INDUSTRIAL PROPERTY GUIDE

INDUSTRIAL PROPERTY GUIDE

CONTENTS Strategic choice Investment incentives Choice of locations Industrial Estates Industrial Parks/Zones Green Field Sites Industrial Promotion Zone BOI Incentives and Privileges Eastern Seaboard at a Glace

Strategic choice Since the introduction of Thailand s first National Economic and Social Development Plan in 1962, Thailand has experienced dramatic industrial expansion. The process has helped to gradually transform the social structure from an agricultural to an industrial society. The rapid growth of the industrial sector has been accompanied by the enlargement of the urban sector. Many foreign companies believe that Thailand is still a strategic choice for a Southeast Asian production base. It offers a relatively free market, a large and capable workforce, an improving infrastructure, and liberal tax and incentive packages. Prior to the economic downturn in 1997, many multinational companies committed to Thailand as their regional base and almost all have continued to maintain a manufacturing presence, although levels of investment reflect the stages of recovery. Setting up a factory in Thailand Two factors are critical to site selection and form the core of the decisionmaking process: Investment Incentives Choice of Location Investment incentives Promoting industry through offering investor privileges and incentives is a wellestablished practice in Thailand. Attractive incentives, coupled with the availability of human and natural resources, a large domestic market, currency realignments and a stable policy framework have led to large amounts of foreign direct investment (FDI) in Thailand, especially since the late 1980 s. In recent years, the Royal Thai Government, through the Board of Investment (BOI), has encouraged investors to open factories outside the Bangkok Metropolitan Region in an effort to decentralize development and achieve a more equitable distribution of income across the country. As a result, additional incentives are given to industries located in Zone 3, which comprises all the provinces outside the central region of the country. Investment incentives by type Depending on the manufacturing sector type, projects are assigned to one of the seven Investment Promotion Divisions within the BOI. Each division is empowered to handle all aspects of a promoted project so that you only need to deal with one division of the BOI for most of your business requirements.

Investment incentives by zone Zonal incentives, now on offer to investors, include both tax and nontax incentives and vary from Zone to Zone, with the highest privileges reserved for areas furthest from Bangkok. The basic BOI incentives offered in all zones are: Choice of locations Land can be owned on a freehold basis; Foreign technicians/experts can work on the project; Foreign technicians/experts and their families can live in Thailand; Foreign currency can be remitted abroad; ion from taxation; Reduction of import/export duties. Only Thai or majoritythai owned companies can buy land except in two circumstances: 1. A wholly foreignowned company can buy land on an industrial estate i.e. one managed by the Industrial Estate Authority of Thailand. 2. A wholly foreignowned company can purchase land anywhere if they receive BOI privileges that include the right to buy land. The land can only be used for the manufacturing process for which privileges have been granted. Industrial Estate There are three choices of locations to establish a factory: Industrial Estates Industrial Parks/Zones Green field Sites An industrial estate has a specific definition in Thailand. Industrial estates are Serviced Industrial Land Plots (SILP) which are developed or managed by, or in joint venture with, the Industrial Estate Authority of Thailand (IEAT). The IEAT is a government organization. The main advantages to locating on an industrial estate are: 1. 100% foreign owned companies can buy land. 2. Industrial estates offer a (onestop shop) service with the IEAT processing all approvals, such as construction permits and factory licenses. Industrial land plots are available with sufficient utilities ready to be connected, such as water, power and telephone lines. All industrial estates have waste water treatment plants onsite. There are a total of 29 Industrial Estates under IEAT supervision.

Industrial Parks/Zones Industrial parks are Serviced Industrial Land Plots developed without the IEAT. Majority foreignowned companies can only buy land here if they have BOI privileges. The Industrial parks/zones are developments which are privately owned, developed, marketed and managed. Since they are not linked to the IEAT, industrial investors cannot be granted privileges from the IEAT. Physically, industrial parks/zones are quite similar to industrial estates but the quality of the development and management are not regulated by the IEAT, relying instead on the developer. Some industrial parks/zones may have authorization to approve construction permits by themselves. Land purchasers rely on the developer for assistance in obtaining building permits, etc. rather than having the security of governmentrun IEAT assistance in securing approvals. Green Field Sites It is possible for a majority foreignowned company to purchase a green field site, but only if they have BOI privileges. The disadvantages of purchasing a green field site are the additional costs of land preparation and connection to utilities. It is also possible that some green field sites may not have access to basic public utilities provided in some other areas. In addition, purchasers must secure all necessary permits themselves and so must deal with the many relevant authorities or government agencies. Even though the original land costs may be lower than an estate or park, the additional costs and time needed to secure permits result in most foreign companies acquiring land on industrial estates. There are approximately ten categories of land title deeds in Thailand which must be carefully examined.

