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Southeast Asia’s Semiconductor Industry: BOI Incentives for Thailand

The Covid-19 pandemic and intensifying geo-political factors have drastically impacted the global Electronics & Electrical (E&E) market. Semiconductor producers constitute a large segment of this market and have been affected most by the resulting supply chain disruptions and policy changes.

In 2019, pundits forecasted ASEAN’s semiconductor market to grow at a 5.6% compound annual growth rate between 2020-2028. Singapore’s Economic Development Board expects the market for transistors alone will double by 2030 to a value of US $1 Trillion. Consequently, Thailand’s regulatory framework is paramount in attracting foreign direct investment in this sector.

Global E&E Market Growth Constrained by Semiconductor Shortage 

With students learning in virtual classrooms and employees working remotely during the pandemic, chip demand for devices, data centers, and cloud computing skyrocketed. The Kingdom’s focus on digital transformation and high-tech development through “Thailand 4.0” has only accelerated this growth. For example, existing BOI incentives for electric vehicle infrastructure and adoption means semiconductors will be critical to Thailand’s development.

Relevant geopolitics include the US’s sweeping trade restrictions against China and the latter’s reunification efforts with Taiwan. Growing tension between existing giants in the E&E space has pushed many companies to seek alternative locations for their operations. Taiwan accounts for 64% of the global semiconductor market and is thus central to this push for diversification.

In January 2023, Delta Electronics Thailand, the Thai branch of the Taiwan-based electronics manufacturer, surpassed AOT and PTT to become the most valued company on the Thai stock exchange.

Thailand: BOI Boost for Chip Innovation and Production

The country’s top export category remains electronic components and equipment, reaching a valuation of USD 31 Billion in 2020. 80% of local production is manufactured for international use, and exports of Thai electronic parts are expected to grow 7% year-on-year (according to SCB’s Economic Intelligence Center). In only the first 6 months of 2021, this industry attracted USD 1.8 Billion, the highest out of Thailand’s 77 target sectors, representing 15.8% of total investment pledged in that time period.

The BOI introduced a suite of tax incentives in August 2021 to boost the semiconductor industry in Thailand. Companies who spend at least 1% of their total sales for their first three years in research and development, or 200 million baht (whichever is lower) can gain additional corporate income tax exemption with no ceiling for up to five years. Companies who incorporate research and development (R&D) into their main operation may be able to access a tax exemption period of up to 13 years

The BOI has approved measures both upstream and downstream of the E&E supply chain to ensure that in addition to assembly and integrated circuit testing, more complex and value-added products also receive incentives.

Figure. Additional BOI incentives.

Potential Policy Changes

The BOI advises the Thai Government to consider revising complex laws in this area and improve its soft infrastructure, such as cyber security and database systems to both protect and catalyze this industry’s growth.

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