Thailand To Limit Foreign Stake In Firms To 50 Per Cent

[John K]

Forgive me if this is a bit of a unusual question but let me paint this scenario.

Lets say a company in Thailand must change it’s structure to comply with the new law. So the same company has facilities in another country that no such law applies, and is governed under a corporate umbrella. So under this structure does it mean that the corporation still has majority rights. Meaning the company in Thailand is only 50% of the corporation and the company in the other country is 50%. So in fact as a whole the cooperate office still has 74.99% by allowing the Thais to have a 50%+ majority in the Thailand facility.

Is this a true statement?

[Bruce1]

Nice cartoon in the Bangkok Post today about the idea of reserving certain occupations for Thais. If you haven't seen it, it shows a group of Thais in the clotbhes of rural labourers standing behind a sign which reads, "Reserved for Thais". In front of them is a foreigner in western clothes carrying a brief case.

Basically it implies that reserving certain fields for Thais is a recipe for keeping them in poverty. If the government goes down the protectionist route, I think it will certainly keep most rural Thais in poverty, which would be very sad. Most of the Thais achieveing genuine success based on non-corrupt personal efforts would be doing so in fields NOT reserved for Thais, I suggest. Protectionism doesn't work.

[thedude]

why is it that no one pays any attention to the truth, that the real way forward for this country is in EDUKAYSHUN?

protectionism is only good for buying time, enough time to get your population schooled and skilled for the big bad world. if you squander the opportunity to educate while shutting out foreign industries, then you just have to play catch up and suffer the humiliation of being inferior longer.

tightening up the FBA will not protect future generations of thais from falling further because they are not getting better educated right now.

[wintermute]

why is it that no one pays any attention to the truth, that the real way forward for this country is in EDUKAYSHUN?

protectionism is only good for buying time, enough time to get your population schooled and skilled for the big bad world.

That requires effort, self discipline, and motivation which are traits that are sorely lacking in Thai society. While they expand their protectionist laws and practice cultural xenophobia to keep their "thainess" big business will leap across the border to Vietnam and Malaysia.

if you squander the opportunity to educate while shutting out foreign industries, then you just have to play catch up and suffer the humiliation of being inferior longer.

Thailand is comfortable with mediocrity except when it comes to facing reality then it's time to flee into the comfort zone.

tightening up the FBA will not protect future generations of thais from falling further because they are not getting better educated right now.

It'll probably get worse as the younger Thais become more "westernized" in what they want materialistically but have neither the skills or education to compete globally. They will just become a nation of second rate consumers trying to compete with low cost laborers and manufacturing with powerhouses like China. China is already ramping into the high tech businesses so it's only a matter of time before smaller countries like Thailand will suffer exponentially because in future skilled sectors they haven't even acquired yet they will still face serious competition. Developed countries like Singapore have already anticipated this and they are shifting their skilled personnel into biomedical research and finance.

Edited January 15, 2007 by wintermute

[TAWP]

We are not xenophobic. We just want to run things more effectively /../

Yeah, that's the word I was looking for...

[johnnyk]

why is it that no one pays any attention to the truth, that the real way forward for this country is in EDUKAYSHUN?

protectionism is only good for buying time, enough time to get your population schooled and skilled for the big bad world. if you squander the opportunity to educate while shutting out foreign industries, then you just have to play catch up and suffer the humiliation of being inferior longer.

tightening up the FBA will not protect future generations of thais from falling further because they are not getting better educated right now.

Good point.

Trouble is that edukayshun improvement will rekwire a cultural shift that wil take a generation or more. Cultural shift will also involve seeing more than immediate short-term benefit in any given situation.

It would have to begin with young Thai families demanding more from the system and from their children and inculcating educational values.

And the powers that be will have to fund and improve the system.

Of course it is a benefit to the rich and powerful to have a large number of people who can supply cheap labour. Of course edukayshun may lead to enquiring minds who will want to know why things are the way they are.

[onethailand]

In yesterday's Bangkok Post there was a letter from a Thai trying to justify Thailand's draconian foreign investment laws. As an example he used the US Governments rule on investment in the domestic airline industry and tried to color a majority of foreign investment in other countries with the same brush. Since he is familiar with that rule (unless he was coached which is possible) he should also know that with a vast majority of the businesses and industries in the US there are no rules on foreign majority ownership. Chicken of the Sea International, owned by Thai Union is an example of a major US food company that is 100% owned by a Thai company. No 49-51 rule here. Chicken of the Sea is a top 10 supplier of tuna and seafood products in the US. They compete with US companies like Starkist.

Entirely correct. Bumble Bee was also 100% owned by a Thai company but later sold off. And Singer (as in sewing machines) is Thai-owned.

In the US there are literally thousands of small businesses owned by Thais. Thais and other foreign nationals can own land and homes in their own name. There is no two tiered pricing in the US, its against the law and it is prosecuted. The government even uses testers to build cases against businesses who try to defy that law and the equal housing laws. Thais can even become US citizens without an extraordinary amount of effort.

