Ministry To Tighten Foreign Business Law

[george]

Ministry to tighten foreign business law

BANGKOK: -- Due to the nominee problem as investigated in the Kularb Kaew case, the Commerce Ministry is planning to amend the definition of a foreign shareholder under the Foreign Business Act, in order to plug loopholes that have been used by both Thai and overseas investors.

The ministry will not only focus on the proportion of Thai and foreign shareholders in a business entity, but also the voting rights and benefit-sharing conditions of each company, said Yanyong Phuangrach, deputy permanent secretary of the ministry and a head of the Foreign Business Act committee.

He said the ministry was now amending the Foreign Business Act 1999, aiming to draw up stringent controls to prevent illegal shareholdings.

The definition of the words "foreigner" or "alien" are unclear, so many problems have arisen since the law was implemented. The ministry will try to establish a clearer definition of the rights of foreign shareholders and their investments in Thai-land.

For instance, the ministry has so far concentrated on the percentage of shareholding instead of voting rights and manage-ment.

As a result, unscrupulous investors have used this loophole to control management of a company and have more voting rights, despite being minor shareholders. The practice has involved nominee shareholders.

"Despite being minor shareholders, foreign shareholders in some companies have more voting rights than Thai shareholders through the use of non-voting depository-receipt tactics," he said.

The committee will soon propose amending the definitions to the new commerce minister for approval by the new cabinet.

In addition, the ministry will apply more stringent penalties against foreign investors who violate the law, particularly investors who do not inject funds into Thailand and refuse to complete the technology transfers that apply under certain investment agreements.

--The Nation 2006-10-09

[pedro01]

Ministry to tighten foreign business law

BANGKOK: -- Due to the nominee problem as investigated in the Kularb Kaew case, the Commerce Ministry is planning to amend the definition of a foreign shareholder under the Foreign Business Act, in order to plug loopholes that have been used by both Thai and overseas investors.

The ministry will not only focus on the proportion of Thai and foreign shareholders in a business entity, but also the voting rights and benefit-sharing conditions of each company, said Yanyong Phuangrach, deputy permanent secretary of the ministry and a head of the Foreign Business Act committee.

He said the ministry was now amending the Foreign Business Act 1999, aiming to draw up stringent controls to prevent illegal shareholdings.

The definition of the words "foreigner" or "alien" are unclear, so many problems have arisen since the law was implemented. The ministry will try to establish a clearer definition of the rights of foreign shareholders and their investments in Thai-land.

For instance, the ministry has so far concentrated on the percentage of shareholding instead of voting rights and manage-ment.

As a result, unscrupulous investors have used this loophole to control management of a company and have more voting rights, despite being minor shareholders. The practice has involved nominee shareholders.

"Despite being minor shareholders, foreign shareholders in some companies have more voting rights than Thai shareholders through the use of non-voting depository-receipt tactics," he said.

The committee will soon propose amending the definitions to the new commerce minister for approval by the new cabinet.

In addition, the ministry will apply more stringent penalties against foreign investors who violate the law, particularly investors who do not inject funds into Thailand and refuse to complete the technology transfers that apply under certain investment agreements.

--The Nation 2006-10-09

As someone that runs an outsourcing business in Thailand, I can tell you that this is going to put a lot of people off.

Why can't overseas companies come here & take advantage of Thai labour rates ? Why is a Thai partner with controlling interest necessary in this case ?

Luckily - I got BOI to arrange an Alien business license for us... I guess this might work for all outsourcing companies but there are some fairly heavy restrictions on what we can do here - number 1 being that the whole company is only allowed 1 work permit.

[PeaceBlondie]

So, does this mean that the Shitawatras didn't sell Shin Corp to Singapore, and Pan and Pon and the servants still own the corporation, and Papa has to pay back the money?

[cclub75]

As someone that runs an outsourcing business in Thailand, I can tell you that this is going to put a lot of people off.

Why can't overseas companies come here & take advantage of Thai labour rates ? Why is a Thai partner with controlling interest necessary in this case ?

Luckily - I got BOI to arrange an Alien business license for us... I guess this might work for all outsourcing companies but there are some fairly heavy restrictions on what we can do here - number 1 being that the whole company is only allowed 1 work permit.

Again, there is nothing new under the sun : the rules are known since 1999.

But of course, a lot of people avoided them, by taking a "thai nationality" for their businesses, playing with share holding structure. It's the nominee issue, in the spot light since the Shin sale.

