Thailand BOI raw material duty exemption: accounts, write-off, suspension

01Raw materials and machinery are two systems and two lists — do not mix them

For a factory doing export processing, the annual value of the raw material exemption often exceeds the machinery exemption. But it is much harder to run. Machinery is a one-off list; raw materials are a set of books you have to keep daily and reconcile monthly.

Get the concepts apart first. Machinery runs on one entitlement, one master list, approved once. Raw materials run on a separate entitlement, a separate raw material list, and a rolling stock-movement write-off that never stops. The approving desk, the document requirements and the extension mechanism are different in each case. Treating them as one thing called "BOI duty-free import" is the problem a lot of companies only discover in year two. See also how the machinery exemption works.

02Setting up the account means setting up two things: the usage formula and the maximum stock level

Two sets of data form the foundation of the raw material account.

• The product usage formula. For each unit of finished product, which raw materials are consumed and how much of each. The critical point here is that net usage, loss and gross usage have to be internally consistent — gross usage equals net usage plus loss, and loss is entered as an absolute quantity, not a percentage. For materials measured in countable units such as pieces or sets, loss must be zero.
• The maximum stock level. The ceiling on duty-free raw material stock, set against production capacity. Set it too low and material gets held up in peak season; set it too high and it will not pass approval.

The usage formula is process data, not finance data. It has to come from the production and process engineering side, and it has to reconcile with the bill of materials and the actual material issue records. A formula that finance has reverse-engineered from purchase orders will never balance at the write-off stage.

03The red line: fall behind on the write-off and imports stop

This is the one thing to take away from this page. The raw material exemption does not end when the goods land — duty-free raw material that comes in has to be written off against the usage formula. If the write-off is not completed within the prescribed cycle, the duty-free import right is suspended, and later arrivals either pay duty or sit at the port.

Three things usually cause it. First, the usage formula does not match what is actually issued to production, so nothing balances however the figures are computed. Second, the issue and output data from the production floor is not fed back in the required format, so finance has nothing to write off against. Third, nobody has been made responsible for it — purchasing owns incoming goods, production owns material issue, finance owns the reports, and the stretch in between belongs to no one.

04Make it a monthly closed loop

• At the account setup stage, map your Chinese collection sheet one-to-one onto the official format. Let the production department fill in a Chinese sheet they can actually read — material names in Chinese and English, group number, stock type, maximum stock level, net usage, loss — and have one named person convert it into the filing format. Handing the English filing form straight to the plant produces a very high error rate.
• Reconcile three data sets once a month: duty-free imports, material issued to production, and quantity written off. Investigate any variance above the threshold in the same month; do not let it pile up to quarter end.
• File formula changes as they happen. Change the recipe, the supplier or the process and the formula changes with it. If production changes and the formula does not, the write-off starts failing to balance that same month.

How many usage formulas your product needs, what capacity basis the maximum stock level should be approved against, and how much headroom your current write-off progress leaves before the suspension line all have to be worked through item by item against your product structure, your actual capacity and your existing stock movement data. Setting up this account is normally done as one round of data collection and trial calculation by our advisers together with the production department before anything is filed; reworking it afterwards costs far more. What the BOI engagement covers.