Free Zone

An Introduction to Free Zones

It is the intent of a Free Zone Program to stimulate economic growth and

development in Thailand. In an expanding global marketplace there is

increased competition among nations for jobs, industry, and capital. The Free

Zone Program was designed to promote competitiveness by encouraging

companies to maintain and expand their operations in Thailand.

The Free Zone Program encourages Thailand-based operations by removing

certain disincentives associated with manufacturing in Thailand. The duty on

a product manufactured abroad and imported into Thailand is assessed on

the finished product rather than on its individual parts, materials, or

components. The Thailand-based manufacturer finds itself at a disadvantage

compared with its foreign competitor when it must pay a higher rate on parts,

materials, or components imported for use in a manufacturing process. The

Free Zone program corrects this imbalance by treating products made in the

Zone, for the purpose of tariff assessment, as if it were manufactured abroad.

At the same time, this country benefits because a Zone manufacturer uses

Thai labor, services, and inputs.

Definition

Free Zones are designated areas for industrial or commercial operations or

any other operations involving in economic growth and development.

Foreign and domestic merchandise removed into Free Zones is eligible for tax

and duty privileges as indicated by the Law.

The Advantages of Using a Free Zone

All of the advantages a Free Zone Program can offer

manufacturers and processors located in Thailand are

numerous. A few main benefits that account for most of the

companies that use a Free Zone Program are listed below:

3.1

Relief from Import and Internal Taxes/Duties:

Imported merchandise,

removed into or manufactured in a Free Zone for industrial or

commercial operations or any other operations involving economic

growth and development, is not subject to import taxes and duties. This

includes:

(1)

Machinery, equipment, and parts;

(2)

Foreign merchandise; and

(3)

Merchandise transferred from other Free Zones.

In addition the imported merchandise removed into or manufactured in

a Free Zone is also not subject to Value Added Tax (VAT), excise taxes,

alcohol tax, including tax stamp and fees under the Alcohol Act,

Tobacco Act, and Playing-Card Act. Additionally, a “

ZERO

” tax rate is

About Free Zones

applied to calculate VAT for domestic merchandise removed into a Free

Zone, provided that such merchandise subject to export duty or

exempted from export duty under the Customs Act.

3.2

Relief from Export Duty on Re-Exports: Without a Free Zone, if a

manufacturer or processor imports a component or raw material into

Thailand, it is required to pay import taxes and duties at the time the

component or raw material enters the country. However, a Free Zone is

considered to be outside Thailand and Thai Customs territory.

Accordingly, when foreign merchandise is brought into a Free Zone, no

taxes and duties is owed until the merchandise leaves the Zone and

enters Thailand for consumption. Only then is the merchandise

considered imported and the duty paid. If the imported merchandise is

re-exported to other countries, no Customs duty is charged.

3.3

Relief from Standard/Quality Control Requirements: Imported

merchandise or domestic raw materials removed into a Free Zone for

manufacturing, mixing, assembling, packing, or any other operations is

relieved from standard/quality control requirements or any other similar

requirements; provided that such merchandise is re-exported to other

countries.

3.4

Duty Exemption on Waste, Scrap, and Yield Loss:

If the processor or

manufacturer is conducting its operations within a Free Zone

environment, the merchandise is not considered imported, and

therefore scrap, waste, or yield loss from an imported component is

exempted from import and internal taxes and duties, if applicable.

3.5

Eligible for Export Tax Refund/Exemption Schemes: Merchandise

entitled to export tax refund/exemption schemes when exported is still

qualified for such schemes after it is removed into a Free Zone.

Assessment of Duties and Taxes

Normally foreign merchandise removed into a Free Zone is relieved from

import and internal taxes and duties. However, Customs also specifies the

activities to be taken into consideration for the purpose of determining the

value and quantity of goods and the rates of applicable duties and taxes if

the merchandise is removed from the Zone for domestic consumption. The

following circumstances is considered as imports:

4.1

Entering merchandise from a Free Zone into Thailand for consumption;

4.2

Transferring merchandise from a Free Zone into a bonded warehouse;

4.3

Selling merchandise from a Free Zone to importers qualified for

Customs privileges under Article 19 bis of Customs Act (No. 9) B.E. 2482

or those qualified for tax and duty exemption under the Customs Tariff

Decree or any other relevant laws.