It's exactly the same situation with the visas. Old rules.

The only thing that have changed : thai authorities look like they really want to impose those rules.

Now.

Back to the Act. The amendement process is going to be a real test, that will allow us to have a better understanding of where thai authorities really want to go.

I believe that we could have the following situation :

-businesses under list 1, 2 and 3 that would be REALLY forbidden to foreign controled companies

-meanwhile, a process to clean up content of list 2 and 3, especially number 3 (the lists haven't changed since 1999, that's the proof that nobody really cared about this Act before)

-and for all other activities, a more liberalized way of doing things, with less administrative hassle

-and a reshuffle of special rules regarding special activities (like banking, insurance etc.), that are obviously linked to international issues (WTO etc.).

So, I don't want to go into panicking mode now : it's still possible that the new framework could allow greater flexibility and transparency.

A good review of the present Act :

http://members.tripod.com/asialaw/articles...gnbusiness.html

The Act :

http://www.dbd.go.th/eng/law/fba_e1999.phtml

[Old Man River]

Ministry to tighten foreign business law

BANGKOK: -- Due to the nominee problem as investigated in the Kularb Kaew case, the Commerce Ministry is planning to amend the definition of a foreign shareholder under the Foreign Business Act, in order to plug loopholes that have been used by both Thai and overseas investors.

For instance, the ministry has so far concentrated on the percentage of shareholding instead of voting rights and manage-ment.

As a result, unscrupulous investors have used this loophole to control management of a company and have more voting rights, despite being minor shareholders. The practice has involved nominee shareholders.

"Despite being minor shareholders, foreign shareholders in some companies have more voting rights than Thai shareholders through the use of non-voting depository-receipt tactics," he said.

--The Nation 2006-10-09

What he is saying sounds reasonable to the average, uninformed person. What is not being said is that the foreigners want more voting rights than Thai shareholders when the foreign shareholders put up more of the capital for the investment than the Thai shareholders.

Most foreign companies putting in foreign direct investment (long term investment) want control over the companies they are investing in. This is especially true when the investment involves hard assets (capital equipment). This is how it works. It is going to be very interesting to see if MNC's change their global policies just so they can put long term investments into Thailand.

My guess is Thailand will try it, and when it doesn't work the next government will change it.

[John K]

This is all looking to get very interesting. Not just this thread but all the threads that talk about change. From the visa laws to the attack on corruption.

At this point I would recommend popcorn. That is just get some popcorn sit back and watch as it looks like someone just stuck an outboard motor in the pot to stir things up. However it is much needed to undo all of the thing Thaksin did that would promote corruption.

I will take mine with some melted butter and just a touch of salt.

[Old Man River]

This is all looking to get very interesting. Not just this thread but all the threads that talk about change. From the visa laws to the attack on corruption.

At this point I would recommend popcorn. That is just get some popcorn sit back and watch as it looks like someone just stuck an outboard motor in the pot to stir things up. However it is much needed to undo all of the thing Thaksin did that would promote corruption.

I will take mine with some melted butter and just a touch of salt.

Laws that limit corruption make sense. Laws that limit foreign direct investment (long term capital investment) into Thailand do not make sense. The reason previous governments (even prior to Dr. Thaksin) allowed the loopholes was because the existing laws hurt the country. If they want to close the loopholes, fine, then change the laws to help the country.

I like carmel popcorn.

[magok naam]

This is excellent news for Singapore, Malaysia and Sunbelt.

Singapore and Malaysia because software companies like mine can easily fire all thai staff, shut down the Thai operations and re-open in Singapore.

Sunbelt because they have been setting up companies with different voting rights for years and now get to change the registration of the companies that will remain in TH.

[nikster]

Ministry to tighten foreign business law

I am sorry to be so blunt but it needs to be said: Dumb, nationalistic policies that will backfire in Thailand just as they backfire everywhere else.

I do understand the need to protect Thai land from foreign ownership, but why they don't want foreign businesses here is mystifying. It seems to me the more foreign businesses set up shop in Thailand, the better for Thailand?!

Especially with competition everywhere, China, Singapore, India, you name it. Foreign money and knowledge is highly flexible and Thailand sure does its part to make sure it doesn't end up in Thailand. Thailand certainly is the regional king of Tourism, and in this area can probably go it alone without any foreign companies. But all other businesses... talk about shooting in your own foot with a double-barreled shotgun.

Thai companies that have to compete with foreigners will be better for it, and will in turn be able to expand internationally. Which is the only way to survive in this world.