And, as the writer of that letter likely knew, ordinary Thai citizens are able to open small businesses in the US under the Treaty of Amity without being required to invest a set amount of money as is the case with foreign investors who come from countries without the benefit of a similar treaty who are required to invest one million US dollars. In fact, they are only required to invest a sufficient amount relative to the type of business they plan to invest in or open. Some immigration attorneys claim that with some businesses that amount can be as little as $25,000. The US courts settled that rule long ago in the 1980s. Further, Thais investing in the US under the treaty are not required to pay themselves a minimum salary much less one that places them in the top 5% of US wage earners. Thais in the US are not required to employ a minimum number of Americans in order to receive a Treaty investor visa. The business is expected to generate employmen for Americans at some point but not form day one and there is no set number in order to obtain a work visa. Thais who come to the US under the treaty can do any work needed for his business at any location as long as it is related to that business. He is required to manage and control the business but can do other work within the organization. The Thai does have to report to immigration periodically but does not have to obtain a separate work permit from another agency. In fact, though it is not part of the agreement, the wives of Thais who open treaty businesses in the US can obtain a work visa and either work in the business or seek employment in an unrelated business. Contrast the way Thai Treaty investors, including small business investors, are treated in the US with the way Thailand treats Americans.

You're ###### tootin'. I own a business in Thailand protected by the Treaty. I still have to meet standard work permit rules (4 Thais and 2 million baht registered capital for each work permit). I have to have a minimum income of 50K baht (I think that's what it is now). And I am technically required to be at my place of business.

What a load of crap. But at least I can own the business...

On the other hand, strangely enough, my company was also going to be permitted to be the first non-Thai majority company licensed by the Tourism Authority of Thailand (tourism is one of the restricted professions). In the end, though, to save time on paperwork and the potential of running into any other hassles with other related organizations, I registered the travel business in the usual prescribed manner (51% Thai, 49% foreign).

In a later post, CMAmerican said that only the Commerce Ministry honors its obligations under the Treaty - and he is basically right - but I bet if one were to make a big enough stink, the other Ministries would reluctantly fall into line in case the resulting furore caused citizens of other countries to demand equality (and frankly, I'm sure the US government would rather you didn't raise a big fuss either).

Getting legal advice? Most local legal and accounting firms do not even know what the treaty is, or that it exists. So much for that route unless you can afford to retain Tilleke & Gibbins.

[Paul MBMG]

Most decent law firms are aware of both BoI and ToA but the kind of pactical difficulties that you mention are reasons why ease of operating has to be factored into the decision whether or not to take advantage of these structures. That's why many of the competent firms haven't routinely recommended these. Mind you at the other end of the food chain, there are legal advisors operating here who probably don't even know what BoI or ToA stand for! You tend to get what you pay for. Internally we've already discussed whether ToA/BoI/FBA benefits will be of greater value if the FBA revisions are introduced as proposed and the bottom line is that we DON'T BELIEVE THAT THERE IS ANY GREAT NEGATIVE IMPACT TO OSTENSIBLY THAI BUSINESSES.

Calm down gentlemen please. There really doesn't need to be any great change in the way that things are as long as you've got all your ducks in a row.

You're ###### tootin'. I own a business in Thailand protected by the Treaty. I still have to meet standard work permit rules (4 Thais and 2 million baht registered capital for each work permit). I have to have a minimum income of 50K baht (I think that's what it is now). And I am technically required to be at my place of business.

What a load of crap. But at least I can own the business...

On the other hand, strangely enough, my company was also going to be permitted to be the first non-Thai majority company licensed by the Tourism Authority of Thailand (tourism is one of the restricted professions). In the end, though, to save time on paperwork and the potential of running into any other hassles with other related organizations, I registered the travel business in the usual prescribed manner (51% Thai, 49% foreign).

In a later post, CMAmerican said that only the Commerce Ministry honors its obligations under the Treaty - and he is basically right - but I bet if one were to make a big enough stink, the other Ministries would reluctantly fall into line in case the resulting furore caused citizens of other countries to demand equality (and frankly, I'm sure the US government would rather you didn't raise a big fuss either).

Getting legal advice? Most local legal and accounting firms do not even know what the treaty is, or that it exists. So much for that route unless you can afford to retain Tilleke & Gibbins.

[Paul MBMG]

sorry John,

I don't fully understand the question

Company A is a holding company in say the USA

Company B is a Thai subsidiary owned 49% by Co, with Co A having up to 50% of voting rights

Company C is a (e.g.) Sinagporean subsidiary 50% owned by Co A, with Co A having 100% of the voting rights

Company A has around 75% control of the 2 companies if you want to quantify it that way (i.e. total control in Singapore and up to 50% voting rights here.

But I don't think that anypne wouldbe looking so much at the average voting righst of the 2 subsidiaries. As Mobi and Ol' Man both pointed out previously, the question becomes effectove control of operations.

Where I would disagree with both Mobi and Ol' Man is that if Company A takes legal advice, it will be told that there a great number of ways to achieve suitable foreign investor influence and control in Thai companies, which remain mainly unaffected by the FBA changes. In our opinion, foreign enterprises tend to take good quality legal advice and therefore we don't see there being any great reason for FDI from this source to suffer over the longer term (whether it's English, Japanese, American etc).

In the short term, the negative perception will however cause a reaction of sorts.

