Foreign Business Act: Consignment Sales in Thailand
The Foreign Business Act of 1999 is the fundamental law in Thailand that serves to restrict foreign investment and foreign business activity within the country. The Act designates specific industries or types of business activities in which foreigners are either strictly prohibited from engaging in or may only engage in after applying for permission. It assumed that where a certain industry or business activity is not specified in the Act, it is open to foreigners without having to apply for any license. Nevertheless, there is certain ambiguity when it relates to certain business activities. For example, the law restricts retail and wholesale businesses with a minimum capitalization below 100 million baht. An interesting legal issue is whether the Act also restricts sales on consignment. In October 2015, the Department of Business Development (DBD), which is responsible for executing the Act, issued the following advisory opinion:
- A sale of merchandise whereby ownership of the merchandise is transferred directly from the seller to the consumer falls within the meaning of “retail” according to Annex List 3 (14) of the Foreign Business Act.
- A sale of merchandise whereby ownership of the merchandise is transferred from the seller to a distributer for further sale falls within the meaning of “wholesale” according to Annex List 3 (15) of the Foreign Business Act.
- A sale of merchandise through a “counter sale” whereby the merchandise is consigned is where the owner of the merchandise is the consignor and places the merchandise with a consignee. When the consignee has sold the merchandise, ownership of it is transferred to the purchaser and the consignee receives compensation in the form of a commission. Furthermore, the consignor receives only the purchase price of the merchandise that he or she had specified, regardless of whatever price the consignee had sole the merchandise. Therefore, sale by consignment is considered a form of retail within the meaning of List 3 (14) and not wholesale within the meaning of List 3 (15) since ownership is transferred to the purchaser who is the consumer of the product and not another distributor.
Therefore, in order to engage in the business of sale by consignment, a foreign company requires to be capitalized at an amount of at least 100 million baht or otherwise to apply for a Foreign Business License.
Thai business law is complex. Nevertheless Thailand offers promising opportunities for expansion due to its central location in the ASEAN region. Foreign investors interested in Thailand are advised to consult with competent Thailand lawyers.
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