Property Ownership/business Rules

[amarka]

hello everyone,

house ownership, business ownership....

thought this might be interesting, you may have already seen it - not sure.... ( i only received it today ) anyway any comments welcome.....

amarka

As of 22 Jan 07

The Foreign Business Act Amendment: a Brief Explanation Introduction The Ministry of Commerce (MOC) submitted a draft bill to amend the Foreign Business Act 1999 (FBA) to the cabinet on 9 January 2007. It was approved in principle by the cabinet and are forwarded to the Council of State for legal clearance. After it is approved by the Council of State, the draft (with changes, if necessary) will be resubmitted to the cabinet again before being sent to the National Legislative Assembly for consideration. Once approved by the NLA and published in the Government Gazette, the amendment will become effective. IMPORTANT NOTE: This fact sheet explains features that appear in the draft bill that was submitted by the Ministry of Commerce to the cabinet and approved on 9 January 2007 only. Subsequent changes of the draft bill by the Council of State and the NLA, if any, will be addressed later. Explanation outline 1. Reasons for amendments 2. Current law 3. Detail of amendments 4. Scope of application 1. Why the amendment? 1.1 MOC has been receiving complaints and requests to investigate cases on violation of the Foreign Business Act (FBA) on 2 issues: o Abusing voting rights 1 o Using “nominee” – a person holding shares on behalf of someone else – to enable foreigners to do businesses which are restricted under the FBA without permission. A nominee is not a genuine investor but is a person that simply allows foreigners to use its name to hold shares in a company and who will act in accordance with the foreigners’ instruction. 1.2 At the moment, there are 12 pending cases. 1.3 Because of these complaints, the MOC believed an amendment of the FBA is necessary to achieve the following objectives:-

1 A company can specify in bylaw or its voting agreement conditions on voting rights of preferred shares and ordinary shares. In many cases, such differential voting rights enable foreign shareholders that have preferred shares of less than 50% to have voting power more than 50%. As such, that company appears to have foreigners holding its share less than 50% (ie., remains a Thai company in accordance with definition of Foreigners in the FBA) but in fact, foreign shareholders have control over the company through the higher voting power than Thai shareholders. Although such differential shareholding arrangements are not against commercial laws in Thailand, it should not be used as a means to let foreigners to engage in businesses that are restricted under the FBA without permission (ie., should not be used to circumvent the FBA). The proposed amendment will address this issue by requiring that if a company has its foreign shareholders holding shares less than 50% but have combined voting rights more than 50%, it will now be considered a foreign company and thus must get permission from the Ministry of Commerce.

As of 22 Jan 07 2

o To promote good governance – The amendment will forbid the abuse of preferential voting rights for and by foreign shareholders in prohibited businesses and thereby closing an important legal loophole in the FBA o To strengthen compliance – It will impose heavier fine on nominee shareholding in restricted business which is against the law (Section 36) o To provide flexibility – It will allow grace period and “grandfathering” clause for compliance to avoid business disruption o To clarify what constitutes a foreign business o To strengthen enforcement and oversight capacity o To increase transparency and good governance in foreign business regime; 1.4 Three key amendments: o Definition of “foreigners” o Punishments o List of businesses under the FBA 2. The current law 2.1 “Foreigners” are defined as 1) A natural person not of Thai nationality 2) A juridical person not registered in Thailand 3) A juridical person registered in Thailand which has 1) or 2) having 50% shares or more 4) A juridical person registered in Thailand which has 1) or 2) or 3) having 50% shares or more 5) A limited partnership or a registered ordinary partnership with foreign managing partners or managers 2.2 “Nominee and punishments”: shareholding through nominee to enable foreigners to engage in restricted businesses is against the FBA (Section 36) Punishments ■ Imprisonment : 3 years ■ Fine : 100,000 – 1 million baht 2.3 “List of restricted businesses” includes List 1 – foreigners not permitted to have majority ownership for special reasons List 2 – businesses related to national safety, security, culture, natural resources and environment. Foreigners can have majority ownership (maximum of 75%) if granted permission from the Minister of Commerce with cabinet approval. List 3 – businesses in which Thais are not ready to compete. Foreigners can have 100% ownership if granted licenses by the Department of Business Development.

