2 1. The Foreign Business Act (FBA) 1.1 FBA - Restrictions for foreign majority owned companies 1.1.1 FBA and Construction Activities 1.1.2 FBA and Installation Activities 2. Exemptions and Exceptions 2.1 Foreign Business License (FBL) 2.2 Thailand Board of Investment (BOI) Promotion of Construction and Installation Projects 2.2.1 Trade and Investment Support Office 2.2.2 Regional Operating Headquarter (ROH) 2.2.3 Information to be submitted with the BoI Application 2.3 Treaty of Amity and Economic Relations between Thailand and USA 2.4 Free Trade Agreements 2.5 The Use of Nominees 3. Work Permit and Visa Regulations 3.1 Current Department of Employment Regulations 3.2 Work Permit and Visa Application under BoI 4. Case Study www.brslawyers.com Table of Content
3 1. The Foreign Business Act (FBA) www.brslawyers.com Revised FBA effective since March 3, 2000 Restricting business activities of foreigners or foreign majority owned companies in Thailand To create greater opportunities of participation in commercial activities for Thai nationals
4 1.1 FBA-Restrictions for foreign majority owned companies www.brslawyers.com FBA is dividing business activities in three groups - All businesses listed in Annex 1 of the FBA are prohibited for foreigners to engage for special reasons; - All businesses listed in Annex 2 of the FBA are permitted for foreign participation with the approval of the cabinet; - All businesses listed in Annex 3 of the FBA are permitted for foreign majority participation, provided a Foreign Business License is obtained; - Business activities not listed in Annex 1-3 are open to foreign investment!
5 1.1.1 FBA and Construction Activities www.brslawyers.com Construction is a restricted activity pursuant to Annex 3 no. 10 of the FBA Exception: - Annex 3, section 10a The construction of objects which provide fundamental services to people in public utilities or communication which are required to use special equipment, machines, technology, and expertise in constructing them, where the minimum capital of an alien shall be 500 mio. THB or above; - Annex 3, section 10b other types of constructions as prescribed in the Ministerial Regulation.
6 www.brslawyers.com 1.1.2 FBA and Installation Activities Installation is restricted in Annex 3 of the FBA (Annex 3 section 21; Service).
7 www.brslawyers.com 2. Exemptions and Exceptions Foreign majority participation in construction and installation projects is possible: 1. Foreign Business License (FBL) 2. Thailand Board of Investment (BOI) approval 2.1 Trade and Investment Support Office (BOI 7.9) 2.2 Regional Operating Headquarters (BOI 7.10) 3. US-Thai Treaty of Amity & Economic Relations 4. Foreign Trade Agreements (for example the TAFTA with Australia)
8 www.brslawyers.com 2.1 Foreign Business License (FBL) For business listed in Annex 3 of the FBA, a FBL can be obtained Consideration by Foreign Business Committee at MOC (generally contract required) Required is a capitalization of minimum 3 mio. THB Approval, minimum 60 days Conditions are possible
9 www.brslawyers.com 2.2 Thailand Board of Investment (BOI) Promotion of Construction and Installation Project Businesses restricted under the FBA, which have obtained BOI promotion can be foreign majority owned in Thailand and receive other incentives.
10 www.brslawyers.com 2.2.1 Trade and Investment Support Office (BOI 7.10) Scope of permitted activity: Technical services, engineering etc. - Projects must be approved by relevant government agencies. - Annual operating expenses must not be less than 10 mio. THB. - Only non-tax privileges will be granted. - Business plan and scope of operation must be approved by the board. - Foreign majority ownership is possible. - Upon BOI approval of project, FBL will be granted by MoC!
11 www.brslawyers.com 2.2.2 Regional Operating Headquarter (BOI 7.9) ROH is a juristic company incorporated in Thailand providing managerial, administrative and technical services and is supporting foreign branches or associated enterprises linked to the ROH. BOI promoted ROH can be foreign majority owned. ROH incorporated in Thailand will receive tax incentives under Revenue Department regulations.