The problem will come in instances where, for whatever reason, inadequate structures have been used. There have been too many of these and hopefully the biggest impact of the FBA will be the upgrading of these structures and the demise of the purveyors of such bad advice.

Forgive me if this is a bit of a unusual question but let me paint this scenario.

Lets say a company in Thailand must change it’s structure to comply with the new law. So the same company has facilities in another country that no such law applies, and is governed under a corporate umbrella. So under this structure does it mean that the corporation still has majority rights. Meaning the company in Thailand is only 50% of the corporation and the company in the other country is 50%. So in fact as a whole the cooperate office still has 74.99% by allowing the Thais to have a 50%+ majority in the Thailand facility.

Is this a true statement?

[Paul MBMG]

Johnny

good post as always but I think that some extra context would help

Thailand had suffered a number of scandals (what was the name of the teacher in the JonBenet Ramsey case?) and no doubt felt pressured into the moves that you mention to improve its image. I think that many people accept that immigration policy had been too lax and that proper controls were/are needed and that the new rules are perfectly OK with most genuine farang residents (although there will certainly be some very unfortunate individual stories)

I don't really think that the 30% law is causing anyone any problem and it has, short term, achieved the aim of preventing the Baht strengthening further. It has achieved its stated aims in return for a relatively small amount of stock market upheaval (admittedly could have been even less if introduced more effectively), I don't currently see any problems with this law and I have to oversee the transfer of significant amounts into and ou of Thailand almost every day.

The FBA revisions like the 30% don't appear to pose a genuine problem in practice - I repeat as I've said in many posts, including to yourself, that this should be viewed as a minor inconvenience not a major sea-change.

Perception is another matter. I'm sure that the authorities believe that this furore will blow over. I hope to God that they're right.

Perceptively you touch on the real issues though - there is a schism in upper echelons of Thai society following all the divisiveness of the last few years and until this is healed the udnerlying tensions remain and these could cause problems at any time. You'd have to hope that Thailand's track record of performing this well in the past can be repeated today.

I smell danger.

We have had a series of events that are not coincidental but form part of a scenario.

First, they tightened up the visa rules. Plainly targeted at those visa runners who were using the country as a cheap place to be on the lam from debt, alimony, failed scams etc and for cheap drinking and whoring. They wanted to track people in and out more effectively (fair enough) and get rid of the bottom feeders in the same motion.

This I think is part of a move to reposition Thailand more upscale for tourists, especially Asians. They don't need/want backpackers anymore nor the guys who live in 3000 baht/month back soi rooms in Pattaya. People like this drag down the image they want to project and there is a huge developing Asian middle class which finds some antics distasteful when practised in full view. Right now this is the only SE Asian country (along w/Malaysia which has Muslim image to overcome and Bali with other pompems) with good beaches and decent infrastructure throughout. Money has been made off the low-end falang tourists which has financed building and services and contributed to building the initial tourist infrastructure and now its time to sell it to Asian families.

Following on from that was the 30% currency thing which doesn't cause the big boys like Toyota or Carrefour any pompem. It does tighten things up for small biz people or at least makes them think twice about buying a bar and settling down to...in some measure, a life of sanuk with ample cheap booze and company.

Now this latest 50% business and closing off the nominee loophole can effectively mean a massive devaluation of falang-owned assets. Nobody's real estate or biz owned via nominee with 2-class share structure is worth as much as it was a short time ago. And no small biz guy or vacation home owner is going to be happy about putting their holdings into a Thai-controlled structure. So values are effectively depreciated and the only potential buyers are Thais who will bring a take it or leave it attitude with any offers to buy these assets.

Thus housing projects with storm drains and roads, guest houses and hotels nicely furnished to falang standard all in operating condition, shops and services, well-equipped bars and restaurants etc can be snapped up at fire sale prices.

What I see is a ripoff of huge proportion buying up assets at deep discounts on the dollar and as it will be small business guys affected, individuals not corporations, no one will give a <deleted>. I doubt many tears will be shed for the 60-yr old falang who loses his little business, his family or has to unload his assets for peanuts and return home to the cold.

So Thailand is moving up the ladder, sex tourists, misfits, scammers and drunks can move on to Cambo. And if falang man wants to stay then he will pay. None of this will happen overnight but things will be different in a decade.

Thailand has undergone tremendous upheaval over the past 30 years with massive development, huge corruption even by their standards, industrialization and "growth without devlopment" (as James Fallows put it in Looking at the Sun) that has wrenched a deeply traditional rural country into the 21st century. I think they feel Viet Nam's footsteps coming behind them. Although VN is still less developed Intel will build a chip factory there and not in Thailand. Not to mention China, the elephant in the Asian room.

But the infrastructure is now in place, there is money around, a solid tourist brand is established, multi-nationals are operating employing thousands and its time to move up the next rung of the ladder from an economy of sewing machines and cheap pleasure. If that invloves throwing out less-than-very-rich falang or making it a bit difficult for them, so be it. It's not about them.

