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Bentleys National 17 Offices Brisbane 58 Directors 520 Staff Perth National Ranking 18 Sydney Adelaide Each office an SME Family business Melbourne Tasmania Agribusiness one of our 5 key industry groups www.Bentleys.com.au Practical Insights: Assessing Opportunities and Gearing Up for Success in Thailand – An Australian Advisor’s Perspective Ross Prosper, Director Taxation & Business Services, Bentleys Perth 25 February 2016 www.Bentleys.com.au Issues to Consider Strategy Doing Your Homework Economic Climate Execution Working with Advisors & Resourcing Attracting Investors Financial Considerations and Managing Risk Tax Considerations and Choosing Your Structure Government Incentives Management Working with locals and managing change Do you have the right leadership to grow the business Corporate Governance and accountability 1. STRATEGY www.Bentleys.com.au Doing Your Homework Foreign Direct Investment into any country has opportunity and risk. Do your homework and understand the real issues beyond tabloid media What do you know about Thailand? Looking beyond the stereotypical benefits Understanding Thai culture and the deep roots of Buddhism on society Making your decision based on business facts and professional advice Understand your main costs (e.g. is it labour, capex, energy or distribution?) Understanding your competition – local or international Economic Climate Thailand has a long history based on agricultural exports Over the past few decades, the Thai economy has undergone significant industrial development with industry and services assuming a more prominent role Most industrial activity is located in the central area of Thailand Politicians are very supportive of business development The Thai economy is large * Source: Australian Trade Commission Thailand Market Snapshot GDP: US$387.2 billion (2013) GDP per capita: US$5,674 (2013) GDP Growth: 2.9% (2013) Population: 68.2 million (2013) Trade with Australia: Au$19.4 billion (2012-13) Source: Austrade * Source: Australian Trade Commission, 2011 GDP data Typical Labour Costs* Annual Salary (Baht) Annual Salary (AUD) MD / GM 1.2 million 48,000 Financial Controller 960,000 38,000 Office Manager 600,000 24,000 Office Clerk 156,000 6,000 Sales / Marketing Staff 228,000 9,000 Translator 360,000 14,000 Accountant 240,000 9,500 Housekeeper 108,000 4,300 Semi-Skilled Labour 116,400 4,600 * Based on median monthly salaries surveyed in 2015 and published by the Thailand Board of Investment. Exchange rate based on 1 Thai Bhat = $0.04 AUD as at 1 February 2016. 2. EXECUTION www.Bentleys.com.au Working with Advisors Although Thai is main language, bi-lingual help is relatively easy to find English is widely recognised and accepted in Thailand Choosing the right advisor in Thailand (or any foreign country can be difficult). How do you assess skills; do they understand your business; how do you manage costs? One approach is to go through the Thai Board of Investment (TBOI) and a trusted Australian advisor with established international networks who can assist with the screening process and cost management considerations for you Resourcing What resources do you need? Get help in undertaking a feasibility study Thai BOI can provide introductions to expert advisors in any industry and other assistance and guidance Austrade Financial advisor who specialises in the agricultural industry Legal support Thai Free Trade Agreement with Australia Industry support Can you qualify for an Australian Export Market Development Grant (EMDG) through Austrade or other support? Are there any Thai business incentives you can take advantage of? Thailand-Australia Free Trade Agreement (TAFTA) TAFTA is one of two Free Trade Agreements that Australian Businesses can use The elimination of 94% of Thailand’s tariff & quota barriers on imports from Australia as of 2010 Remaining tariffs being phased out from 2015 to 2020 Increased access and new ownership rules for Australian investors Provisions on Investment Protection Right to transfer funds out of Thailand at any time Livestock exports = 0 tarriff Attracting Investors Putting together your feasibility study and business plan Do you know your expected return on investment? Is your financial structure in place? Determining how much funding you need Do you need a Thai business partner? Maybe & the role of the Thai BOI Marketing through your advisor network Financial Considerations Manage Financial Risk Choosing your structure Foreign exchange risk Hedging strategies Do you have appropriate insurance? Debt to equity mix can impact return on investment Taxation Government Incentives Categories of Risk Importance of Financier Relationship “Your financier, whether a bank or some other financial organisation, plays a crucial role in supporting the operation, growth and success of your business.” For long-term stability, you need to develop an unofficial ‘partnership’ with your financier. One of the biggest frustrations of a growing business is being unable to secure the financing needed resulting in lost opportunities & stifling growth How Risk Is Viewed From a Financier’s Point of View Each risk is identified, and appropriate pricing is adopted for the facilities The greater the perceived risk, the greater the margin