Foreign investors can be majority shareholders in EEC

Foreign investors will be able to hold the majority of shares in aviation-related businesses in the new cutting-edge Eastern Economic Corridor development zone according to the government, which is seeking a royal decree on the matter, as it also planned income tax cuts for businesses that invest and locate in the new zone.

The move on shareholding is being spearheaded by the Ministry of Transport, which is seeking to replace the 1954 Civil Aviation Act with a new bill that would help to further liberalize the sector. Currently, foreign investors are allowed to hold a maximum of 49 percent of shares in aviation-related businesses such as aircraft parts manufacturing and aircraft maintenance.

Aviation is one of ten key industries that will be supported in the Eastern Economic Corridor, or EEC. The EEC is a development zone covering most of Thailand’s eastern seaboard. The area is already the industrial heartland of the Kingdom, but the government wants to transform it into a national center for higher-technology and creative industries, facilitated by the most advanced logistics and transport systems as well as sustainable “green” communities that will offer a higher standard of modern living.

Chula Sukmanop, director of the Civil Aviation Authority of Thailand, said allowing majority foreign ownership is essential to drawing the foreign investment needed to establish Thailand as the aviation hub of the region. Aviation businesses require huge amounts of money and strict protections on intellectual property concerning aircraft technology. Foreigners will not be drawn to investing in the EEC if they have to hand over majority ownership to locals, as they will consider such investments as “insecure,” Chula said.

A royal decree would permit foreigners to become majority investors immediately, while the bill supported by the ministry will take longer to work its way through the legislature before passage into law.

Foreign ownership, however, is unlikely to be 100 percent. Government officials are still debating what percentage of the minority of shares should be set aside for local investors, as they still want to ensure local participation in the ventures and see that Thais and the Thai economy derive sufficient benefits from foreign investment.

In another move to make the EEC more attractive to investors, the Cabinet approved a proposal last week by the Ministry of Finance to cap income tax on executives, experts and researchers working in companies located in the EEC at 17 percent.

That would represent a sharp reduction from the progressive tax rate now in place where top earners are taxed at a maximum rate of 35 percent.