Protectionism just delays an inevitable downfall of inefficient structures... especially in a country as corrupt as Thailand where companies can stay on top just by knowing the right people. This isn't an opinion, it has been proven over and over again for the last 50 years. I really would like to see a study on the effects of protectionism... I know it has been very bad for my own (EU) country. It's probably worse for an emerging economy like Thailand.

[Beachedwhale]

This is excellent news for Singapore, Malaysia and Sunbelt.

Singapore and Malaysia because software companies like mine can easily fire all thai staff, shut down the Thai operations and re-open in Singapore.

Is a software company going to be impacted with this tightening of the rules? It does not appear to be a restricted business and can you not rent a building, obtain a broadband connection, etc as a foreign company? Can you not get special dispensation if in fact you are bring in a skill and transferring it to Thais?

Am I missing something?

[John K]

One thing is constant and I am finding this to be very true. Thais are reactive and not proactive.

This is like a huge catapult that Thaksin has been cranking up the spring for a long time. The coup simply fired it and the Thais are now reacting. No doubt they will have several over done knee jerk decisions and will be adjusted in the future.

From the looks of things they may want to over compensate and then adjust it back a little when they see the results. In a way I can understand the logic behind it because there are so many things Thaksin did that have yet to be uncovered. It appears they want to cast a fine mesh net early before the fish get away. I am sure they know it will hurt some at first but it may be necessary to play it safe and not sorry.

Think of it like a hacker in your computer. The first thing you do is slam the firewall shut. Then you open it a little at a time until you find how they got in and what damage they have done.

[LaoPo]

Ministry to tighten foreign business law

I am sorry to be so blunt but it needs to be said: Dumb, nationalistic policies that will backfire in Thailand just as they backfire everywhere else.

I agree and IF these plans would come into place it would be dramatic for Thailand and its people

Does the government and it's intelligent business-people don't know or don't see what's happening in other countries like China, even Vietnam, Singapore and India ?

Has nobody ever heard of 'Free Enterprise' ?

Dramatic plan....

Edit:

I would like to add:

Why does Thailand not create special tax-industry-zones to attract foreign investors for products (to be made/constructed) for EXPORT only??

The East and North-East (and deep South !!!) would welcome such industries and would even be competative with other neighbouring countries...............instead building more walls for foreign investors/entities/aliens.

A few days ago there were protests because of the closing-down plans of a HK-owned Bra-factory with some 1500 workers (if I'm correct).

Why doesn't Thailand 'fight' more and harder for their own people and workers and try to ATTRACT investors instead of sending them away?

Dark days for the economy Thailand.

LaoPo

Edited October 10, 2006 by LaoPo

[OldAsiaHand]

...Why doesn't Thailand 'fight' more and harder for their own people and workers and try to ATTRACT investors instead of sending them away?....

Why is it so hard for foreigners to understand that those with power in Thailand don't give a darn whether they invest here or not? Those people are far more concerned about protecting their own position, power, and primacy than any possible national achievement. 'Thainess' is vastly more important than success or accomplishment.

Have you ever heard this exortation: 'There is no limit to what you can achieve if you do not care who gets the credit'? In Thailand, the sentiment can be expressed thusly: 'We do not care whether anything is actually achieved as long as foreigners don't get any credit.'

[taxexile]

'Thainess' is vastly more important than success or accomplishment.

i agree entirely.

[LaoPo]

'Thainess' is vastly more important than success or accomplishment.

i agree entirely.

And that's exactly where Thailand is going wrong, internationally spoken.

95/98 % of the Thai still look 'inside' their country, including the 'intelligence' as well as government.

They (still) do not realize that Thailand, with it's 65 million people, is just a 'small province' in an OCEAN of people in the Far East.

Short sighted and only after the 'bucks' and self-protection, the BMW, Benz and Porsche.

BUT, Oh my, if there's another depression coming..........who's to blame than?

Will 'Thainess' still be more important than success or accomplishment (read: money)

?

I doubt it...because there's something else.....:

If you lose money...you lose face...BIG face.

I heard of 1 'Thai Gentleman' in London who would give (I think) a fortune to have his 'Thainess' back and save face.....and live peacefully in Chiang Mai.........

LaoPo

[cclub75]

Why does Thailand not create special tax-industry-zones to attract foreign investors for products (to be made/constructed) for EXPORT only??

You have to be fair : it exists already. It's the BOI.

And it's working pretty well.

