CHAVALIT LAW GROUP Solicitors & Advocates

Proposed Amendments to the FBA

• definition of Alien
• Foreign Business Committee
• increase of penalty
• joint liability of a director / a partner
• items of Schedule 3

Businesses under Prohibition or Restriction
Under the FBA ,
“Business” means the business operation in agriculture, industry, handicraft, commerce, service or other dealings for business purpose.

Businesses under the FBA are classified into 3 Schedules:

Schedule 1
Businesses not permitted for alien to operate due to special reasons
For example:

1. newspaper business, radio broadcasting or television business, or
2. farming or gardening.

Any alien is prohibited to operate any business in Schedule 1.

Schedule 2
The businesses related to the national safety or security or affecting  arts and culture, tradition, folk handicraft or natural resource and environment
For example :

1. production , selling and repairing and maintenance of firearms, ammunition , explosives, domestic land, waterway or air transportation , including domestic airline business
2. production of carved wood, or
3. mining ,including rock blasting or crushing.

An alien is prohibited from operation of any business under Schedule 2 unless permitted by the Minister of Commerce with the approval of the Cabinet.

An alien may operate the business in Schedule 2 only if at least 40 % of the capital of the juristic person shall be held by Thai nationals


Schedule 3
Businesses which Thai nationals are not yet ready to complete with foreigners.
For example :

1. accounting service business
2. legal service business
3. architecture service business
4. engineering service business
5. hotel business except for hotel management service
6. selling food or beverages
7. other categories of service businesses except for those prescribed in the ministerial regulations

Exceptions from the FBA

1. Any business receiving an investment promotion certificate from the BOI.
2. Any of the businesses (other than 6 exceptions) operated by an American under the USA-Thailand Treaty of Amity.
3. Any business operated by an alien under provisions of a Free Trade Agreement or FTA between Thailand and its counterparty.

Definition of Alien

• a non -Thai natural person
• a non-Thai juristic person
• a juristic person registered in Thailand
  (a) number of shares
  (b) voting rights

Definition of Alien

(1) A natural person not of Thai nationality.
(2) A juristic person not registered in Thailand.
(3) A Juristic person registered in Thailand with the following characteristics:

(a) A juristic person of which half or more of its shares held by a person in (1) or (2) or a juristic which has a person in (1) or (2) invest half or more of the total capital of the juristic person, or a juristic person which has a person in (1) or (2) having half or more of the total voting rights, either by law, the articles of association or an agreement;

(b) A limited partnership or registered ordinary partnership with a person in (1) as the managing partner or manager.
(4)  A juristic person registered in Thailand of which half or more of its shares held by a person in (1) (2) or (3) or a juristic which has a person in (1) (2) or (3) invest half or more of the total capital of the juristic person, or a juristic person which has a person in (1) (2) or (3) having half or more of the total voting rights, either by law, the articles of association or an agreement:


Question
Is a Thai juristic person which is controlled by an alien not by way of  the voting right regarded as an alien?
Control

• at least 50% of the total shares
• at least 50% of the total directors
• the power to direct or cause the direction, or materially influence the general management and policies

Questions

Does the definition of an alien focus on capital only ?
Can any form of debts be allowed to be used in the so-called Thai juristic person?

Typical structures of the so-called Thai company
1. Thai company with 51% Thais and 49% foreigners
2. Thai company having ordinary shares and preference shares with different voting rights
3. Thai company having nominees holding shares for and on behalf of foreigners

Prohibition Provisions

1. Joint operation with an unlicensed alien

An alien receiving a license is prohibited from joint operation with another alien to avoid and violate provisions of the FBA.

2 . Accomplice

A Thai national or a juristic person which is not an alien is prohibited from assisting , supporting or joint operation of the business with another alien to avoid and violate provisions of the FBA.

(This is called anti-nominee provisions)

Joint liability
In case that a juristic person is in violation of provisions of the FBA, a director, a partner or an authorized person of the juristic person who knows or fail to properly mange to prevent such offence shall also be punished.

Penalty

• fine and/or imprisonment
• cessation of the operation of the business

An Alien under the proposed amendments

Any juristic person becoming an alien (by way of the definition of Alien on voting rights) shall apply for a certificate within 1 year from the effective date of the amendments to the FBA.
Upon receiving a certificate:

1. A juristic person may continue to operate any business under Schedule 1 and Schedule 2 for 3 years after the effective date of the amendments to the FBA.
2. A juristic person may continue to operate any business under Schedule 3 until the cessation of the business.

After application for a certificate but having not received the certificate, the juristic person shall be deemed to be temporarily permitted to operate its business.

Amendment to Schedules 3

(13) domestic trade on native products or produce except for future trade under commodity future trade under the law on commodity future trade only in case delivery or acceptance of delivery of commodity traded does not actually take place.
(14 ) retail trading of goods of all kinds ( regardless of the minimum capital)
(15) wholesale trading of goods of all kinds ( regardless of the minimum capital)
(21) Other service businesses except for
(a) future business under the law regarding commodity future trading
(b) securities business under the law regarding securities and exchange
(c) future contract business under the law regarding future
contract
(d) commercial banking business under the law regarding
commercial banking
(e)      finance business and credit foncier business under the law
regarding operation of finance business , securities business and credit foncier
(f) casualty insurance business under the law regarding casualty insurance and life insurance business under the law regarding life insurance
(g) service businesses as prescribed in the ministerial regulations

Question on amnesty

Existing offices shall have no amnesty.

Penalty

1. Fine
   Existing fine – from Baht 100,000 to Baht 1,000,000
   New Fine – from Baht 500, 000 to 5,000,000
2. Imprisonment
   Existing imprisonment – up to 3 years
   New imprisonment – up to 5 years

FBA and Specific Laws

FBA is regarded as general law on foreign business operation.
Each of specific laws includes Land Code, Commercial Banking Act, Casualty Insurance Act , Life Insurance Act, Telecommunication Act, law on shipping and law on airline which contains provisions on foreign shareholding limitation and restrictions on a foreign business operation.

The Foreign Business Committee

The Foreign Business Committee shall have the Permanent Secretary of
the Ministry of Commerce as the Chairperson.


Questions

1. Will the Foreign Business Committee be free from any political
   influence ?
2. Should a member of the committee be the permanent secretary of
   any Ministry or a representative of any Ministry ?

Author: Partner Picharn Sukparangsee