Following on the 30-year breakneck pace comes a power struggle. Conservative elements see the changes and don't completely agree with them. They wanted Toxin out and while I have no love for Mr. T, I think he did understand some things better than others, among them that Thailand was developed enough that it is well-tied in to the world economy and economic liberalization is generally a better way to increase living standards than walling off. Military regimes however are by nature conservative, often seeing themselves as guardians of the true nation. They generally take power as a reactionary force when they perceive excesses or danger. In this case, I believe they may be aiming to preserve or to consolidate the gains of the past 3 decades and prepare for the next stage. If a few individual falangs get tossed over the side they won't worry too much. Falangs don't vote.

I think also they see themselves as independent actors in a globalizing world, not too close to China or to the US and in classic Thai style will attempt to play both ends to the middle and be the leaders of SE Asia which, as the colonialists knew, is one of the world's pearls.

Just a few thoughts.

[johnnyk]

Thanks for the kind word Paul,

I agree the 30% thing is not of great import to average joe but part of a pattern of a circle the wagons, batten the hatches kind of nationalism that has always been there but surfaces when the most nationalist of all groups, the army, takes power.

Most certainly there are very deep divisions and power struggles in process over the future direction of the country. One poster characterized it as a 'new money v. old money' struggle. I'm pretty sure we know who the new is and who the old is. The old won this round.

The John Mark Karr affair and sex tourism in general is certainly a blot on the record and perhaps Karr heightened or brought up again the perception of Thailand as the world's brothel. True or not and whether it is a stereotype, it is a very widespread negative perception the Thais would prefer not to exist. Mind you there are many vested interests who are quite happy it exists.

Anyway, just some ramblings and remember, "we live in intersting times" and "what's past is prologue".

cheers

jk

[John K]

sorry John,

I don't fully understand the question

Company A is a holding company in say the USA

Company B is a Thai subsidiary owned 49% by Co, with Co A having up to 50% of voting rights

Company C is a (e.g.) Sinagporean subsidiary 50% owned by Co A, with Co A having 100% of the voting rights

Company A has around 75% control of the 2 companies if you want to quantify it that way (i.e. total control in Singapore and up to 50% voting rights here.

But I don't think that anypne wouldbe looking so much at the average voting righst of the 2 subsidiaries. As Mobi and Ol' Man both pointed out previously, the question becomes effectove control of operations.

Where I would disagree with both Mobi and Ol' Man is that if Company A takes legal advice, it will be told that there a great number of ways to achieve suitable foreign investor influence and control in Thai companies, which remain mainly unaffected by the FBA changes. In our opinion, foreign enterprises tend to take good quality legal advice and therefore we don't see there being any great reason for FDI from this source to suffer over the longer term (whether it's English, Japanese, American etc).

In the short term, the negative perception will however cause a reaction of sorts.

The problem will come in instances where, for whatever reason, inadequate structures have been used. There have been too many of these and hopefully the biggest impact of the FBA will be the upgrading of these structures and the demise of the purveyors of such bad advice.

Forgive me if this is a bit of a unusual question but let me paint this scenario.

Lets say a company in Thailand must change it’s structure to comply with the new law. So the same company has facilities in another country that no such law applies, and is governed under a corporate umbrella. So under this structure does it mean that the corporation still has majority rights. Meaning the company in Thailand is only 50% of the corporation and the company in the other country is 50%. So in fact as a whole the cooperate office still has 74.99% by allowing the Thais to have a 50%+ majority in the Thailand facility.

Is this a true statement?

Ok let me try it this way. Lets take Toyota only as a name. Toyota has facilities all over the world consisting of parts and assembly facilities. Just to use an easy number lets say Toyota has 100 facilities world wide and only one of them in Thailand. The corporate office that is not a factory is located in Japan. So under the new law would the Thais only have just over .5% of control as only 1% of Toyota is in Thailand? Meaning should any company want to keep control all they need do is open another facility outside of Thailand and place it under a corporate umbrella along with the Thailand facility.

I guess I am looking at this as a possible loophole in the new law. The other scenario is Thailand is taking over businesses world wide with this law if you want a facility in Thailand.

[ChiangMaiAmerican]

In a later post, CMAmerican said that only the Commerce Ministry honors its obligations under the Treaty - and he is basically right - but I bet if one were to make a big enough stink, the other Ministries would reluctantly fall into line in case the resulting furore caused citizens of other countries to demand equality (and frankly, I'm sure the US government would rather you didn't raise a big fuss either).

Getting legal advice? Most local legal and accounting firms do not even know what the treaty is, or that it exists. So much for that route unless you can afford to retain Tilleke & Gibbins.

I have actually shown a copy of the treaty in both Thai and English to a number of Thai attorneys and some mid level government officials. Most are clueless and haven't even heard of the treaty. This is especially true of government officials. Of the attorneys the attorneys I spoke to who were bilingual most will correctly interpret sections of the treaty but then proceed to tell me it doesn't apply because Ministry regulations state something different. Obviously there is a severe lack of education among Thai attorneys when it comes to the relationship of treaties to nationals law. Thai government officials tend to be even worse. Unfortunately the US Embassy will not push very hard for compliance. One of my attorneys in the US who does trial work rather than merely shuffling papers and has a track record of winning on appeal when confronting the State Department on immigration matters tells me the government here is out of compliance on much of the treaty at least where small business is concerned. Unfortunately, unlike some immigration cases, there is no avenue for redress in the courts of the US. State can and does ignore violations at will. Business cannot file a case for arbitration independent of the State Department. Perhaps with the new leadership in the House and Senate things will change. Before State could operate with impunity. Now at least in theory, they can be called before committees to account for their lack of action. On some issues this is likely to happen. Senator Max Baucus, the new head of the Senate Finance Committee, wants expanded and more aggressive enforcement of trade agreements. It will be interesting to see what actually happens.