Summary of Choices of Location Industrial Estate Industrial Park/Zone Green Field Can a foreign owned company with BOI privileges buy land? Can a foreign owned company without BOI privileges buy land? Yes Yes Yes Yes No No Assistance with permits Yes Yes No Assistance with utilities Yes Yes No Export Processing Zone Yes No No Existing Factory/Secondhand Factory To find an existing factory that is compatible with your requirements, there are several factors that need to be considered. You have to examine and analyze whether existing buildings can match your requirements in terms of the following: Layout of the building Availability of spare land for future expansion Suitability of the location Size of usable spaces Potential for modifications Supply of utilities Structural specifications Manufacturing investors should not only consider the physical state of the existing premises, but should also consider using broader parameters in their analysis. Depending on their particular requirements, examples might include: Labour availability BOI location requirements Proximity to clients or suppliers Infrastructure Pricing

Transportation Executive accommodation etc. Availability in Zone 1 but Unsuitable There are more existing buildings in the BOI Zone 1 compared to other areas. Thailand has centralized commercial, governmental and industrial activity around Bangkok and the suburbs such as Samutprakarn, Nonthaburi and Samutsakorn, etc. However, there are some constraints for investors who want to use existing industrial premises: Many of the buildings are obsolete Applying for a new factory license is difficult and highly restricted due to the Government s decentralization policy and the city planning authority s zoning restrictions Land prices are too high when compared with prices in Zones 2/3 or industrial estates Hard to Find Locations in Zones 2 & 3 Prior to the launch of the BOI s incentive packages, there were not many new factories located in Zones 2 and 3, except for some types of warehouses for agricultural use or factories related to agriculture. Therefore, it can be very difficult to find any existing industrial premises that meet investors standard requirements. If the investor does not need a property with a high specification, they may accept the existing industrial buildings. Standard Factories or ReadyBuilt Factories There are approximately four developers who have built standard factories for rent or sale. On average, standard factories are 1,000 to 3,000 sq.m. in size, including office space on the ground and mezzanine floors, and are located on land in the range of 36 rai (equivalent to approximately 4,8009,600 sq.m.). All standard factories are located in industrial estates/parks/zones. The utilities or other fixtures provided vary, depending on each developer s standard package. There are usually several different options provided by each developer. There are two types of developer who have developed standard factories in the market: 1. Companies who buy land in industrial estates/parks/zones and develop standard factories 2. Developers of industrial estates/parks/zones who develop their own projects The most important advantage in choosing a standard factory is saving time and effort prior to occupying the building. However, there are some disadvantages, which are as follows:

The existing buildings may not be completely suitable due to their standard specifications and it may be necessary to make further investments in terms of time and money There are only a limited number of standard factories available at industrial projects Pricing or rental rates may be too high

Industrial Promotion Zones A wide range of additional tax and nontax incentives are also offered to investors located in different Zones, with the highest privileges reserved for those operating in Zone 3, in order to achieve the aims of the Government s decentralization policy. The following table summarizes benefits by Zone. The Zones are defined as follows: Zone 1 Bangkok, Samutprakarn, Pathumthani, Nonthaburi, Nakorn Pathom, Samutsakorn Zone 2 Ratchburi, Kanchanaburi, Suphanburi, Angthong, Ayudhaya, Saraburi, Nakorn Nayok, Chachoengsao, Chonburi, Samut Songkram, Rayong, Phuket Zone 3 The remaining 58 provinces with low income and less developed infrastructure including industrial estates and promoted industrial zones in Rayong

