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Hughes Krupica: Will BOI attract more interest from foreign investors in 2015?

  Boat Lagoon

With the recent news in the Bangkok Post (and other national media platforms) that the Thai government is largely considering a change to the provisions in the Foreign Business Act (FBA) in relation to the definition of a ‘foreign’ Thai limited company, one begins to wonder whether the Board of Investment of Thailand (BOI) will attract more interest from foreign investors looking to do business in Thailand in 2015 and beyond.

Make no mistake, the BOI and its investment incentive programmes have, in the past, been one method for foreign companies and foreign investors to obtain control over their business affairs in Thailand. However, if the FBA is amended, the BOI may attract more interest than it has in the past, even for much smaller businesses which have in many cases, up to now, relied on the existing rules (under the FBA) on foreign control over Thai limited companies, often viewing the BOI in many cases as more difficult and impractical to seriously consider as a realistic option.

For those that are not familiar with the proposed changes to the FBA, it has been recently publicised that the Thai government is strongly considering changing provisions of the FBA that would affect the definition of a foreign owned or controlled Thai limited company, requiring a foreign business license to operate in Thailand. Essentially, the proposal is to change what is considered by some in various professional circles to be a ‘loophole’ in the current law.

Currently the FBA primarily restricts the ‘shareholding’ element of a Thai company only. That is to say, the famous (and current) 51/49 rule that most professionals and foreign investors in Thailand are keenly aware of. Under the proposed amended rules, the FBA would extend restrictions to include ‘foreign controlled’ Thai companies, meaning companies even with 51% Thai majority shareholding would be deemed to be ‘foreign’ under the FBA if actual control – either though adjusted voting structures or directorships – is in the hands of foreign nationals or foreign businesses.

Of course, previous Thai governments have reviewed the FBA (most recently in 2007) and similar amendments have been considered in the past. However, steam seems to be gathering this time around to finally pass an amendment and put the amended FBA in place with at least some of the publicised proposals.

Whether existing Thai companies with ‘foreign control’ that do comply with the existing FBA would be ‘grandfathered in’ to the new amendments is yet to be seen, but we have heard ‘rumours’ that this may be the case, or that the government may alternatively provide a transition period to comply. In any event, it is yet to be seen what the actual final bill will look like, and what exact provisions it will contain. But it does seem likely that a final bill will be put forth in the very near future. Existing and future planned businesses will therefore likely need to be reviewed for corporate structure compliance under any amended FBA.

Increased BOI interest in the wake of the new FBA?

In light of the proposed changes to the FBA, it is possible the BOI will see increased attraction to foreign investors, even amongst smaller businesses that are eligible for investment ‘promotion.’

Recently, the newly appointed members of the BOI, chaired by Prime Minister Prayuth Chan-ocha, announced its so-called ‘Seven Year Investment Strategy’ for SMEs (small and medium sized enterprises). As stated in the BOI press release dated 25th November 2014, the “vision” of the ‘Seven Year Investment Strategy’ is “To promote inbound value-added investments and Thai investments overseas to enhance the country’s competitiveness and overcome the so-called middle-income gap. The new investment promotion policy will give priority to investments that are beneficial to and supportive of the country’s overall development strategy.”

The ‘vision’ and the emphasis on ‘SMEs’ in the press release seem to at least imply a strong welcoming to small businesses to apply for a BOI ‘license.’ However, as with the proposed changes to the FBA, it is not yet known for certain which types of businesses would be targeted by the BOI for promotion, although the BOI press release goes on to vaguely state businesses that could be promoted, including – "high tech and creative industries, service industries that support the development of a digital economy and industries that utilise local resources.’"

The reality is that BOI benefits could potentially supplant the proposed changes to the FBA if implemented properly, and ease of access to the foreign investment community is also made a priority of the Board. Obtaining a BOI license may permit a large category of exceptions to the FBA – including permission for 100% foreign controlled and/or owned companies, reduced work permit requirements, and other benefits permitting foreign control over Thai limited companies.

That said, foreign investors will need to monitor the final FBA bill, if it indeed becomes law, and ultimately the promoted categories of businesses under the announced BOI policies to assess whether existing businesses should be restructured to comply with new laws and policies, and furthermore how planned businesses should structure their corporate affairs, whether under the amended FBA provisions or consider more carefully the BOI as a realistic option.

By Robert Krupica, Senior Partner, Hughes Krupica International Legal Services.
Hughes Krupica is a law firm which specialises in Real Estate; Construction; Hospitality; Corporate; Dispute Resolution; and Litigation, operating in Bangkok and Phuket, servicing clients in relation to their business activities in Thailand and in other regions of Asia. www.hugheskrupica.com

GPS coordinate: 7.962140, 98.385884

 Contact info:

Hughes Krupica Consulting

PHUKET (HEAD OFFICE)
Hughes Krupica Consulting Co. Ltd
23/123-5 Moo 2 Kohkaew Plaza
The Phuket Boat Lagoon
T. Kohkaew Amphoe Muang
Phuket 83000 Thailand
Tel: (0) 76 608 468

BANGKOK (SERVICED OFFICE)
Hughes Krupica Consulting (Bangkok) Co. Ltd
29/41 Soi Ladprao 22
Ladprao Road
Chankasem, Chatuchak
Bangkok 10900 Thailand
Tel: (0) 20 771 518

[email protected]
www.hugheskrupica.com

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