B. Renewable energy project as improvement to existing business:
3-year corporate income tax exemption capped at 50% investment. Note that the exemption applies to “corporate tax of existing business”

Although the A’s cap at 100% investment might seem a lot higher than B’s cap at 50% investment, the business might not be able to utilize tax saving up to its cap. It depends on the situations (which involves a lot of factors). However, looking at some general parameters such as Thailand’s corporate tax rate of 15%-20%, and general electricity tariff of 3-4 baht, it would be difficult for a type A business to utilize up to its cap within 8 years. Putting it simply another way, if a project could choose to structure as A or B, option B might provide greater return if there already is some corporate tax to save.