The
Investment Regime in ASEAN Countries
Dr.
Lawan Thanadsillapakul
Thailand
Thailand
recognises the contribution of foreign investment to the country's overall
economy. Thailand has always sustained favourable attitudes towards FDI,
and the National Economic and Social Development Plan sets principal development
guidelines that the government must continue with liberalisation policies
to facilitate private business operations both domestic and foreign investment
(APEC: 1998, THA-1). The government will play only supporting, promotional
and supervisory roles to investment in this country. The investment promotion
policies clearly spell out the government's intention to promote the role
of FDI in Thailand, particularly in areas where expertise is lacking(48).
However, in order to gear development towards value-added industries and
to promote remote areas, the government set some requirements to investors
by granting incentives to investors, both domestic and foreign alike,
in engaging the promoted industries.
Thailand
has undergone a series of phases of evolution of the foreign investment
regime. In the 1960s-1970s, the Thai government encouraged import-substitution
industries so a significant volume of foreign investment was attracted
to these industries. During the 1980s, a strong emphasis was placed on
promoting exports to strengthen the country's foreign exchange position.
Therefore, efforts were geared towards encouraging foreign companies to
use Thailand as a production base for exports. Most export-oriented activities
were labour-intensive. The 1990s have seen a shift to industrial deepening
and broadening. The export boom in the 1980s was accompanied by a surge
in the imports of capital goods, intermediate goods and raw materials.
The government thus attempted to encourage more localisation, particularly
in export industries. Foreign investments in supporting industries, value-added
industries, and high technology industries have been actively encouraged.
Efforts relying on market mechanism have been geared towards the creation
of industrial linkages. An important theme of Thai investment policies
in 1990s is industrial decentralisation, investment incentives have been
granted to both local and foreign investors that accord their business
in remote areas. Thai investment policy toward foreign investors is positive
and encouraging, apart from the specific restricted business, foreign
investors would be treated exactly the same as the domestic investors.
In
Thailand, there are two major laws affecting foreign investment: the Investment
Promotion Act of 1977(49), and the Alien
Business Act of 1972(50). The BOI sets various
minimum Thai ownership requirements and conditions for BOI grants. If
the project produces for the Thai market, then generally at least 51%
of the shares must be owned by Thai nationals. This does not apply to
Zone III projects(51) as they may produce
for the Thai market regardless of the foreign shareholding. On the other
hand, if the project exports at least 50% of its products, foreigners
may hold a majority of the shares; if 80% or more of total sales is to
be exported, a completely foreign-owned project will be considered for
promotion. For projects in the agricultural, animal husbandry, fishing,
mining, mineral exploration or services industries, Thai nationals must
hold at least 51% of the shares. However, in a project with more than
Baht 1 million investment capital, foreigners may initially hold a majority
of, or wholly own, the venture, provided that Thai nationals hold at least
51% of registered capital within five years from the date of operation(52).
Foreign
investors may choose any of several forms of business organisation: sole
proprietorship, partnerships, limited companies, joint ventures, and representative
or regional offices(53). A foreign company
can also register a branch in Thailand or incorporate a subsidiary in
the country. Certain formalities need to be complied with according to
the type of business to be conducted. Also certain licences and certificates
of registration are required for specific activities. The licences or
permits, which may well apply to a particular business are: factory licences(54),
commercial registration(55), taxation registration(56),
foreign business(57), and alien work permits(58).
But there are no technology licensing requirements tied to the process
of applying for an Alien Business Licence or investment promotion.
In
addition to the Alien Business Law, there are several statutes, which
impose conditions of majority ownership and management by Thai nationals
in specific business sectors: commercial banking(59);
finance and security business(60); life
insurance(61); vessel operating(62);
and recruitment agency(63). For certain
other sectors, such as hotel operation and pharmaceutical dispensing,
it is required that the individual holder of the licence be an individual
Thai national.
