International Trade Without Distribution in Thailand
Aside from being a place to do business, foreign companies are also choosing Thailand as a jurisdiction to locate their businesses perhaps without actually doing business there. The reasons why a foreign company may want to locate themselves in Thailand while engaging in business somewhere else are varied and complex; it may have to to do with a preference with Thai business laws over that of other jurisdictions or simply because of Thailand’s central geographic location in the ASEAN region. The Department of Business Development (DBD), which oversees business registration and foreign business matters in Thailand issued an advisory opinion during September 2015 in which it addressed the issue of foreign businesses operating international trade operations. Specifically, it addressed the question of whether a foreign company required a Foreign Business License according to the Foreign Business Act of 1999 in order to engage in international trade whereby the goods distributed did not enter Thailand. Below were the details.
Company A, a foreign company registered in Thailand, and Company B, a Japanese company, would enter into a sales and purchase contract whereby they would distribute medical products through a pharmaceutical distributor in Vietnam (the buyer). The contract would specify both Company A and Company be as sellers.
In this arrangement, the responsibility would be distributed as follows: Company A would be responsible for communicating and negotiating with the buyer, receive purchase orders, and forward purchase orders to Company B. Company B would then be responsible for fulfilling purchase orders whereby the goods would not pass through Thailand. Company A would receive payment from the buyer and split the proceeds with Company B.
The DBD was of the opinion that the business activity as described above is considered the sale of goods in a foreign country without the goods entering Thailand. Such a business activity does not fall within any of the restricted categories annexed to the Foreign Business Act. Company A is able to engage in this business activity without a Foreign Business License. In any case, Section 14 of the Act requires that a foreign business which engages in a business not restricted by the Act to have a minimum capital used in starting business operations in Thailand to be not less than 2 million baht. Furthermore, this minimum capital does not include any other minimum amount of capital specified by other laws.
Foreign business laws in Thailand are complex. Foreign investors are advised to consult with competent Thailand Lawyers before beginning business operations in Thailand.
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