Thailand: Awaiting foreign investment reform

Author: | Published: 9 Dec 2014
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Chandler MHM Ltd

Address

Bubhajit Building, 7th - 9th Floors
20 North Sathorn Road
Bangkok 10500
Thailand

Telephone

+662 266 6485

Fax

+662 266 6483
Supasit Boonsanong Prisna Sungwanna
There are at least 17 laws and policies in Thailand which prescribe ceilings on foreign ownership in various businesses.

Two of broad importance are the Land Code regarding the ownership of land (ceiling of 49%), and the Foreign Business Operation Act (FBOA) regarding the ownership of 43 categories of businesses (ceiling less than 50%). There are exceptions under certain free trade agreements (US, Japan and Australia), the Investment Promotion Act, and discretionary business licences issued by the Department of Business Development under the FBOA.

In practice, Thai nominee shareholders, preference shares (for voting rights), and a majority of directors that are foreigners are commonly found, in addition to shareholder and other agreements, to allow more control by foreign shareholders.

The Government has announced that it proposes to amend the FBOA to clarify the restrictions regarding the controlling power of a company (such as not allowing foreigners to vote on 50% or more of all voting rights under Articles of Association or other agreements). However, as of November 14 2014, the text of the proposed amendments has not been released, but a possible grace period for existing joint ventures to adapt has been mentioned.

A number of foreign chambers of commerce have voiced concerns and predicted less foreign direct investment if foreign companies are unable to protect technology, IT, and corporate good governance, for example.

The last effort to introduce such amendments to the FBOA was in 2007. Proposals were made to broaden the definition of alien by looking to upstream foreign ownership (not simply first level share ownership), to prohibit preference share structures which diluted voting rights of Thai shareholders among others. No amendments were agreed.

There is strong support from foreign investors for a reduction of the number of businesses restricted to foreign ownership under the FBOA. There is also a need to relax restrictions in view of Asean (Association of Southeast Asian Nations) community agreements on trade in goods and services. Under the Asean Framework Agreement on Services, Thailand has agreed to permit 51% and 70% foreign ownership in some service sectors, but provisions for this are not found in existing law.

Supasit Boonsanong and Prisna Sungwanna