BOI Incentives and Privileges Industrial Property Guide Inside Industrial Estate/Promoted Industrial Zone The following table summarizes the main benefits in each Zone, assuming the project is BOIpromoted and located either inside industrial estate/promoted industrial zone. INCENTIVES ZONE 1 ZONE 2 IMPORT DUTY: Machinery 1 Raw materials used in production for export sales 2 domestic sales 3 CORPORATE INCOME TAX: ion 4 50% reduction after normal exemption period 50% reduction 1 year 3 years 1 year 7 years* ZONE 3 36 Provinces 22 Provinces 5 years 75% reduction for 5 years* 8 years 5 years 5 years 75% reduction for 5 years* 8 years 5 years ALLOWANCES: Double deduction from taxable income of transportation, electricity and water costs Deduction from net profit of 25% of costs of installing or constructing infrastructure Allowed Allowed Allowed Allowed VAT & EXPORT DUTY (in Export Processing Zone Only) NOTES : 1. In Zones 1 and 2 the reduction only applies to machinery subject to import duty of at least 10%. 2. A project with capital investment of over 10 million Baht (excluding the cost of land and working capital) must obtain the certification International Standards Organization (ISO) 9000 within 2 years of its startup date. If not, the exemption period for corporate income tax will be reduced to 1 year. If the project is located in an EZP in either Zones 1, 2 or 3, there will not be a time limit on the exemption. 3. 36 provinces of Zone 3: Chai Nat, Chanthaburi, Chiang Mai, Chiang Rai, Chumphon, Kamphaeng Phet, Khon Kaen, Krabi, Lamphang, Lamphun, Loei, Lop Buri, Mae Hong Son, Mukdahan, Nakhon Ratchasima, Nakhon Sawan, Nakhon Si Thammart, Phangnga, Phattalung, Phetchabun, Phetchaburi, Phitsanulok, Pichit, Prachin Buri, Prachuab Khiri Khan, Ranong, Sa Kaew, Sing Buri, Songkhla, Sukhothai, Surat Thani, Tak, Trang, Trat, Uthai Thani and Uttaradit and Laem Chabang Industrial Estate and Industrial Estate/Promoted Industrial Zone in Rayong 22 provinces of Zone 3: Amnat Charoen, Buri Ram, Chaiyaphum, Kalasin, Maha Sarakham, Nakhon Phanom, Nan, Narathiwat, Nong Bualamphu, Nong Khai, Pattani, Phayao, Phrae, Roi Et, Sakhon Nakhon, Sathun, Si Sa Ket, Surin, Udon Thani, Ubon Ratchathani, Yasothon and Yala Source: Board of Investment

Outside Industrial Estate/Promoted Industrial Zone The following table summarizes the main benefits in each Zone, assuming the project is BOIpromoted and located either outside industrial estate/promoted industrial zone. INCENTIVES ZONE 1 ZONE 2 ZONE 3 36 Provinces 22 Provinces IMPORT DUTY: Machinery 1 Raw materials used in production for export sales 2 domestic sales 3 50% reduction 1 year 50% reduction 1 year 5 years 5 years CORPORATE INCOME TAX: ion 4 50% reduction after normal exemption period 3 years 8 years 8 years 5 years ALLOWANCES: Double deduction from taxable income of transportation, electricity and water costs Deduction from net profit of 25% of costs of installing or constructing infrastructure Allowed Allowed Allowed NOTES : 1. In Zones 1 and 2 the reduction only applies to machinery subject to import duty of at least 10%. 2. A project with capital investment of over 10 million Baht (excluding the cost of land and working capital) must obtain the certification International Standards Organization (ISO) 9000 within 2 years of its startup date. If not, the exemption period for corporate income tax will be reduced to 1 year. 3. 36 provinces of Zone 3: Chai Nat, Chanthaburi, Chiang Mai, Chiang Rai, Chumphon, Kamphaeng Phet, Khon Kaen, Krabi, Lamphang, Lamphun, Loei, Lop Buri, Mae Hong Son, Mukdahan, Nakhon Ratchasima, Nakhon Sawan, Nakhon Si Thammart, Phangnga, Phattalung, Phetchabun, Phetchaburi, Phitsanulok, Pichit, Prachin Buri, Prachuab Khiri Khan, Ranong, Sa Kaew, Sing Buri, Songkhla, Sukhothai, Surat Thani, Tak, Trang, Trat, Uthai Thani and Uttaradit and Laem Chabang Industrial Estate and Industrial Estate/Promoted Industrial Zone in Rayong 22 provinces of Zone 3: Amnat Charoen, Buri Ram, Chaiyaphum, Kalasin, Maha Sarakham, Nakhon Phanom, Nan, Narathiwat, Nong Bualamphu, Nong Khai, Pattani, Phayao, Phrae, Roi Et, Sakhon Nakhon, Sathun, Si Sa Ket, Surin, Udon Thani, Ubon Ratchathani, Yasothon and Yala Source: Board of Investment Please note that the above information is a general guide. CB Richard Ellis can assist you with introductions for these agencies or by providing additional information.