You are right on about Tilleke and Gibbins. Excellent firm but too expense for all but the most pressing problems.

Edited January 16, 2007 by ChiangMaiAmerican

[John K]

A good post that says once again the Thais not thinking this more than one or two steps of what things will be affected. A typical humorous scene in a movie comes to mind where something is seemingly innocently touched followed by about a full minute of crashing and destruction. A particular scene in the first “Lord of the Rings” comes to mind where something falls down a shaft alerting the enemy to their presence.

[Old Man River]

Oh no, Japanese factories will pollute neighboring countries instead of Thailand, farang businessmen will move out, rent and purchase prices for condos will plummet, tourists will flee this unstable land and leave beaches deserted, there will be no more traffic jams; wait a minute, doesnt' sound that bad at all for those of us enjoying living here!

Unless you have to make a living here. If you are on a pension, then the only thing you would have to worry about would be the increasing crime rate from locals that were used to having and then lost their jobs. There is no unemployement insurance here. Your money would fill that gap.

Seems a bit paranoid in the context of Thailand. I was here in the crash of 1997 and did not witness any increase in crime or any sense that those who lost there jobs were coming after my money. I did see office workers driving taxis and selling sandwiches and former rich selling toys? Any others with comments?

1997 was different in that it was an economic event affecting the entire region. This go around it will be Thailand specific, with neighboring countries benefiting from Thailand's loss. There will be no way out without a reversal of polices. I hope it never comes to this, but it has happened elsewhere.

[LivinLOS]

Ok let me try it this way. Lets take Toyota only as a name. Toyota has facilities all over the world consisting of parts and assembly facilities. Just to use an easy number lets say Toyota has 100 facilities world wide and only one of them in Thailand. The corporate office that is not a factory is located in Japan. So under the new law would the Thais only have just over .5% of control as only 1% of Toyota is in Thailand? Meaning should any company want to keep control all they need do is open another facility outside of Thailand and place it under a corporate umbrella along with the Thailand facility.

I guess I am looking at this as a possible loophole in the new law. The other scenario is Thailand is taking over businesses world wide with this law if you want a facility in Thailand.

Thats still doesnt gove them overall control..

The 1% sub company Toyota Thailand now run by 51% Thais can still do as its 51% Thais tell them too.. Make skodas and stick on a Toyota badge.. Pay themselves the entire company bank accounts etc..

See why Toyota (global) would have a problem losing control of even a small part ??

[onethailand]

I have actually shown a copy of the treaty in both Thai and English to a number of Thai attorneys and some mid level government officials. Most are clueless and haven't even heard of the treaty. This is especially true of government officials. Of the attorneys the attorneys I spoke to who were bilingual most will correctly interpret sections of the treaty but then proceed to tell me it doesn't apply because Ministry regulations state something different.

Part of the problem is the method of interpretation. Essentially, a ToA company is supposed to be treated as a Thai-owned company. The problem is, some of the regulations governing Thai-owned companies impose the strange rules (ie. 2 mil baht and 4 Thais) and there is no provision in either the Treaty or Thai law for any exemptions whatsoever.

In other words "equal treatment" means "same as Thai company" not "same as Thai company in US".

Obviously there is a severe lack of education among Thai attorneys when it comes to the relationship of treaties to nationals law. Thai government officials tend to be even worse. Unfortunately the US Embassy will not push very hard for compliance. One of my attorneys in the US who does trial work rather than merely shuffling papers and has a track record of winning on appeal when confronting the State Department on immigration matters tells me the government here is out of compliance on much of the treaty at least where small business is concerned. Unfortunately, unlike some immigration cases, there is no avenue for redress in the courts of the US. State can and does ignore violations at will. Business cannot file a case for arbitration independent of the State Department. Perhaps with the new leadership in the House and Senate things will change. Before State could operate with impunity. Now at least in theory, they can be called before committees to account for their lack of action. On some issues this is likely to happen. Senator Max Baucus, the new head of the Senate Finance Committee, wants expanded and more aggressive enforcement of trade agreements. It will be interesting to see what actually happens.

Won't happen, unfortunately, as far as Thailand is concerned. I don't think one can blame Thai attorneys and government officials for doing what they know - ie "same as Thai company". The only way is to raise the complaint directly with relevant senior ministry officials, or do a hunger strike or something like that LOL. Once the media is interested, government officials tend to move a bit more quickly - but you will have to keep media attention focused on the issue because if it dies off, said officials not only stop moving, they will be even more stubborn when you ask them to keep their "promises".

Calm down gentlemen please. There really doesn't need to be any great change in the way that things are as long as you've got all your ducks in a row.

Oh don't worry about me, I'm perfectly calm After all, a ToA company is still essentially the same as a Thai company - but I just felt the need to vent after reading CMA's post which was basically right on the button.