As of 22 Jan 07 3

3. Details of the proposed amendments Current law Proposed amendments Definition of “Foreigners” juridical persons with ≥50% foreign equity shareholding are considered “Foreigner” voting right will be included as another determining criterion: 'Juridical person with foreigners holding majority voting right ( ≥50%) will now be regarded as a foreign business' Punishments Imprisonment: 3 years Fine: 100,000 – 1 million baht Imprisonment: remain unchanged Fine: increases 5 times (to 500,000 – 5 million baht) Lists of restricted businesses List 1 – foreigners not permitted to have majority ownership for special reasons e.g. Newspaper business, radio broadcasting, television station business, rice farming, animal farming, etc. List 2 – businesses related to national safety, security, culture, natural resources and environment e.g. Production/selling/repairing and maintenance of firearms, ammunition, gun powder, explosives, domestic land, waterway or air transportation, trading of antiques or art objects being Thai arts and handicraft, production of carved wood, manufacturing sugar from sugarcane, etc. List 3 – businesses which Thais are not ready to compete e.g. Rice milling and flour production, fishery, forestry from forestation, accounting service, legal service, other services etc. List 1 and 2 remain unchanged List 3 – Businesses that are under jurisdiction of other authorities will be taken out: o Tour operating business o Futures trading and related businesses o Securities, derivatives and related businesses o Finance, banking and credit foncier o Retailing/wholesale trade: all foreign retailing / wholesaling companies will have to get permission Adjustment period Existing businesses with foreigners’ voting right ≥ 50%: ● List 3 – must report to MOC within 1 year to get a certificate to continue operating the business (“grandfathered”); ● Lists 1 and 2 – must report to MOC within 1 year; will be given 2 years to reduce foreigners’ voting right to below 50% after which they could continue their business operation. Otherwise,

As of 22 Jan 07 4

Current law Proposed amendments

List 2 businesses that want to continue operation as foreign companies (i.e., with foreign voting rights ≥ 50%) can apply for licenses after such 2 years. List 1 businesses cannot apply to have foreign voting rights ≥ 50% and will have to cease their business operation after such 2 years. Existing businesses where foreigners, through nominees, hold ≥ 50% of total shares: ● Lists 1, 2 and 3 – Must report to MOC within 90 days Will have 1 year to comply with the law No grandfathering 4. Scope of Application The amendments will not affect: ● existing foreign companies in manufacturing industries and export business ● businesses not listed under or exempted from the Act ● BOI-promoted businesses Ministry of Commerce 22 January 2007

As of 22 Jan 07

The Foreign Business Act Amendment: Q&A The Ministry of Commerce submitted a draft bill to amend the Foreign Business Act 1999 (FBA) to the cabinet on 9 January 2007. It was approved in principle by the cabinet and are forwarded to the Council of State for legal clearance. After it is approved by the Council of State, the draft (with changes, if necessary) will be resubmitted to the cabinet again before being sent to the National Legislative Assembly for consideration. Once approved by the NLA and published in the Government Gazette, the amendment will become effective. IMPORTANT NOTE: This fact sheet explains features that appear in the draft bill that was submitted by the Ministry of Commerce to the cabinet and approved on 9 January 2007 only. Subsequent changes of the draft bill by the Council of State and the NLA will be addressed later. What is the Foreign Business Act? The Foreign Business Act (FBA) is the main law that regulates scope of foreign business activities in Thailand. It does that through a simple 3-step procedure: 1. Defining who “foreigners” are 2. Listing categories of businesses that foreigners cannot do without permission 3. Setting out procedures for foreigners to obtain such permission In addition to the procedure, the FBA also contains provisions: • Establishing authorities that are empowered to grant permission • Setting level of punishment for violation of the law Why is it necessary to enact the FBA? Although enacted in 1999, the FBA is not a new law. Its predecessor was called “Alien Business Law” (ABL) or better known in Thailand as “Por Wor 281”. The ABL was promulgated in 1972 in order to limit foreign participation in some business activities either because they were sensitive sectors for Thailand (on security, natural resource, culture, etc. ground) or because the Thai people were not competitive in those sectors. The ABL was revised twice in 1978 and 1992 to make it gradually more liberal. But in 1999 a major revision was called for and the parliament passed the current law which is now called the Foreign Business Act 1999. The rationales behind the enactment of the FBA were • to make foreign business regime more liberalised in line with Thailand’s need for investment and capital inflows; • to reclassify businesses that should be reserved for Thais so as to make the lists better suited for Thailand’s competitiveness; • to implement international agreements to which Thailand is party.

