Time to revamp Thailand's Foreign Business Act?
By Jon Fernquest |
In today's Bangkok Post, reporter Nina Suebsukcharoen interviews Marcus Collins, a partner in the local law firm McElivy & Collins, about Thailand's Foreign Business Act (FBA).
The history of foreign business laws in Thailand is reviewed.
The issues and problems that have yet to be resolved are clearly set out.
The article also discusses the complications surrounding leaseholds, the only legal way that foreigners can currently possess land in Thailand.
Read previous articles on the Foreign Business Act (FBA).
(In the photo to the right, the Joint Foreign Chambers of Commerce (JFCCT) representing foreign investors and businessmen)
Here is the article in full:
FOREIGN INVESTMENT
Business laws could use an update, says expat lawyer
NINA SUEBSUKCHAROEN Thursday June 05, 2008While widely criticised proposals to toughen the Foreign Business Act (FBA) died with the end of the military-installed government last year, the current government still has its work cut out to modernise investment regulations, says Marcus Collins, a partner with the Bangkok law firm McEvily & Collins.
The existing FBA is still based on concepts that date back to the era of military dictatorship three decades ago, and Thailand is a very different place, he said.
"This economy has progressed so rapidly in the last two decades and we all know that the legal system here, the current laws, haven't really kept pace with the development and are still based on an economy that existed 20 years ago in large part," Mr Collins said in an interview.
"I think it is really necessary for the government to take a critical look at the entire body of law applying to commercial transactions and see what needs to be done."
He cited the Revenue Code as an outdated law that basically doesn't address issues that are relevant today.
The Alien Business Law, the predecessor of the FBA, was introduced in 1972 by the National Executive Council, as the military government of the day was known. It aimed to reserve certain economic activities for Thais and Thai-majority owned companies, mostly related to national security, culture and natural resources.
The FBA, enacted in 1999, divides economic activities into three lists. List 1 covers activities barred to foreigners including newspapers, radio stations, TV, rice farming, animal husbandry, fishing and land trading.
List 2 deals with issues related to national security or any activities affecting art and culture, national resources and the environment, so mining is an example of an activity closed to foreigners. All services, wholesale or retail businesses, restaurants and others are on List 3, and in some cases List 2. While the 1999 Act is a bit clearer, it still contains many provisions of its predecessor.
Mr Collins said the restrictions are bad for consumers because protection provides little incentive for some industries to be competitive.
He has no quarrel with restrictions based on national security, religious and cultural reasons, but questions other barriers.
"But even sectors such as agriculture, why not allow foreign companies to operate farms, why not allow foreign companies to bring in technology? Doing so is only going to benefit the economy, it isn't going to hurt it."
Regulatory concerns aside, Mr Collins said foreigners were still favourably disposed toward Thailand now that it has returned to having an elected government.
While his law firm has not seen a dramatic increase in investment, it does feel that people who were holding off when the military was in place are now coming back. The abolition of the Bank of Thailand's capital controls, which made it difficult to bring money in for investment purposes, has helped sentiment.
Where property is concerned, he said, most foreign individual buyers are opting for leaseholds. Although Thai law allows foreigners to own up to 49% of a condominium building, Mr Collins said a lot of foreigners do not like living in a condominium building and prefer leasing landed property.
"Zoning in certain areas doesn't allow condominiums to be built, for example Samui, which is becoming a more and more desirable location for foreigners to purchase property."
However, major investors would still have to use companies as vehicles to invest in property. "But they have to be very cautious as far as ensuring that they have a real Thai co-investor who is not considered a nominee."
The Land Code stipulates that a Thai company that buys property must be majority Thai owned and there is still the issue of nominees under the Foreign Business Act.
"It still hasn't been clarified what constitutes a nominee," he said.
For foreign individuals buying leasehold property, the law allows for an extension of 30-years after the initial 30-year period. However the lessor must physically register the first extension and if he refuses to do so, the foreign lessee would have to go to court to enforce the contract.
"I don't think the government will allow foreigners to own land as such," said Mr Collins. "I think that is such a hot potato ... but there is a lot that can be done to make it more attractive for foreigners to own property here or to make it easier legally for foreigners to have some right in property, for example by having longer lease terms or by allowing for a larger piece of a condominium building.
"Thirty years as a leasehold is considered not very long term and of course there is great concern that a company that is a lessor might go bankrupt, so it might not even be able to extend a lease after 30 years."