I don't know if your definition of "decent law firms" differs from mine, but in my experience there are only a few firms who know about the ToA, and even less who actually know how to apply the advantages gained from the ToA. There are many decent law firms, and accountants, with absolutely no knowledge (I had an accounting firm who insisted there was no such thing as she had been in the business 25 years - and I told her essentially to get her head out of her ass and call the embassy, and the commerce ministry. A month later, she was very apologetic, but needless to say she was no longer our accountant).

[ChiangMaiAmerican]

Part of the problem is the method of interpretation. Essentially, a ToA company is supposed to be treated as a Thai-owned company. The problem is, some of the regulations governing Thai-owned companies impose the strange rules (ie. 2 mil baht and 4 Thais) and there is no provision in either the Treaty or Thai law for any exemptions whatsoever.

In other words "equal treatment" means "same as Thai company" not "same as Thai company in US".

The problem with the Thai interpretaion of the treaty concerns the "right to manage and control". That right is spelled out in clear and unambiguous language.

Article IV, Secton 5 of the Treaty:

"Nationals and companies of either Party shall enjoy the right to control and manage the enterprises which they have established or acquired within the territories of the other Party, and shall be permitted without discrimination to do all things normally found necessary and proper to the effective conduct of enterprises engaged in like activities."

My attorney in the US emphasized the word "shall" when he said Thailand was out of compliance in this section. Shall does not mean optional contingent on other conditions. It is impossible to effectively manage and contol a business in Thailand without a physical presence. It is impossible to effectively manage and control and enterprise without visiting the business and examining the books. You can't do that without a work permit and you wont get a work permit without complying with the regulations you mention. There is no mechanism to permit management and control of the enterprise as spelled out in the treaty without a work permit. Even after spending the needed money to establish an AER business under Thai law, there is no guarantee the majority owner will be given the work permit needed to manage and control the enterprise. It is usually difficult to get a work permit that allows the owner to "do all things normally found necessary and proper to the effective conduct of enterprises engaged in like activities." You can spend the money to establish the business and in the end find you cannot obtain the work permit needed to effectively control it. The government here will not tell you until after the fact if they will give the the needed permits.

Edited January 16, 2007 by ChiangMaiAmerican

[onethailand]

The problem with the Thai interpretaion of the treaty concerns the "right to manage and control". That right is spelled out in clear and unambiguous language.

Article IV, Secton 5 of the Treaty:

"Nationals and companies of either Party shall enjoy the right to control and manage the enterprises which they have established or acquired within the territories of the other Party, and shall be permitted without discrimination to do all things normally found necessary and proper to the effective conduct of enterprises engaged in like activities."

My attorney in the US emphasized the word "shall" when he said Thailand was out of compliance in this section. Shall does not mean optional contingent on other conditions. It is impossible to effectively manage and contol a business in Thailand without a physical presence. It is impossible to effectively manage and control and enterprise without visiting the business and examining the books. You can't do that without a work permit and you wont get a work permit without complying with the regulations you mention. There is no mechanism to permit management and control of the enterprise as spelled out in the treaty. Even after spending the needed money to establish an AER business under Thai law, there is no guarantee the majority owner will be given the work permit needed to manage and control the enterprise and it is usually difficult to get a work permit that allows the owner to "do all things normally found necessary and proper to the effective conduct of enterprises engaged in like activities."

Hmm. Well, I am here in Thailand, and I definitely have control over the business. But you're right, I guess, because I did have to meet the other conditions.

Still, I have full control, make all the decisions, do not require any other signatures or approval as I am 99.94% majority owner.

[ChiangMaiAmerican]

Hmm. Well, I am here in Thailand, and I definitely have control over the business. But you're right, I guess, because I did have to meet the other conditions.

Still, I have full control, make all the decisions, do not require any other signatures or approval as I am 99.94% majority owner.

Likewise with my business though my wife and her family are and have been minority co-owners. But there was a time when I had to yield exclusive control to my wife after the establishment of the Treaty company while it was decided whether I would receive a work permit. If I did not have my wife the control would need to have been vested in an unrelated Thai national including and particularly control of the bank account.

Edited January 16, 2007 by ChiangMaiAmerican

[Dupont]

We are not xenophobic. We just want to run things more effectively /../

Yeah, that's the word I was looking for...

You are xenophobic by the way, and it would take a great deal of effort to run things less effectively here.

Every single piece of paperwork I have dealt with down the past 12 years has been a nightmare and the offices a scene of total confusion, corruption and incompentence.

December 2006, Immigration boldly and loudly told me I am too young for a Non Imm 'O', even though I had one already by being married and was trying to extend it. He was on the phone talking about football at the time on the main front desk. Went to singapore, got Non imm 'O' one year. This cost me (and Thailand) 30,000 baht as I was there 4 nights.

My work permit dates were wrong, and they lost my tax forms which were stapled to it, so I had to go and get another set. They wouldn't look for them, they insisted they were never there, even though you could see bits of paper attached to the staple, and all my forms were numbered.

