Legal
Thailand’s New Financial Center to Attract Global Investors
13/11/2024
Thailand has earned a reputation as being a hotspot for investment within Asia and having the potential to establish a financial hub within its borders. In an effort to make this a reality, the Thai government has announced plans to develop a framework for establishing a world-class financial center.
This article looks at the key elements of this initiative, exploring the target businesses, operators, and the scope of operations that will define this new financial hub.
Key points
- Thailand is establishing a new financial hub targeting foreign entities.
- A new independent One-Stop Authority (OSA) will regulate the hub, handling licensing, incentives, and coordination with other regulatory bodies.
- The hub will cater to multiple sectors including commercial banking, securities, digital assets, insurance, and payment services, but operators cannot serve Thai residents.
- Target operators will be foreign entities and their branches, with operations primarily based in Bangkok and surrounding areas.
What are the Target Businesses for the New Legislation?
The working panel on policy formulation and drafting laws to establish the financial hub has outlined the target businesses that will be the main focus of this initiative. These include:
Commercial Banking
The hub will provide services to support international commercial banking institutions, providing them with a favourable environment to operate and serve non-resident clients.
Payment Systems and Payment Services
The financial hub will support the growth of innovative payment solutions and services, allowing Thailand to adapt to the evolving demands of global businesses and individuals.
Securities Businesses
The hub will aim to attract securities firms, enabling them to take advantage of Thailand’s strategic location and favourable regulatory environment to expand their positioning in the Asia-Pacific region.
Futures Trading
The proposed financial hub will provide a platform for global investors to engage in futures trading.
Digital Asset Businesses
The hub will look to take advantage of the digital transformation of finance, welcoming innovative digital asset businesses, including cryptocurrency exchanges and blockchain-based financial services.
Insurance Businesses
The financial center will offer a location for international insurance companies to establish their business and take advantage of the incentives provided to expand their operations to serve non-resident clients.
Other Businesses
The committee reserves the right to include additional businesses within the scope of the financial hub, ensuring its adaptability to evolving market trends and emerging financial services.
Who Will the New Financial Hub be Targeted at?
The financial hub has been designed to attract foreign entities and individuals who are not residents of Thailand. These target operators include:
Legal Entities
International companies and financial institutions that wish to establish a presence in the hub and provide services to non-resident clients.
Branches of Foreign Legal Entities
Foreign companies can set up branch offices within the financial center to offer their services to non-resident customers.
Importantly, these target operators are prohibited from soliciting or providing services to customers within Thailand, ensuring that the hub does not directly compete with the country’s domestic financial institutions.
What will the Scope of Business Operations for the Financial Hub?
The financial hub’s scope of operations will initially focus on “out-out” businesses, where companies raise funds from abroad to invest outside of Thailand. This model allows the hub to serve as a strategic platform for global investors without directly impacting the domestic financial landscape.
In the following phase, the scope will be expanded to include “out-in” businesses, where companies raise funds from abroad to invest within Thailand. However, this will be done in a manner that does not violate the non-resident conditions, ensuring a harmonious coexistence with Thailand’s existing financial ecosystem.
Where will the Financial Hub be Located?
The financial hub will be primarily located in Bangkok and its surrounding areas, providing a centralized hub for easier regulation, supervision, and promotion. However, this does not mean that businesses are restricted to operating solely within this designated area.
Financial institutions will have the flexibility to conduct their operations from anywhere, to take advantage of Thailand’s strategic position and infrastructure.
Who Will Regulate the Financial Hub?
To oversee the development and operation of the financial hub, a new authority called the One-Stop Authority (OSA) will be established. The OSA will be a government agency that is independent of the government or state enterprises, ensuring a streamlined and efficient management of the hub.
The key responsibilities of the OSA include:
Setting Guidelines for Promoting Target Businesses
The OSA will be responsible for designing the guidelines and strategies to attract and support the target businesses identified for the financial hub.
Offering Incentives
The OSA will have the authority to provide various benefits, both financial and non-financial, to attract eligible businesses to establish their presence in Thailand.
These incentives may include:
- tax privileges,
- fast-track visa processing,
- visa and work permits for foreign employees
Licensing and Registration
The OSA will be the main point of contact for businesses, handling the review, approval, and issuance of licenses, as well as the registration of entities operating within the financial hub
Regulatory Oversight
The OSA will work closely with regulatory agencies, such as the Bank of Thailand, to ensure the financial hub operates within an efficient and sustainable regulatory framework.
What Competitive Advantages and Incentives Will the Financial Hub Provide?
Thailand’s financial hub is expected to offer a range of competitive advantages and incentives to attract global investors and businesses.
While tax incentives are already under consideration, the government is also focused on offering incentives based around the country’s broader ecosystem, including its skilled workforce, legal framework, and visa systems, to create a wide range of incentives.
The tax incentives for the financial hub are expected to be competitive with those offered by other leading financial centers, such as Singapore. However, the government is committed to going beyond just tax benefits.
When will the Financial Hub be Available?
