Restricting Foreign Ownership: Amendments to the FBA

The Thai government has recently announced plans to make Thailand the financial capital of Southeast Asia. This was later followed up with an announcement that the Ministry of Commerce is reviewing whether to further tighten the definition of a foreign owned business in the Foreign Business Act. This set off alarms among many Thai-Foreign joint ventures in Thailand, international bodies, and foreign nations. They feared that the Thai government is attempting to turnover control of these joint ventures to Thai nationals.

The Foreign Business Act of 1999 is an all-encompassing protectionist legislation that restricts foreign business from operating in large segments of the Thai economy including a broadly worded “other service businesses.” Under the Foreign Business Act, foreign investors can bypass the restrictions by creating a joint venture with Thai nationals with the Thai nationals holding a majority shares of the entity. The current reading of this requirement does not prevent foreigners from having majority control of the board of directors or owning superior voting shares. This has allowed foreign investors to keep control of the joint venture even when they owned less than 50% of company.

The Ministry of Commerce is looking at closing the loophole because they believe that allowing foreign nationals to control a Thai company takes advantage of the majority Thai shareholders. The proposed amendments would look at who controls the entity to determine whether an entity is Thai owned or foreign owned. This will affect many joint ventures formed in Thailand where foreign investors have submitted large amounts of capital, technology, and reputation. The Japanese government stated that the change will affect 45% of existing Japanese investments in Thailand.

The Ministry of Commerce’s purpose for amending the Thai Business Act might be reasonable however its actions will have a significant impact on investment in Thailand. While Thailand is the second largest economy in South East Asia, Thailand is still a developing country that needs investment. Thailand is in competition with its neighbors for foreign investment. Indonesia, Vietnam, Malaysia, and Myanmar are liberalizing their economies to attract foreign investment.

For more developed countries such as South Korea and Taiwan, Thailand may face retaliatory measures that prevent Thais from investing and owning businesses abroad. The European Union which is the second largest investor in Thailand has already issued a warning that any further restrictions to foreign ownership rights in Thailand will have detrimental effects on future technology, knowledge, and equity investment in Thailand from Europe.

If Thailand wants to be the financial hub of Southeast Asia, it should open up its business operations and services to foreign ownership to attract foreign investment. The potential amendment to the Foreign Business Act will scare away foreign investment during a period where Thai economy has stagnated. Government economic policies should recognize that Thailand exists in a competitive environment. Countries that border Thailand are opening their doors to foreign investment to raise the standard of living of their people. Thailand should do the same.

 

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Category: Business in Thailand, Company Law

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Siam Legal is an international law firm with experienced lawyers, attorneys, and solicitors both in Thailand law and international law. This Thailand law firm offers comprehensive legal services in Thailand to both local and foreign clients for Litigation such as civil & criminal cases, labor disputes, commercial cases, divorce, adoption, extradition, fraud, and drug cases. Other legal expertise of the law firm varied in cases involving corporate law such as company registration & Thailand BOI, family law, property law, and private investigation.

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