Customs duties and internal revenue taxes, if applicable, are paid at the rate

of finish products when the merchandise is removed or transferred from the

Zone for domestic consumption. The merchandise, either in its original state

or after manipulation or manufacture, is classified and appraised and taxes

and duties are determined in its condition at the time of transferring from the

Zone. In case articles transferred from the Zone are composed or derived of

both foreign and domestic merchandise, the value of domestic merchandise

not qualified for tax refund/exemption schemes shall be excluded when the

applicable taxes and duties are determined.

Establishing a Free Zone

When a community determines that a Free Zone Project is needed and can

be feasibly established and operated, then it must address the Free Zone

application rules and process. Prior to preparing the application, several rules

and regulations should have already been observed:

5.1

Free Zones are normally private plant sites approved by the Customs

Department, taking into account the suitability of the proposed sites and

facilities. The Customs Department will consider the following factors in

determining whether to issue a grant of authority (license) for a Free

Zone Project:

5.1.1

Industrial Free Zone: Applicants for an Industrial Free Zone shall

meet either of the following criteria:

(a)

Granted authority from the Minister of Industry to establish

an industrial activity zone; or

(b)

Granted authority from the Department of Industrial Works,

Ministry of Industry, to operate an industrial community

zone of building or dependent factory type; or

(c)

Granted authority from the Industrial Estate Authority of

Thailand to operate a general industrial zone; or

(d)

Granted authority from the Board of Investment to invest in

an industrial zone or software industrial zone or ornament

and jewelry industrial zone; or

(e)

Granted authority to operate any other industries involving

in economic growth and development.

5.1.2

Commercial Free Zone: Applicants for a Commercial Free Zone

shall carry out import/export related business as follows:

(a)

Trade, services, or international transportation;

(b)

Distribution of goods, bonded warehouses, or international

goods distribution centers;

(c)

Exhibition or fair;

(d)

Repairing or engineering work;

(e)

Other operations approved by the Customs Department as

involving in economic growth and development.

A Free Zone may be composed of many subzones operating either

Industrial/Commercial Free Zones or any other operations involving in

economic growth and development; or a combination of any type of

Free Zone.

5.2

The key purpose of establishing a Free Zone shall not solely for

advantages of any specific zone user.

5.3

A Free Zone shall be encircled by a fence with a secured and sturdy

gate. Depending on the nature and particular characteristics of the

Zone, this requirement may not be applied.

5.4

The licensee of a Free Zone shall provide utilities, necessary facilities and

services. No residential areas are allowed in a Free Zone.

5.5

The licensee of a Free Zone shall provide an appropriate office and

residence for Customs officers. In addition, office equipment, and

computers interfaced to Customs EDI shall also be provided for Customs.

Eligible Applicants to Establish a Free Zone

State enterprises or private co-operations may apply for a grant of authority

to establish a Free Zone Project. The applicants for the Zone Project shall meet

the criteria listed below:

6.1

A state enterprise or public cooperation under the Public Cooperation

Act B.E. 2535 or a limited cooperation under the Civil and Commercial

Code, with secure financial status. A limited cooperation under the Civil

and Commercial Code shall have paid registered capital not less than

20 million bath

for

free zone located in Bangkok and near-by

area,

not less 10 million bath for other

area

; or at the amount considered

appropriate and secure financial status by the Customs Department.

6.2

Site ownership or applicant's right to manage the areas proposed for

approval.

Procedures for Free Zone Licensees’ Application

An application for a grant of authority to establish a Free Zone Project shall

consist of a completed application form together with supporting documents

listed below:

(a)

A grant of authority for operating an industrial-related activities as

indicated in 5.1.1 (a) – (e);

(b)

A site blueprint of a size not less than 40X60 CM²;

(c)

Juristic person registration document;

(d)

A list of shareholders and registration certification issued not exceeding 6

months from the date of application;

(e)

Title deeds or certificate of title or land lease indicating ownership or

applicant's right to manage the areas proposed for approval;

(f)

Financial statement for at least 3 consecutive years certified by a

competent auditor;

(g)

VAT registration documents; and

(h)

Operational plan indicating plans for financing capital and operating

costs; estimated time schedule for construction and activation of the

Zone and a future site expansion plan.