Eastern Seaboard at a Glance In the early 1980 s, the first Eastern Seaboard Development Programme (ESDP) was launched to create new economic opportunities and set the stage for Thailand to enter and become part of the globalization of industrial production and services. Initially targeting the three provinces of Chonburi, Rayong and Chachoengsao, the ESDP set out its main objectives, to: Accelerate Thailand s industrial growth rate; Offer an alternative for industrial expansion outside the Bangkok Metropolitan Region (BMR), and promote regional growth; Develop the necessary infrastructure to enhance the international competitiveness of the Thai economy, to promote new industries and to attract foreign investment; Provide jobs and facilities that will encourage urban developments away from the BMR. Since its introduction, many of the prerequisites required for the systematic transformation of the Eastern Seaboard (ESB) from a largely agrarian economy to one which is newly industrialized are in place. Infrastructure linkages such as intercity highways, deep sea ports and airports are being developed. Industrial investment zones offering special privileges and tax advantages have been established. Multinationals are increasingly relocating here and industrial production, both of finished products and components, is under way. Over the past decade, the majority of foreign investment in Thailand, as well as domestic investment, has been concentrated in large industrial estates and industrial parks/zones in the ESB. In the provinces of Chachoengsao, Chonburi and Rayong, 17 industrial estates and parks/zones have been built in the past 10 years. With the recent announcement of the new ESDP for 19962006 which calls for further regional infrastructure improvements ranging from roads, sea ports, and telecommunications to reservoirs, schools, and hospitals, it is expected that economic and industrial growth in the region will continue for at least another 10 years. The new Eastern Seaboard Development Plan is a tenyear programme (19962005) to completely develop Thailand s Eastern Seaboard. Divided into four segments, the first priority is to concentrate on the development of an inner area, including telecommunications and road network links with neighbouring countries. The second priority is to increase the annual capacity of the Laem Chabang deep sea port from 600,000 TEUs to 2 million TEUs by the year 2000, in order to cope with an expected increase in container traffic over the next 5 years. This would involve the addition of ten more container terminals to the existing five, and would require a budget of Baht 58 billion.

The third priority calls for improvements in water supplies for the whole Eastern Seaboard area, while the fourth plan concentrates on social infrastructure including schools, temples, and hospitals to accommodate the region s estimated population increase to 4 million by 2005. Infrastructure In the two provinces of Rayong and Chonburi, there are a number of 46 lane highways which provide quick and easy access to and from Bangkok. The ChonburiPattaya bypass which was completed in 1993 has also helped to alleviate traffic congestion in the area. Furthermore, with the completion of the proposed BangkokChonburi intercity highway in 1998 and part of the BangnaChonburi Expressway, travel time and congestion along the BangnaTrad Highway has been further reduced. Main Existing Highways and Primary Roads Sukhumvit Road (or Highway No. 3) BangnaTrad Highway (or Highway No. 34) Chonburi Pattaya bypass Bangkok Chonburi Intercity Highway Planned New Highways and Road Expansion Programmes A number of new highways and road expansion programmes are either under construction or planned in the next few years. Deep Sea Ports Bangna Chonburi Expressway Sukhumvit Road Expansion As part of the Eastern Seaboard Development Programme, two deep sea ports have been established: Laem Chabang, and MapTaPhut Deep Sea Ports. Laem Chabang is located in Chonburi Province, along the Eastern Gulf coast some 125 kilometres southeast of Bangkok and 15 kilometres north of the seaside resort of Pattaya. It is a major commercial container port which serves as a base for petroleum refineries, the expanding steel industry, as well as a centre for nonpolluting and hightechnology industries. The Laem Chabang deep sea port has one multipurpose terminal with a general cargo ship capacity of 30,000 D.W.T. and an annual cargo of 0.51 million tons. It also has three container terminals with a container ship capacity of 33,000 50,000 D.W.T. and a cargo of 4.5 million tons/year. MapTaPhut is situated in Rayong Province, around 16 kilometres to the west of Rayong City. This liquid and bulk commercial port will become an important gateway for containerized cargo, particularly to and from the nearby National Petrochemical Complex as well as other major petrochemical industries in the vicinity. MapTaPhut deep sea port has one multipurpose terminal with a general