The development of the financial hub will be completed in phases, with the initial focus on the “out-out” model. The “out-out’ model is where companies raise funds from abroad to provide services to foreign individuals outside of Thailand, while using Thailand as a base. Such businesses will not be subject to currency exchange implications.
In the second phase, the scope will be expanded to include the “out-in” model, where companies provide services to non-residents in the country. This gradual approach allows the government to carefully manage the integration of the financial hub with the existing domestic financial ecosystem, ensuring a seamless and harmonious transition.
The timeline for the full implementation of the financial hub is still under consideration, with the initial drafting of the legal framework expected to be completed in the coming weeks. The government is committed to expediting the process while ensuring that all necessary approvals and regulatory requirements are met.
How will the Financial Hub Benefit Foreign Investors Within the Finance Field?
Thailand has already established a world-class infrastructure and excellent connectivity, making it an ideal hub for international business operations. Thailand has placed a lot of focus and attention on developing its financial regulations within Southeast Asia, particularly when it comes to the rapidly developing world of cryptocurrency. As one of the first countries to establish a comprehensive regulatory framework for digital assets, Thailand has positioned itself as a forward-thinking destination that encourages innovation while ensuring investor protection.
Development of a fully fledged financial hub with a set of comprehensive incentives such as tax exemptions, the ability for foreign companies to easily obtain work permits and visas and streamlined processes will make Thailand an attractive destination for foreign investment.
Thailand has also developed a Digital Asset Regulatory Sandbox, which allows businesses to experiment with new digital asset services in a controlled environment, encouraging innovation while ensuring compliance with regulatory standards. By providing a framework for testing various digital asset-related services—including exchanges, brokers, and custodial wallet providers.
The Securities and Exchange Commission (SEC) has set clear guidelines for participation, requiring applicants to demonstrate sufficient capital and management systems. The Sandbox not only encourages innovation but also positions Thailand as a leading player in the global digital asset landscape.
The ability for foreign companies to engage in financial activities via the finance hub could also be used alongside a promotion from the BOI under the International Business Center (IBC) category. An IBC is a company that provides services to its associated companies in overseas countries and/or in Thailand. An IBC promotion is available for companies who undertake the following financial business activities:
- Financial advisory services
- Credit management and control
- Financial management services of the Treasury Center
- Money lending services to associated enterprises
Successfully obtaining a IBC promotion from the BOI comes with a series of attractive benefits not available to other companies in Thailand including:
General Business Benefits
- 100 percent Foreign Ownership
- Eased Requirements for Visas and Work Permits
- Right to Own Land
Tax Benefits
- Reduction of Corporate Income Tax (CIT)
- Exemption of CIT for Dividends Received from Affiliates
- Exemption from Withholding Tax for Payments to Foreign Companies
- Exemption from Specific Business Tax on Income from Financial Management Services
- Reduced Personal Income Tax for Expatriate Employees of 15% flat.
To be eligible for the International Business Centers promotion, companies must satisfy the following criteria:
- Companies must have a minimum registered and fully paid-up capital of at least THB 10 million.
- IBC applicants must employ at least 10 skilled employees:
- For IBCs providing only financial management services, a minimum of 5 skilled employees is required.
How can Belaws help?
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Frequently asked questions
What is Thailand’s new financial hub?
Thailand is developing a financial hub to attract global investors and businesses. It will focus on sectors like commercial banking, digital assets, insurance, payment services, and securities, offering incentives for foreign entities to establish operations in the country.
Who will be able to operate in this financial hub?
The hub will primarily target foreign entities, including international companies and financial institutions. These operators can establish branches in Thailand but cannot serve Thai residents.
What are the main industries targeted by the financial hub?
Key industries include:
- Commercial Banking
- Payment Systems and Services
- Securities Businesses
- Futures Trading
- Digital Assets (cryptocurrency exchanges, blockchain services)
- Insurance Companies
Where will the financial hub be located?
The hub will be primarily in Bangkok and surrounding areas, although businesses will have flexibility in operating from different locations within Thailand.
Who will regulate the financial hub?
A new independent government agency called the One-Stop Authority (OSA) will regulate the hub. The OSA will handle licensing, offer incentives, and ensure businesses comply with the regulations.
What incentives will be provided to businesses in the financial hub?
Incentives may include:
- Tax privileges
- Visa and work permit benefits
- Fast-track processes for foreign employees
How will the financial hub benefit foreign investors?
The hub will offer a competitive environment for global investors, with favorable regulations, incentives for businesses, and an emphasis on digital asset services, making Thailand an attractive investment destination.
What are the phases of development for the financial hub?
The hub will first focus on “out-out” businesses, which raise funds from abroad to invest outside Thailand. The second phase will allow “out-in” businesses, where funds are raised from abroad to invest within Thailand, while maintaining non-resident conditions.
How can foreign businesses get involved in the financial hub?
Foreign businesses can apply for licenses through the OSA and take advantage of various incentives, such as tax exemptions and streamlined visa processes.
What is the International Business Center (IBC) program?
The IBC program offers benefits like 100% foreign ownership, tax exemptions, and reduced personal income tax for expatriate employees. Companies can receive IBC promotion if they provide specific financial services and meet requirements like capital investment and skilled employment.
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