Proposed Foreign Business Act Amendments in Thailand
The headlines in Thai business news have been dominated recently by the new government’s proposals to reform the Foreign Business Act of 1999. However, rather than to liberalize business, the proposals are expected to make the law even stricter. This has caused much concern in the foreign business community whose members have voiced their opinions that any such amendments are likely to harm investor confidence in Thailand, especially after the political turmoil of recent times. The proposed amendments are centered on, but not limited to, the following issues:
The legal definition of a foreigner for the purposes of the Foreign Business Act
There have been reports from Thai news sources that the definition of a “foreigner” will be updated to include those companies that have a foreign authorized director, despite having majority Thai ownership. On the one hand, this proposed amendment is a logical continuation of the law by closing a loophole, since most foreigners who use Thai nominees control their companies by acting as authorized director. However, such an amendment would then make operating business in Thailand for foreign entrepreneurs to be prohibitively difficult. Furthermore, on a theoretical level, defining the “foreign” status of a company based on the nationality of the directors is problematic, since directors can resign and/or be replaced at any time.
A review of the list of businesses restricted to foreign investment
At this time, it is still not clear as to whether the government intends to further restrict the lists of businesses annexed the Foreign Business Act or to liberalize it. However, it would be reasonable for the government to consider liberalizing category (21) of List 3, which is “other services”. The category itself covers essentially any type of service business unless specifically exempted. Recently, Ministerial Regulations have exempted financial service businesses, while ASEAN agreements adopted by Thailand are supposed to open up a number of service businesses to neighboring countries.
A revision of the minimum capital requirements for foreign businesses
The Foreign Business Act requires foreigners, who are allowed to operate business in Thailand, to invest at least 2 million baht. However, the law more specifically requires foreigners to invest based on the number of their business activities: 2 million baht per non-restricted business activities and 3 million baht per restricted business activity. The present requirement is a serious obstacle to foreign investment and is most definitely worth revising.
Amendment of the penalty for foreigners who evade the law through the use of nominees
The penalty for foreigners who unlawfully operate business through the use of a Thai nominee, which is up to 3 years imprisonment and a fine of anywhere from a hundred thousand baht to a million baht, is already quite harsh. Therefore, the solution may be a matter of enforcement, rather than the law itself.
Revision of the qualifications of foreigners who may be granted licenses to operate restricted businesses
Currently, the Foreign Business Act requires foreigners who wish to operate restricted businesses in Thailand to apply for a Foreign Business License which entails a complex bureaucratic procedure and nebulous conditions, such as the prospect that the proposed business will transfer technology and contribute to the Thai economy and society. An example of a much simpler and more straightforward system would allow foreigners to operate restricted business if it can be established that the foreign business would employ a certain number of Thai staff of a certain level of education without any other requirements.
The proposed amendments to the Foreign Business Act are still uncertain. Foreign investors interested in doing business in Thailand are advised to consult with a competent legal advisor.
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