As of 22 Jan 07 2

Scope of the FBA : Are all foreign businesses in Thailand subject to this law? No. Only businesses that appear in Lists 1, 2 and 3 are subject to the FBA. Most manufacturing activities are not covered by the FBA. Automobile production activity, for example, is not subject to the FBA which means foreigners can have 100% ownership once they register the company and obtain tax payment ID. In addition, businesses that receive certificate from the Board of Investment’s promotion scheme will be exempted from the FBA. Who are considered “foreigners” according to the FBA? The current FBA defines foreigners as: 1. A natural person not of Thai nationality 2. A juridical person not registered in Thailand 3. A juridical person registered in Thailand which has 1. or 2. having 50% shares or more 4. A juridical person registered in Thailand which has 1. or 2. or 3. having 50% shares or more 5. A limited partnership or a registered ordinary partnership with foreign managing partner or manager Following this definition, as a general rule, foreigners or foreign companies can own shares in any company doing any business in Thailand up to 49.99%. Of course, they can own more than that if they engage in businesses not listed in the FBA. But foreigners may be allowed to own shares of less than 49.99% in some sectors that are governed by specific laws. Some of these laws set limit on foreign ownership of shares to be lower than 49.99%, such as banking and insurance laws. Therefore, foreigners must check what kind of businesses they want to do and what law will they be subject to. Are foreigners not allowed to do businesses listed under the FBA at all? No. Foreigners can engage in most of the businesses listed under the FBA. Only the 9 businesses in List 1 are completely prohibited to foreigners. The FBA contains 3 Lists. Foreigners are permitted to engage in businesses provided for under these Lists to a different extent. While they are not allowed to apply for license to engage in businesses under List 1, they can apply for license to engage in businesses and have majority ownership in List 2 or List 3 businesses. Although they cannot have majority ownership in List 1 businesses, they can own up to 49.99% of shares (in accordance with the definition of “foreigners” explained above).

As of 22 Jan 07 3

Table 1: Lists annexed to the FBA How many businesses in the List?How much shares can foreigners own? Who can approve for license to permit foreign majority shareholding? List 1: Businesses that are reserved for special reasons 9 49.99% Foreigners cannot have majority ownership. List 2: Businesses that are reserved due to national safety, security, culture, natural resources and environmental grounds 16 60% or 75% maximum Minister of Commerce with cabinet approval List 3: Businesses in which Thais are not ready to compete 21 100% Director-General of the Department of Business Development with approval from the Foreign Business Committee Why does the FBA have to be amended? • Address legal loopholes Like many laws, the FBA is not without loopholes. There have been 2 major ways to circumvent the FBA – using voting rights and having nominees. Through these arrangements, foreigners can engage in businesses which are regulated in the FBA without applying for a license. - Voting rights – In this case, foreigners hold preferred shares that give them voting rights over Thais so even if they own only 49.99% share, they may have effective control of the company. Generally, holding preferred shares is allowed under commercial laws in Thailand. But it should not be used in such a way that would enable foreigners to engage in businesses which are restricted under the FBA. In such case, holding preferred shares has become a means for foreigners to circumvent the FBA; - Shareholding by nominees – In this case, foreigners arrange to engage Thais to act as their “nominee” shareholders who would act in accordance with the foreign shareholders’ instructions. Nominee shareholder is not a genuine investor and nominee shareholding in restricted businesses is already an offense under the FBA (Section 36) • Revise the Lists In addition to addressing these loopholes, there is a need to revise the attached Lists of businesses to make them more in line with the current level of Thailand’s economic development and legal setting.