Mr Collins said there was a way to give indirect control over a land-owning company to a lessee, improving assurances that after 30 years the lease can be extended. This involves "ring-fencing" the company by not allowing any other business activity aside from holding that particular piece of land. This is far from an ideal situation but it would effectively provide a 60-year term as opposed to 30 plus 30-years.
"So we have creative ways and legal ways around this particular issue but ideally we wouldn't want to go that route, we want to just have a simple straightforward long term lease."
(Source: Bangkok Post, business, page B3, NINA SUEBSUKCHAROEN, temp-link)
Vocabulary:
revamp - make changes to improve
a partner in a law firm - one of several owners of a law firm
yet to be resolved - problem not solved, still trying
set out - explain in a clear organised way
the complications surrounding Y - the problems and difficulties that make problem or issue Y hard to deal with and solve
a chamber of commerce - an organization of business people designed to advance the interests of its members
Joint Foreign Chambers of Commerce (JFCCT) - a grouping of 30 chambers of commerce in Thailand: American, Armenian, Australian, Belu, British, Canadian, Chinese, Danish, Finnish, French, German, Hong Kong, India, Irish, Israel, Italian, Japanese, Korean, Malaysian, Netherlands, New Zealand, Norwegian, Pakistan, Polish, Russian, Singapore, South African, Swiss, Swedish , Taiwan (See website and list of members' websites)
a leasehold - the right to possess and use land for a fixed period of time (the "lease" is the legal agreement that creates the right)
leasehold property - the land or building being leased
lessor - a person who owns property and allows another to occupy it under a lease
lessee - the person leasing the property from the owner
update - improve and make more modern
an expat - short form for "expatriate," a person who lives outside their country for a long period of time
criticise (verb) - examine and judge something carefully (finding bad points as well as good points)
critical (adjective) - examining and judging carefully
take a critical look at - examining carefully to make a judgement about
proposals - a suggested plan for people to think about and accept or reject (See glossary)
Foreign Business Act (FBA) - the law dealing with foreign businesses and people doing business in Thailand
has its work cut out - has a lot of difficult work to do, in order to achieve its goals
progressed - improving, getting better, getting closer to the goal
economy has progressed so rapidly - the economy has improved so rapidly
kept pace with - keep going at the same speed (without falling behind)
commercial transactions - doing a business activity, such as buying or selling something
the Revenue Code - the law about taxes in a country (the source of government revenue)
an outdated law - an old law, no longer useful
address issues - deal with issues, solve the problem
relevant - important or worth considering in a particular situation
predecessor of the FBA - the law that came before the FBA law
barred to foreigners - foreigners not allowed to do
national security - protecting a country and ensuring its survival through the use of the military, diplomacy, and the economy (See Wikipedia)
services - economic activities that do not produce and manufacture goods, such as retail, banking, and tourism
incentive - a reward for doing what someone wants you to do
provides little incentive - doesn't provide much of a reward (to encourage them to act in the way you want)
has no quarrel with - would not disagree with (not really enthusiastically agree with, either)
favourably disposed toward Thailand - have an good opinion about Thailand (an opinion that favours Thailand)
holding off - waiting
abolition of - the formal end of a system or practice
capital controls - laws and regulations that restrict the flow of investment money into and out of a country
investor sentiment - whether investors are feeling positive or negative about the future (and therefore either willing or unwilling to invest)
helped sentiment - made investors feel more positive about investing
opting for - choosing
zoning - creating areas where the land can only be used in one way, for example commercial areas for shops, residential areas for homes, industrial areas for factories (See Wikipedia)
a vehicle to Y - something used to achieve the purpose of Y
use companies as vehicles to invest in property - use companies to invest in property, creating a legal company makes this possible
co- - together with
co-investor - investing together with someone else
a nominee - a person acting on behalf of another, an owner in name only (pretending to be an owner, but actually doing this for someone else)
stipulates that - state clearly that something must be done (for example in a condition in an agreement or contract) (See glossary)
an extension of 30-years - made active for another 30 years
that is such a hot potato - an issue that many people would strongly disagree about
go bankrupt - a company that does not have enough money to pay their debts (so they have to go out of business)
assurances - say that something will definitely happen, a guarantee
ways around this particular issue - ways to do it though technically it seems that you can't do it, by law
straightforward - easy to understand or do