cargo ship capacity of 25,000 D.W.T. (expandable to 60,000 D.W.T.) and two liquid terminals with a ship capacity of 45,000 D.W.T. Railways Improvements to the railway system in Rayong and Chonburi Provinces have taken place in recent years. Existing railway lines have been improved as well as extended. In 1994, a new railway station was built at MapTaPhut. In addition, a high speed train service linking the area with Bangkok has been proposed. Planned Rail Link The BangkokEastern Seaboard High Speed Train Project was proposed as a 200kilometre rail link from the capital to run parallel to the Bangkok Chonburi Intercity Highway to the Map Ta Phut deep sea port in Rayong Province. A feasibility study was recently completed, in which capital costs were estimated at Baht 32.84 billion. A proposal for submission to the Thai Government is currently being prepared by the State Railway of Thailand which believes that the venture should be a public/private joint investment in which the Government constructs and finances the railway infrastructure but allows a private firm to purchase rolling stock and operate and maintain the project. The proposed project, assuming that it receives Government approval, is not expected to be operational until the end of the decade at the earliest. Global Transpark This is the proposed Second Bangkok International Airport (SBIA) Global Transpark at UTapao Airport. Life in the Eastern Seaboard Availability and Location of Housing In the vicinity of the Laem Chabang deep sea port, a range of midlevel and luxury accommodation can be found close to nearby golf courses. In addition, there are a number of residential developments in the immediate area as well as in the nearby towns of Sriracha and Pattaya. In the vicinity of the Map TaPhut deep sea port, Ban Chang and Rayong cities offer living and recreational opportunities along the coast. Availability of Hospitals In Rayong Province, there are 12 hospitals with a total of 1,145 beds. These comprise 6 government hospitals and 6 private hospitals including the Bumrungrad Hospital (opened in February 1994) located just off Highway 3, a few kilometres west of Rayong City. In the neighboring province of Chonburi, there are another 16 hospitals (11 government and 5 private) with an additional 2,481 beds.

Other Services Other services in the area include: Recreational facilities: there are several golf clubs in the vicinity, including the Burapha Golf Club, Laem Chabang International Golf Club, Siam Country Club as well as the Pattaya Country Club. Other recreational facilities can be found in coastal resorts and towns (i.e. Pattaya, Rayong and Ban Chang). International and local schools: there are two international schools in the vicinity. The International School Eastern Seaboard, located near Highway 3241 in Chonburi Province (opened in August 1994), and the Garden International School off Highway 331 in Rayong Province (opened in September 1994). Together, the two schools offer American and British education facilities. Additionally, there are numerous Thai primary and secondary schools in Chonburi and Rayong Provinces. These include the leading local schools of Assumption Darasamutr and St. Joseph. There are also a number of technical/commercial schools and colleges as well as two universities (Burapha and Sriphathum). Hotels: several 3 to 5star hotels are located in the seaside resort of Pattaya (i.e. Dusit Resort and Royal Cliff). Threestar hotels can also be found in Rayong City, Sriracha and Ban Chang. INDUSTRIAL SERVICES Ms. Jariya Thumtrongkitkul Manager 46 th Floor CRC Tower, All Seasons Place 87/2 Wireless Road, Lumpini, Pathumwan, Bangkok 10330 Tel: +66 (0) 2 654 1111 ext. 221 Fax: +66 (0) 2 685 3307 Email: jariya.thumtrongkitkul@cbre.co.th URL: www.cbre.co.th

A Bangchan Industrial Estate B Ladkrabang Industrial Estate C Bangplee Industrial Estate D Bangpoo Industrial Estate E Navanakorn Industrial Promotion Zone F Bangkadi Industrial Park G Samutsakorn Industrial Estate H BangpaIn Industrial Estate I HiTech Industrial Estate J Rojana Industrial Park K Wellgrow Industrial Estate L Gateway Industrial Estate M Amata Nakorn Industrial Estate N Laem Chabang Industrial Estate O Pinthong Industrial Estate P Chonburi Industrial Estate Q Amata City Industrial Estate R Siam Eastern Industrial Park S Eastern Seaboard Industrial Estate