As of 22 Jan 07 4

• Increase transparency and good governance By closing loophole and imposing heavier punishment terms, the government believes that it will promote transparency in the system and strengthen good governance in doing business in Thailand. Who was involved in the proposed amendments? Were there any representatives from the private sector – both Thai and Foreign? On 26 October 2006, the Minister of Commerce appointed a 10-member Committee tasked with studying and proposing any amendments to the FBA that it considered necessary and appropriate for the present economic environment in Thailand. The Committee was chaired by Mr. Pramon Suthiwongse of the Thai Chamber of Commerce and comprised of representatives from the Thai private sector key associations (Thai Chamber of Commerce, Federation of Thai Industries, Thai Bankers’ Association), a representative of the Foreign Chambers, the Board of Investment, several academics with the Department of Business Development as its secretariat. The Committee held 8 intensive meetings and completed its deliberation within the 60 days period given to it. Mr. Pramon made recommendations on behalf of the Committee to the Ministry on 26 December 2006 which then formed the basis upon which the Ministry prepared draft language of the amendments. On 28 December 2006, the first draft was tabled for consideration at the Economic Ministers’ Meeting. Several comments were made which the Ministry of Commerce then incorporated into the second draft which was submitted to the full cabinet meeting on 9 January 2007 and received approval, in principle. The draft is now under consideration by the Council of State. What are the amendments? The amendments focused on 3 key elements: definition of “foreigner”; modification of punishment; and revision of the Lists of businesses covered by the FBA. Table 2: Summary of the amendments Current law Amendment 1. Definition of foreigners Define 5 types of foreigner (details above) Add “voting right” as criterion on determining whether a juridical person registered in Thailand is a foreign company or not So now if a juridical person has foreigners having voting rights of 50% or more, it will be considered

As of 22 Jan 07 5

as a foreign company, even if it has less than 50% foreign equity participation. 2. Punishment Imprisonment: 3 years Fine: 100,000 – 1 million baht for violation (10,000 – 50,000 baht daily for non-compliance with court ruling) Imprisonment: no change Fine: 500,000 – 5 million baht (50,000 – 250,000 baht daily for non-compliance) 3. Lists 3 Lists Lists 1 and 2: no change List 3: (1) exclude the following: tour operating business; futures trading and related businesses; securities, derivatives and related businesses; banking, finance, credit foncier and related businesses (2) remove minimum capital level for retailing and wholesale trade that needs permission – meaning all businesses of retailing and wholesale trade will have to get permission from now on What will happen to a company that was previously Thai (foreigners holding 49.99% shares) but will become a foreign company due to the fact that such foreigners have 50% or more voting rights? Will it be considered as violating the new law or will it be given time to comply? The government understands that such company was not in violation of the current FBA so it will be given time to comply with the new law. All such company will be required to report to the Department of Business Development in order to obtain a Certificate to continue operation of the business. However, the length of operation will differ between businesses in Lists 1, 2 and 3. Table 3 : Adjustment period for companies that have become foreigners due to the “voting rights” criterion Business Period of time to notify Length of operation Lists 1 & 2 1 year 2 years; after that, such company will have to become a “Thai” company i.e., must have less than 50% of foreign shareholdings and voting rights List 3 1 year Until the company is dissolved

As of 22 Jan 07 6

What will happen to a company that have nominee shareholding on behalf of foreigners at 50% or more? Will it be given time to comply? A company that has nominee shareholding is already in violation of the current FBA. However, to avoid major disruption in the economy, the government will allow time for them to comply with the law. But companies which are under legal proceedings at the stage of investigation or trial pursuant to the provisions of the current FBA, will have their cases continued. Table 4: Adjustment period for nominee Business Period of Time to notify Length of time to comply Lists 1, 2, and 3 90 days 1 year to comply. If circumvention of the law was due to both voting rights and nominee, why are the changes on definition of ‘foreigner’ only relate to voting rights? Why there was no change on nominee? There is no need to change the definition to address nominee issue because it is already deemed illegal under the current FBA. As such, it was not necessary to elaborate further on what might constitute a nominee. With regards to nominees, the proposed amendments are the increase in punishment through fine, the 90-day period allowed for notification and the 1-year adjustment period. What the government will do is to step up its enforcement efforts to investigate any company that might be using nominee shareholding and did not report to the Ministry of Commerce. One year after the amendment comes into force, such non-reporting company will be punished in accordance with the provisions of the amendment Act. Is the amendment in violation of Thailand’s international obligations? The proposed amendments do not violate any of Thailand’s international obligations, including those under the WTO. This is self-evident with regards to the amendment of the punishment terms and the attached Lists. The amendment to introduce voting rights as criterion for determining the nationality of a company is consistent with Thailand’s obligations under the WTO Agreement and other treaties to which Thailand is party. As far as the WTO is concerned, the definition of ‘foreign service supplier’ is part of domestic regulation, an area in which Members have flexibility. Moreover, the definition as amended is more in keeping with the definition of ‘juridical person’ under Article XXVIII of the GATS. As it has always been the case, Thailand will continue to observe its international obligations, including those under the WTO Agreement and FTAs to which Thailand is party. Companies already established in Thailand that are deemed