However,
Thailand welcomes foreign investment and sustains favourable attitudes
towards FDI, and the government continues with liberalisation policies
to facilitate private business operation. Nevertheless, the government's
intention is to promote business areas where expertise is lacking, industries
in remote areas, and industries that are important and beneficial to the
country's economic and social development and to national security(64).
Part
6
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(48) BOI
Thailand (1998) The Foreign Investment Regime: The role of BOI.
Bangkok: BOI.
(49)
The Investment Promotion Act of 1977 provides the legal framework for
investment incentives granted by the Office of the Board of Investment
(BOI). The BOI is given wide discretionary powers to encourage investment
in the areas considered to be the most beneficial for Thailand's economic
and social development. BOI incentives include tax privileges, relaxation
of restrictions on foreign participation, business protection and a host
of others.
(50)
The most important law governing foreign participation in business in
Thailand is the National Executive Council Announcement No. 281 B.E. 2515
(1972), which is generally referred to as the "Alien Business Law".
This law limits the maximum alien ownership in certain business to less
than 50% and requires certain licences before a 50% or more alien owned
entity may engage in other activities.
(51)
In order to encourage industrial development in regional areas, BOI will
grant promotion status to investments in remote areas that are classified
as zone III. All approved projects located in zone III are entitled to
various exemptions, such as import duty exemption on machinery, raw materials,
and other essential inputs, corporate income tax exemption, and double
deduction from taxable income of water, electricity, and transport costs.
Approved projects in zone III are also exempt from the minimum Thai national
ownership requirement.
(52)
The BOI was empowered to waive foreign ownership requirements during the
years 1992-1996 for the following projects; transportation system infrastructure
projects, public utility projects relating to the maintenance and restoration
of environment, and projects related directly to the development of technology.
(53)
Representative offices are intended to allow foreign companies to establish
a liaison office to support and oversee activities of its head office.
There are three types of representative offices provided for in the legislation:
an international business office; a foreign bank office; and a finance,
security or Credit Foncier office. Regional offices are intended to oversee
activities of branches or subsidiaries throughout Southeast Asia on behalf
of the head office. None of these types of offices may produce income.
Regional offices are not allowed to earn income and they are exempt from
Thai taxes and most annual filing requirements. But it is necessary to
get approval from the Department of Commercial Registration to establish
these types of offices.
(54)
Factory licences are regulated by the Factory Act of 1992. Under the 1992
Act, it requires a licence to establish a factory in certain types of
factories while the others are subject to the notification issued under
the Act.
(55)
The Department of Commercial Registration of the Ministry of Commerce
is responsible for monitoring the Alien Business Law. The Office of the
Board of Investment is in charge of monitoring the compliance of promoted
companies with conditions stipulated in investment promotion certificates.
Promoted firms have to report regularly to the Office of the Board of
Investment.
(56)
Taxation registration is required for all businesses that are required
to collect VAT. Those enterprises must obtain a VAT registration certificate
prior to commencement of a business whose projected gross annual revenue
will exceed 600,000 Baht or within 30 days of the business exceeding this
income. (Companies incorporated under Thai law are also required to pay
corporate income tax on their profits. They may also be required to pay
specific business tax depending on the type of business activity in which
they engaged). Registered traders must file a monthly tax return and submit
monthly remittances to the Revenue Department on or before the fifteenth
day of the following month. The amount of VAT due must be remitted at
the time of submitting the monthly VAT return, and registered traders
are entitled to a tax credit for VAT paid to another VAT trader.