Curiously enough, in the Labour Office there was a woman with a big board full of rings, selling them to the staff whilst the office manager was just slumped on her desk. I further altered my job description, went back for the permit the next day, and they had processed it for an entirely different person and told me the permit was expired. It was for somebody who last worked for me over 3 years ago. All in all three visits to the labour department, about 6 wasted hours.

Tax office last week, came up with 4 different figures before agreeing that my accountants (the wife's and the 5th total) were right. This month, they (the tax office staff, the ones not playing computer games) were trying to sell my wife some gemstone rings! On the counter! They then processed my forms wrong, and put all my monies and details on an employees records so we had to go back and do it again this week.

Omission!! When I paid my water rates, the cashier tried to sell me 2 rai of land. They all had a little laminated picture of it with a phone number on it and told me it was cheap! We paid, then reported a leak on the Soi, the engineer who called, had the same saled pitch!!

Effective! Not for 3 generations at least mate.

None of this is unusual.

Edited January 16, 2007 by Dupont

[Paul MBMG]

In some spheres of business I suppose that we would consider T&G as competitors, but I have to say that YGWYPF (you get what you pay for). It amazes me that people will invest millions of Baht into a company or property and then skimp on a few tens of thousands of Baht legal fees. Inevitably they end up with a cheaper but far poorer solution. I don't imagine that too many T&G clients (or our clients for that matter) are at all concerned about the terms of the new FBA. At the risk of repeating myself, set yourself up right in the first place and there's very little to have to worry about now. Do it on the cheap initially and you'd better jump now and jump fast or else something could just be coming along that's going to bite your backside.

Getting legal advice? Most local legal and accounting firms do not even know what the treaty is, or that it exists. So much for that route unless you can afford to retain Tilleke & Gibbins.

You are right on about Tilleke and Gibbins. Excellent firm but too expense for all but the most pressing problems.

[Paul MBMG]

hard to comment definitively without having specific regard to the facts here but that would be incorrect in every situation that I've encountered or could foresee in Thailand. I think that you should have taken better advice about who can be specified as a required bank signatory and also the control aspects of Thai entity shareholders. Then again, sounds like you took the cheap option and managed to get away with it....

there was a time when I had to yield exclusive control to my wife after the establishment of the Treaty company while it was decided whether I would receive a work permit. If I did not have my wife the control would need to have been vested in an unrelated Thai national including and particularly control of the bank account.

[Paul MBMG]

That's another matter...........

One could easily find at least half a dozen other legal advisory firms out there providing first rate services to clients (the problem isn't the scarcity of good ones so much as the abundance of erm, 'cheaper' ones!!!!), but as for competing accountancy firms..............

Oh don't worry about me, I'm perfectly calm After all, a ToA company is still essentially the same as a Thai company - but I just felt the need to vent after reading CMA's post which was basically right on the button.

I don't know if your definition of "decent law firms" differs from mine, but in my experience there are only a few firms who know about the ToA, and even less who actually know how to apply the advantages gained from the ToA. There are many decent law firms, and accountants, with absolutely no knowledge (I had an accounting firm who insisted there was no such thing as she had been in the business 25 years - and I told her essentially to get her head out of her ass and call the embassy, and the commerce ministry. A month later, she was very apologetic, but needless to say she was no longer our accountant).

[bkkandrew]

In some spheres of business I suppose that we would consider T&G as competitors, but I have to say that YGWYPF (you get what you pay for). It amazes me that people will invest millions of Baht into a company or property and then skimp on a few tens of thousands of Baht legal fees. Inevitably they end up with a cheaper but far poorer solution. I don't imagine that too many T&G clients (or our clients for that matter) are at all concerned about the terms of the new FBA. At the risk of repeating myself, set yourself up right in the first place and there's very little to have to worry about now. Do it on the cheap initially and you'd better jump now and jump fast or else something could just be coming along that's going to bite your backside.

Getting legal advice? Most local legal and accounting firms do not even know what the treaty is, or that it exists. So much for that route unless you can afford to retain Tilleke & Gibbins.

You are right on about Tilleke and Gibbins. Excellent firm but too expense for all but the most pressing problems.

For God's sake, business must be slack... You have ceaselessly advertised on this site with your worthless "posts" since New Year. Mods?? Can't you deal with this??

[Paul MBMG]

Ok let me try it this way. Lets take Toyota only as a name. Toyota has facilities all over the world consisting of parts and assembly facilities. Just to use an easy number lets say Toyota has 100 facilities world wide and only one of them in Thailand. The corporate office that is not a factory is located in Japan. So under the new law would the Thais only have just over .5% of control as only 1% of Toyota is in Thailand? Meaning should any company want to keep control all they need do is open another facility outside of Thailand and place it under a corporate umbrella along with the Thailand facility.

I guess I am looking at this as a possible loophole in the new law. The other scenario is Thailand is taking over businesses world wide with this law if you want a facility in Thailand.

Thats still doesnt gove them overall control..

The 1% sub company Toyota Thailand now run by 51% Thais can still do as its 51% Thais tell them too.. Make skodas and stick on a Toyota badge.. Pay themselves the entire company bank accounts etc..

See why Toyota (global) would have a problem losing control of even a small part ??