paid Minimise risk for the bank/ financier, through better & more timely reporting, audit processes, good corporate governance, better financial systems and control Taxation Overview In Thailand Overview Rate / Feature Company tax rate (including branches) 20% Carry forward of tax losses 5 years Thin capitalisation rules? No but debt to equity limits may be imposed if certain business licences or other approvals are required from the Thai BOI Transfer pricing rules? Yes Withholding tax on dividends 10% Withholding tax on interest 15% Withholding tax on royalties 15% Service fees (technical services treated as royalties) 15% VAT (certain exemptions apply) 10% / 7% until September 2016 Tax year Calendar year Choosing your Structure A number business structures are available in Thailand including various forms of partnerships (ordinary, registered and limited partnerships) as well limited companies and public companies. It is common for foreign investors to structure their business through a limited company, branch or representative office From an Australian perspective, whether the Thai structure is held through an Australian company, trust (family or fixed trust) can impact return on investment depending on your circumstances Consider debt and equity funding mix 3. MANAGEMENT www.Bentleys.com.au How to avoid costly business failure when investing offshore Many businesses with international aspirations have failed when they attempt cross border investment. Why? People issues are often at the root cause of failure You need to do your due diligence on people – a critical business issue for any investor What should your management team look like? Relocated Australian managers, experienced expats, local management and leadership teams Clarity around roles, expectations and reporting lines Coaching and mentoring Leadership in Thailand Preparing managers and executives for an expat assignment Business in Thailand is formal – understand the rules of protocol Hands on management – leaders give orders – strictly chain of command Focus on managing individual performance Change management occurs through clear top-down direction and patience Thailand has a collective culture – emphasis on group orientation and teamwork The value of Corporate Governance What is Corporate Governance? Corporate governance definition Principles for businesses engaged in exporting or foreign direct investment Practical implementation Stage in business life cycle will influence type of corporate governance processes required Importance of Good Governance Corporate Governance for Small to Medium Enterprises investing offshore Corporate governance is not just for big corporations SME’s can benefit from adopting good governance Establishing a framework of company processes to communicate, control and monitor (or govern) the business Managing and controlling risks by being informed The impact of good governance Impact of Good Governance Improves performance management Improved risk management Identifying Analysing Mitigating Legal & financial impact Greater compliance with legal requirements Reduced cost of capital To Finish Off: Some Business Etiquette Tips The traditional form of greeting in Thailand is the “wai”, which is the placing of palms of the hand together and raising them with fingertips at eye level and inclining the head slightly Foreign business people are not expected to initiate the wai Business cards should be exchanged using the right hand or both hands and should be read upon receipt Attire at business meetings should be formal business attire Building personal relationships is important to Thai business development Again, peer to peer meetings are important Exchanging gifts is widely practiced and signify friendship or an appreciation of hospitality Gifts are opened in private Thai Government Incentives The Thai Government recently announced a 7 year investment promotion strategy from 2015 to 2021 to encourage both foreign investment into Thailand as well as Thai outbound investment. Foreign investment in Agriculture and Agricultural Products is one of the specifically targeted areas. Broadly, the incentives are divided into two groups: Activity-Based Incentives Merit-Based Incentives Foreign investors can take advantage of both ActivityBased and Merit-Based Incentives Thai Government Incentives (continued) Activity-Based Incentives These are further divided into sub-classes of activities but broadly relate to incentives relating to knowledge based activities focussing on R&D; development of infrastructure and high technology activities. Incentives provided include: Corporate income tax exemption from 3 to 8 years Exemption on import duties of machinery and raw materials Relaxation of certain regulations covering: Entry into the country and use of offshore skilled labour Ownership of land Foreign currency exchange controls Thai Government Incentives (continued) Merit-Based Incentives These are additional incentives to further encourage investment that focus on improving the country’s business competitiveness; decentralization and development of industrial areas. Incentives provided include: Corporate income tax exemption between 3-8 years Additional deductions about to 200% of expenditure in certain areas such as transportation; electricity and water supply