As of 22 Jan 07 7

under the new definition to be a ‘foreigner’1 will be allowed, in accordance with formalities to be published, to operate in Thailand in sectors in which Thailand has commitments for an indefinite period for sectors under List Three, and for two years for sectors under Lists One and Two. The Royal Thai Government welcomes any interested governments to make enquiries and representations at the Department of Trade Negotiations on matters relating to Thailand’s international commitments. What plan does the government have to liberalise services and investment under the FBA in the future? The Government plans to progressively liberalise services and investment currently restricted under the FBA through an annual review of the Lists. Such annual review is mandated by Section 26 of the current FBA. The Ministry of Commerce invites any associations, academic institutes or companies to submit propositions with supporting data to withdraw any businesses from the Lists. Ministry of Commerce 22 January 2007 1 For example, a company established in Thailand in which 49% or less of capital shares is held by a national of a WTO Member, but in which such national has control of the voting rights, is deemed to be a ‘Thai’ company under the current definition of the FBA. Under the new definition, this company will be deemed to be a ‘foreigner’, i.e. a company of the WTO Member concerned.

MARKETING DIVISION

THE BOARD OF INVESTMENT

MINISTRY OF INDUSTRY

THAILAND

555 Vipavadee Rangsit Road, Jatuchuck 10900 Tel. 0-2537- 8111, 0-2537- 8155 Fax : 0-2537-8177

Pressemitteilung

(Inoffizielle Übersetzung)

Nr. 6/2550 (Or. 3), 16. Januar 2007

Die Förderungsmaßnahmen sind nicht

vom neulich geänderten Alien Business Act betroffen.

Das Thailand Board of Investment (BOI) betont, dass geförderte Projekte nicht von Änderungen im Alien

Business Act betroffen sind.

Satit Chanjavanakul, Generalsekretär des BOI, erklärte, dass die am 09.01.2007 vom Kabinett

verabschiedeten Änderungen im Alien Business Act vom Jahr 1999, die die Anteilsstruktur für

ausländische Unternehmen neu regeln, die Förderungsmaßnahmen des Thailand Board of Investment

nicht beeinträchtigen.

Gemäß des Investment Promotion Act ist es bei förderungswürdigen Projekten ausländischen Investoren

gestattet, einen bis zu 100-prozentigen Mehrheitsanteil zu besitzen. Für Projekte, die bereits gefördert

sind und für zukünftige Projekte, die Investitionsförderung begehren, haben die Änderungen im Alien

Business Act keine Auswirkungen. Ausgenommen sind bisher schon unternehmerische Aktivitäten auf

der Liste 1, bei denen ein thailändischer Anteil von mindestens 51% vorgeschrieben wird, und

unternehmerische Aktivitäten in Bereichen, die gesetzlichem Sonderschutz unterliegen. Zu nennen sind

z.B. Telekommunikation sowie Transport auf Wasser-, Land- und Luftweg.

Das Thailand Board of Investment fördert Aktivitäten in sieben verschiedenen Aktivitätsgruppen, die von

der Produktionsindustrie bis hin zur Dienstleistungsindustrie mehr als 273 Geschäftszweige umfassen.

Die Förderung ist nicht nur thailändischen Investoren vorbehalten, sondern auch für ausländische

Unternehmen offen.

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Edited January 30, 2007 by amarka