John,

Let's just walk through this step by step

Toyota has a holding company in Japan. This is owned by all the shareholders who buy shares in Toyota on the Japanese stock exchange. This holding company sets up operations around the world. Its Thai operation is restricted to wning shares that confer up to 50% of the votes. The remaining shares in the Thai venture have to held by Thai entities or Thai people. This doesn't affect the ownership of the shares in the holding company which remain with the shreholders who bought them on the Japanese stock exchange. It doesn't affect the shareholdings in any other subsidiaries around the world. It onlt affects the Thai subsidiary.

However, what LivinLOS fails to point out is that

1) This only restricts Toyota's ability to perform the 5 key tasks that require shareholder votes (and Toyota can at leat retain negative control by requiring a vote of say 52% of the votes of the company to achieve these

2) It certainly doesn't enable them to 'make Skodas and stick on a Toyota badge' - Toyota Japan can prevent this.

3) It certainly doesn't enable them to 'pay themselves the entire company bank accounts etc'. Again, Japan can prevent this.

By all the mechanisms that I have previoulsy mentioned Toyota Japan can retain control/protection of their investment. Shareholder voting rights can cause inconvenience but not affect the day to day ability of the holding company to operate its business.

Is that any clearer?

[ChiangMaiAmerican]

hard to comment definitively without having specific regard to the facts here but that would be incorrect in every situation that I've encountered or could foresee in Thailand. I think that you should have taken better advice about who can be specified as a required bank signatory and also the control aspects of Thai entity shareholders. Then again, sounds like you took the cheap option and managed to get away with it....

there was a time when I had to yield exclusive control to my wife after the establishment of the Treaty company while it was decided whether I would receive a work permit. If I did not have my wife the control would need to have been vested in an unrelated Thai national including and particularly control of the bank account.

That was required by a Ministry official not advice from a cheap law firm. The law firm had advised otherwise. If I mentioned the name of the law firm you would know it. It certainly wasn't the cheap solution and the advice certainly was not cheap. They are almost as expensive as T&G. I had the issue examined by attorneys in the US. The problem is with the Thai definition of work. It is not well defined. Basically work is what the individual official says it is. My attorney in the US said that in theory even breathing can be regarded as illegal work under the definition since it does not limit the activity nor require compensation. Investors have been arrested and convicted for illegally working for visiting the premises of the company they co-owned. While not common, it does happen and it is well documented. In Phuket government officials advise that an investor is breaking the law if he visits the business premise without a work permit. That is one province where small business investors have been arrested and convicted for visiting the business they co-owned. Prior to the Australia-Thailand FTA they even arrested an Aussie for working in the same capacity at another location of the business. The FTA was supposed to correct that according to what I was told but Australians must get the MOL to properly note it on their work permit. Americans with Treaty businesses should not be limited too due to the wording in Article IV section 5. But convincing MOL employees otherwise may prove difficult when dealing with the clerk at the desk.

Edited January 17, 2007 by ChiangMaiAmerican

[Bruce1]

Investors have been arrested and convicted for illegally working for visiting the premises of the company they co-owned. While not common, it does happen and it is well documented. In Phuket government officials advise that an investor is breaking the law if he visits the business premise without a work permit. That is one province where small business investors have been arrested and convicted for visiting the business they co-owned.

That's just unbelievable and ridiculous. TIT.

[ChiangMaiAmerican]

Investors have been arrested and convicted for illegally working for visiting the premises of the company they co-owned. While not common, it does happen and it is well documented. In Phuket government officials advise that an investor is breaking the law if he visits the business premise without a work permit. That is one province where small business investors have been arrested and convicted for visiting the business they co-owned.

That's just unbelievable and ridiculous. TIT.

From the Phuket Gazette:

"Because of the definition of "work" in Thai law, investors must obtain work permits, even if they do not work full-time or even part-time in the business they are invested in.

For example, when a bar owner visits Thailand to check his property, he must have a work permit because the act of visiting the business is considered work under Thai Immigration Law.

Before entering Thailand and applying for a work permit, an investor must get a Non-immigrant B visa, which is available from any Thai embassy or consulate."

Wednesday, February 7, 2001 Boonsri Tawaycheay, Phuket Provincial Employment Services Office

http://phuketgazette.net/issuesanswers/details.asp?id=139

Check Issues and Answers in the Phuket Gazette for more. I'll try to dig up the old articles up on the arrests and convictions later today.

Edited January 17, 2007 by ChiangMaiAmerican

[Mobi]

At the risk of repeating myself, set yourself up right in the first place and there's very little to have to worry about now. Do it on the cheap initially and you'd better jump now and jump fast or else something could just be coming along that's going to bite your backside.

You may well be correct on this, but Tesco, one of the largest retailers in the world didn't do it right - they set up a Thai company with nominees and are now very concerned about the future of their operations in Thailand (yesterday's business Post), and according to another recent article in the B.Post, most of the major multi nationals also went this route for their investments in Thailand, because having a Thai company made it much easier to do business, particularly with regards the ownership of land and the restrictions on trade for foreign companies.

I wonder if they all received cheap legal advice which is going to cause them to receive a "bite on their backsides"?

IMHO glib comments about the qualiity or otherwise of high priced lawyers contribute little to the understanding of the mess this incompetent bunch of Dad's Army have made of their foreign investment laws.