All documents shall be submitted to the Office of Secretary, the Thai Customs

Department. Once an authority to establish the Zone is granted, the licensees

(applicants) shall start construction the Zone site, taking into account the

blueprint of zone site previously approved by the Customs Department.

The licensee of the Zone is also required to give security by bond to the

Customs Department in accordance with the Form prescribed by the

Customs Department within 30 days from the date of granted authority. The

security is placed to ensure the licensee’s compliance to Customs-related

laws and regulations and to guarantee his/her responsibility for any potential

damage that may occur to the Customs Department.

The licensee shall pay an “Annual License Fee” at the rate regulated by the

Ministerial Regulations on 31 December of every year.

Eligible Free Zone Users

A Zone user is a party using a Zone under agreement with the Zone licensees

or operators. The Customs Department will consider the following factors in

determining whether to issue a grant of authority for a zone user:

8.1

A juristic person with an approval from a Free Zone licensee and the

Customs Department to operate Free Zone activities;

8.2

Zone activities operated in a Free Zone shall be in compliance with the

stated Free Zone objectives; or involving in economic growth and

development. This requirement, nevertheless, is not applied to a zone

user operating in the area before the establishment of the Zone.

8.3

No past record of committing serious Customs-related offences or

violation for the past 3 years.

Procedures for Free Zone Users’ Application

An application for a grant of authority to be a zone user shall consist of a

completed application form together with supporting documents listed

below:

(a)

Juristic person registration document;

(b)

A list of shareholders and registration certification issued not exceeding 6

months from the application date;

(c)

VAT registration documents;

(d)

A grant of authority to operate a zone project from a Free Zone licensee;

and

(e)

Site Plan indicating the location of the subzone within a Free Zone.

Similar to a Free Zone licensee, a zone user is required to give security by

bond to the Customs Department in accordance with the Form prescribed by

the Customs Department within 30 days from the date of granted authority.

The security is placed to ensure the zone user’s compliance to Customs-

related laws and regulations and to guarantee his/her responsibility for any

potential damage that may occur to the Customs Department.

10.

Responsibilities of Free Zone Licensees and Users

Both a Free Zone licensee and user shall comply with Customs-related laws,

rules, and regulations, both the existing ones and those to be notified in the

future. They shall also strictly follow the security by bond entered with the

Customs Department.

In case the Free Zone licensee and user break the rules and regulation of the

Customs Department, and consequently causing any serious damages, the

Customs Department is empowered to cancel the license or take any

appropriate actions to remedy the damages. The cancellation shall take

effect within 15 days from the date of issuing Customs’ cancellation

notification.

11.

Role of the Thai Customs Department

The Thai Customs Department is responsible for the removal or transfer of

merchandise into and out of a Free Zone and for matters involving the

collection of revenue. The

Tax and Duty Privilege Bureau

provides

interpretations of the applicable statute, Customs regulations and

procedures. The Bureau also is charged with overseeing Zone activities as the

representative of the Thai Customs Department. It controls the admission of

merchandise into the Zone, the handling and disposition of merchandise in

the Zone, and the removal of merchandise from the Zone. Free Zones are

supervised by Thai Customs officers through periodic checks and visits; and

the security of the zone must meet certain requirements.

In addition, the Tax and Duty Privilege Bureau, through an established Board,

is also responsible to review and approve applications to establish, operate,

and maintain a Free Zone. The Board also regulates the administration of the

Zone and approves activation of the Zone before any merchandise is

admitted into the Zone.

12.

Where is additional information available

For answers to specific questions contact the Tax and Duty Privilege Bureau

at:

Thai Customs Department

Sunthornkosa Road

Klong Toey

Bangkok, 10110

Tel:

(662) 2402514-6

Fax: (662) 6728121

E-Mail: customs@customs.go.th

NOTES:

It should note that the information contained on this publication is intended

as a general reference only. Errors and omissions can occur in the preparation of the

material. Before relying on the material, users should independently verify its

accuracy, currency, completeness and relevance for their purposes. The Thai

Customs Department shall not responsible for, in any case, damages relevant to the

use of the provided information.