12 www.brslawyers.com Conditions to qualify for ROH Notice to the Revenue Department regarding the operation of a ROH. Paid-up capital minimum 10 mio. THB at the end of each accounting period Provide services to its branches or associated enterprises in at least 3 countries Half of its total income is derived from the services provided to its branches or associated enterprises outside Thailand. This can be mitigated to one-third of the total income in the first three accounting periods of its operation. Must obtain operating licenses from relevant government agencies, if any.
13 www.brslawyers.com 2.2.3 Information to be submitted with the BoI Application An organization chart with the number of employees Annual report of the parent company and business brochure or any other form of information about business activities in Thailand List of companys important customers An itemized projection of all expenses for the next three years Details of business with regard to the number of employees and expected revenues for the next three years An outline of the expected number of Thai employees, their positions and their required education for the next three years An outline of the expected number of foreign employees within the next three years, specified by their individual position
14 www.brslawyers.com 2.3 Treaty of Amity And Economic Relations Treaty of Amity and Economic Relations between the United States and Thailand - In effect since 1968 - US citizens and their companies are not restricted by the FBA and may engage in business on the same legal and tax basis as Thai nationals - Violation of WTO rules - Thailand has continued to offer the privileges of the treaty on the basis of a derogation. This derogation has expired on January 1, 2005 - Treaty privileges may be included in future US-Thai FTA
15 www.brslawyers.com 2.4 Free Trade Agreements A Free Trade Agreement (FTA) is a contract between two or more countries to liberalize trade in goods and services. The two countries will give national treatment to each others goods and services. The national treatment obligation means that imports from the other country must be treated no less favorably than the same or similar domestically produced good once they have passed Customs. Thai Australia Free Trade Agreement permits Australian equity participation of up to 100% in certain service sectors, including construction.
16 www.brslawyers.com 2.5 The Use of Nominees The use of nominee Thai shareholders to bypass the restrictions of the FBA is illegal! Owning is not controlling! Although the FBA generally requires 51% Thai equity ownership, it does not restrict - issuing separate classes of shares in the Thai corporation with favorable voting and dividend rights for foreign shareholders. - foreign control of the companys board of directors
17 www.brslawyers.com 3. Work Permit and Visa Regulations Foreigners require a work permit prior to commencing work in Thailand! Non-immigrant class B visa is required prior to apply for a work permit. New regulations issued by Department of Employment concerning the consideration to permit foreigners to work B.E. 2547 (30. Sept. 2004)
18 www.brslawyers.com 3.1 Current Department of Employment Regulations A minimum of 2 mio. THB registered capital is required for a Thai incorporated company to sponsor 1 work permit Foreigner working for an employer registered abroad and working in Thailand branch office, a minimum of 3 mio. THB transferred money is required (One foreigner for every 3 mio. THB) In general permission can not be granted for more than 10 foreign employees in a Thai registered company, unless: - working for an employer whose payment of tax over the past year is not less than 3 mio. THB - working for an employer engaged in export business and bringing in foreign exchange of not less than 30 mio. THB and above in the previous year - working for an employer that is employing Thai nationals of not fewer than one hundred employees
19 www.brslawyers.com 3.2 Work Permit and Visa Applications under BoI BoI promoted companies provide a greater flexibility with respect to the numbers of work permits issued to a company!
20 4. Case Study ABC ROH Ltd. Thailand – Capital 10 mio THB – 12 work permits 100% foreign owned -Project control service -Management service -Commercial, legal service -Technical support-assistance -Credit management and control, financial consultation -Procurement, sourcing ABC Thai Construction Ltd. 49 % ABC ROH Ltd. 51 % Thai Partner - Construction ABC Mauritius Ltd. - Equipment rental ABC Malaysia Construction Ltd. Foreign company engaging in pipeline installation