[Old Man River]

Ministry to tighten foreign business law

I am sorry to be so blunt but it needs to be said: Dumb, nationalistic policies that will backfire in Thailand just as they backfire everywhere else.

I agree and IF these plans would come into place it would be dramatic for Thailand and its people

Does the government and it's intelligent business-people don't know or don't see what's happening in other countries like China, even Vietnam, Singapore and India ?

Has nobody ever heard of 'Free Enterprise' ?

Dramatic plan....

Edit:

I would like to add:

Why does Thailand not create special tax-industry-zones to attract foreign investors for products (to be made/constructed) for EXPORT only??

LaoPo

The BOI works fine as it relates to tax holidays, but the BOI does not provide any way for a foreign direct investor to gain ownership control over their investments. It still requires majority Thai ownership, whether the domestic partner provides any value or not (some do, some don't). Tax holidays are nice, but boards of directors require ownership control as part of their fiduciary responsibilities to their shareholders. Up to now, long term foreign investors have been able to get around Thailand's antiquated ownership laws through various nominee structures. Closing these down without amending the laws to allow control to the long term foreign investors is the same as closing down long term foreign investment into Thailand. The loser is Thailand. Investors have options.

[womble]

The point to this is that Thai's do not care about each other gaining wealth, only themselves. Ofcourse they would rather the wealth went to another Thai than a foreigner, but they would still much rather it all went to themselves.

Blocking foreigners is a way of the rich protecting themselves from business they know they cannot compete with. Most foreign businesses will offer better value and better service.

The reason there are so many monopolies here is that if there is a level playing field they know they have no chance.

When running a business it's best to keep foreigners out, when selling a business you need foreigners to get the best price.

[cclub75]

The BOI works fine as it relates to tax holidays, but the BOI does not provide any way for a foreign direct investor to gain ownership control over their investments. It still requires majority Thai ownership, whether the domestic partner provides any value or not (some do, some don't).

Wong.

It's part of the BOI's privilege to... have 100 % farang shareholders, to buy land, to obtain WP more easily etc...

http://www.boi.go.th/english/about/basic_incentive.asp

[Old Man River]

The BOI works fine as it relates to tax holidays, but the BOI does not provide any way for a foreign direct investor to gain ownership control over their investments. It still requires majority Thai ownership, whether the domestic partner provides any value or not (some do, some don't).

Wong.

It's part of the BOI's privilege to... have 100 % farang shareholders, to buy land, to obtain WP more easily etc...

http://www.boi.go.th/english/about/basic_incentive.asp

OK, wrong on foreign ownership as it relates to companies that qualify for BOI privileges (every time I trust my memory this happens), but right as it pertains to closing the nominee loophole sans other laws to attract FDI. The BOI covers companies that are primarily exporters (often assembly operations). It does not cover companies that produce for the local economy, even if they export some of their production. Time and time again, I have been told by global decision makers of major MNC's that they can't understand why Thailand requires them to have Thai joint venture partners.

CClub, this decision will hurt Thailand. They may not be interested in growth now, but a lack of growth will hurt consumer confidence. This is especially true when countries around Thailand will not be experiencing the same limitations. When consumer confidence drops, spending drops with it. Then it will be up to the government to spur growth via government projects, which this government is looking to cut. Fortunately, none of this will happen overnight and there is plenty of time to remedy the situation, as long as the government is willing.

[sting01]

This is excellent news for Singapore, Malaysia and Sunbelt.

Singapore and Malaysia because software companies like mine can easily fire all thai staff, shut down the Thai operations and re-open in Singapore.

Sunbelt because they have been setting up companies with different voting rights for years and now get to change the registration of the companies that will remain in TH.

Same here, appart I am certainly less lucky (or more) in 4 years I was not able to get any programmers accepting to work with western industry standarts.

But it was my point just after the visa changes, and still be, and I am simply glad to se someone else having the same opinion.

More simply, or in layman language, I put my own money in my business, so it's fair if I can check what happend and take the decisions regarding how the money is used. Even in hyper protectinist countries such as France, that kind of laws is used only for the big bucks, and it mostly concern wedding btw partners of same size. Here , we are forced to married an economically weak partner without any understanding of what the marriage is about (take a thai associate who give nothing but his/her signature , and do not have the guts to make it working on the long run is simply a suicide).

I choose Laos, not silly'pore, because even if I like order and clean , I do not want to be another number in the system (S'pore is a very dirigist society), and Laos still have remants of french culture. But that is personal taste