(57)
Only those foreign legal entities engaged in business specified in the
Alien Business Law are required to acquire an Alien Business Licence from
the Ministry of Commerce. The Alien Business Law is applicable to foreigners
or juristic persons that: (1) have majority foreign shareholding; (2)
have at least one-half of the number of shareholders, partners or members
of which are aliens; (3) have limited partnership or registered ordinary
partnership having an alien as manager or managing partner. The Alien
Business Law sets three categories of business activities where foreign
legal entities and foreigners are (1) prohibited in category A., (2) permitted
only with the Board of Investment promotion in category B. (3) implemented
only with the permission of the Ministry of Commerce or Board of Investment
promotion in category C. (Details of these categories are stated in the
section of restricted sectors discussed below) The Alien Business Law
does not apply to aliens engaged in business with the permission of the
Royal Thai Government, or covered by an agreement between the Royal Thai
Government and a foreign government which exclude certain activities,
for instance under the agreement between Thailand and the US Thus American
nationals, entitled to the protection under the Treaty of Amity and Economic
Relations between the two, are not generally subject to the provisions
of the Alien Business Law. There are , however, some business activities
which the US-Thai Treaty does not cover, namely communications, transportation,
fiduciary function, banking involving depository functions, the exploitation
of natural resources and land, and domestic trade in indigenous agricultural
products.
(58)
Permission to work in Thailand is granted by the Alien Occupation Division
of the Ministry of Labour and Social Welfare with the issuance of a work
permits. On 30th June 1997, the Thai government established a 'one-stop'
service centre to facilitate the issuance of relevant work permits and
immigration authorisations. The centre's service can be extended to investors
who meet certain investment criteria.
(59)
The Commercial Banking Act B.E. 2505 (1962) requires that Thai nationals
must hold not less than three quarters of the total issued shares in a
commercial bank and that at least three quarters of the total number of
directors must be Thai nationals.
(60)
The Act on the Undertaking of Finance Business and Security Business and
Credit Foncier Business B.E. 2522 (1979) and the Security and Exchange
Act B.E. 2523 (1992) stipulate that the Thai ownership and management
requirements for finance and Credit Foncier companies are the same as
for commercial banks. But there are no such restrictions on foreign participation
in securities business under this Act, although they are subject to the
Alien Business Law.
(61)
Life Insurance Act B.E. 2535 (1992) and the Casualty Insurance Act B.E.
2535 (1992) require that Thai nationals must hold not less than three
quarters of the total number of shares sold and that at least three quarters
of the total number of directors must be Thai nationals.
(62)
Thai Vessel Act B.E. 2516 (1971) requires that: (i) at least 70% of the
capital in a limited company, public limited company or partnership owning
a Thai vessel be owned by a natural Thai person or by a wholly owned juristic
entity, with all shareholders, directors, or partners of such entity must
be Thai persons, organised under Thai law where the subject Thai vessel
will trade in Thai territorial waters, and ; (ii) where the Thai vessel
will specifically be used in international marine transport, at least
51% of the capacity in the company owning the Thai vessel must be owned
by a natural Thai person or at least 51% by a wholly Thai owned company
organised under Thai law with all of its shareholders and directors being
natural Thai persons. The majority of the directors of such vessel owning
company, and all of the unlimited liability partners in the case of a
limited partnership, must also be Thai nationals. A Thai national person
who, for and on behalf of an alien, holds title to a Thai vessel or capital
of a juristic person owning a Thai vessel, will be subject to a fine not
exceeding Baht 500,000 and imprisonment not exceeding five years. The
juristic entity owning the vessel must be organised under Thai law and
have its principal office in Thailand. It can be seen that the Vessel
Act of 1971 has the most intricate method of imposing 'real' Thai ownership
in a juristic owning a Thai vessel operating in Thai territorial waters. Doing Business in Asia: Thailand, 1998.
(63)
Employment Provision and Employment Seekers Provision Act B.E. 2528 (1985)
provided that recruitment agency work is reserved for Thai nationals under
the Alien Business Law. In addition, both the manager of the establishment
and any corporation formed as a recruitment agency must be of Thai nationality.
(64)
Under the Investment Promotion Act, BOI may approve the promotion of investment
projects in agriculture, animal husbandry, fishery, mineral exploration
and mining, manufacturing and services when it considers that the products,
commodities or services are either unavailable or insufficiently available
in Thailand or are produced by an outdated process; are important and
beneficial to the country's economic and social development, and to national
security; and are economically and technologically appropriate, and have
adequate preventive measures against damage to the environment. |