Growth of the Thai economy has been directly related to the flow of investments from abroad. In order to stimulate such investment, the government passed the Industrial Promotion Act (1962), which established the Board of Investment for Industry, renamed the Board of Investment (BOI) in 1972. National Executive Council Announcement Number 218, otherwise known as the Alien Business Law of 1972, restricted the participation of non-Thai nationals in certain types of business activities. The BOI, the powers and responsibilities of which were broadened in 1977, grants the following benefits to promoted industries: guarantees against nationalization and competition from government industries; exemption from import duties and business tax on plant, machinery, spare parts, and raw materials; exemption from duty on exports; exemption from tax on corporate income for a specified period; and repatriation of capital and remittance of profits abroad. In the wake of the Asian Financial Crisis, the Thai government embarked on an IMF-supervised program designed to make the economy more open and transparent for foreign investment. The 1972 Alien Business Law was replace by the Alien Business Act of 1999, which opened additional business sectors to foreign investors, and raised the maximum ownership in some cases to above the old 49% limit. Limits on foreign ownership is most prominent in the financial sector, although now up to 100% ownership is permitted in Thai financial institutions for up to 10 years. A number of restrictions affect portfolio investments so that Thai authorities can track foreign investment.
In 1999 legislation was passed establishing a new bankruptcy court as well as new bankruptcy and foreclosure procedures, allowing, for instance, creditors to pursue payment from loan guarantors. Restrictions on property ownership were liberalized through amendment to the Land Code, the Condominium Act and the Property Leasing Act. Many of the reforms met political and were only partially and inconsistently implemented. In 2001 in the wake of the 11 September 2001 terrorist attacks on the United States there was a world wide contraction in foreign direct investment (FDI) and the government instituted a number of incentives to compete for scarcer investment funds., including tax incentives for firms to locate their regional headquarters in Thailand and several new government-backed investment funds to attract foreign money. To support its industrial exports, Thailand has ten export processing zones located within industrial estates to which businesses may import raw materials and export finished products duty free. Also, factories may apply to establish bonded warehouses on their premises to which raw materials used exclusively to produce exports may be imported duty free.
According to the BOI, in 1997 the net flow of FDI to Thailand was about $3.3 billion and then more than doubled to $7.4 billion in 1998. Net portfolio investment, by contrast, peaked at $4.6 billion in 1997 and then fell to $0.3 billion in 1998. Since 1998 net portfolio investment has been near zero and slightly negative, while FDI has decreased from $5.7 billion in 1999 to $3.8 billion in 2001 to an estimated $2.7 billion in 2002. The inflow of foreign investment has in any case been insufficient to offset the loan repayments Thailand has been making since the onset of the financial crisis. The balance on its capital and financial account reached a low of -$12.6 billion in 1998, but in 2002 this had moderated to a -$4.2 billion. The major sources of FDI in 2001, excluding bank recapitalization, were Singapore and Malaysia, both the source of direct investment totaling over $1.5 billion, followed by Japan, contributing about $1.3 billion. Industry and services, particularly tourism, were the two major recipients of FDI in 2001. According to the Bank of Thailand, net direct investment from Thailand to other countries was negative in both 2000 and 2001, at -$52 million and -$171 million, respectively.