Duensing Kippen Tax and
Law
The Foreign Business Act (1999) of Thailand (the “Act”)
generally restricts foreigners from engaging in most business activities in
Thailand, without special permission as provided by the Act. Serious
violations of the Act by a foreigner or facilitated by a Thai carry
significant criminal penalties.
In the case of a Thai limited company, Section 4 of the
Act provides that if fifty percent or more of its share capital is owned by
a non-Thai, then that company is a “foreigner” for purposes of the Act. This
means that if a foreigner wishes to conduct business in Thailand in
compliance with the Act, the foreigner generally must find a Thai willing to
actually invest in and own more than half of the company. This can be a
significant impediment to a foreigner wishing to conduct lawful business in
Thailand.
However, Section 10 of the Act does provide for a
significant exception to its restrictions on business by foreigners in
Thailand. Such exception is for foreigners whose country is a party to a
treaty that outlines that each party’s citizens may operate businesses in
each other party’s country under the same conditions as their own citizens.
Currently, Thailand has such a bilateral treaty only with
the United States. Under the Treaty of Amity and Economic Relations between
the United States and Thailand (1968) (the “Treaty”) citizens of the United
States and of Thailand are granted reciprocal national treatment with regard
to, among other things, ownership of businesses in the other’s country.
Thus, a Thai company of which fifty percent or more of the share capital is
majority American owned, a majority of the directors are also American and
which further obtains formal permission pursuant to the Treaty (herein after
referred to as an “Amity Company”) is permitted, without any Thai ownership
or management, to engage in virtually any business activity in Thailand in
which a Thai majority owned company is permitted to engage.
In order for a Thai limited company to qualify as an
Amity Company it must meet the following conditions:
(1) More than half of the company’s capital is held by an
American(s);
(2) More than half of the company’s shareholders are
Americans or American and Thai;
(3) More than half of the authorized directors of the
company are American(s) or Thai(s);
and
(4) If authorized director is from a third country, he
must be required to jointly act for the company with another authorized
director who is either American or Thai.
However, if the Amity Company wishes to engage in any of
the business activities restricted by the Act, this permission is not
automatic. To do so, the Amity Company must then obtain a “Foreign Business
Certificate” (“FBC”) as provided for under Section 11 of the Act. But
because of the Treaty, obtaining the FBC for an Amity Company is a
relatively certain and expeditious process as long as the legal and
administrative requirements are met during the application process.
Please note that although under the treaty Americans have
the right to own and control their Thai limited company, it does not grant
Americans unrestricted freedoms to stay or work in Thailand. In other words,
Americans must obtain the relevant valid Thai visas and work permits to stay
and work in Thailand just like citizens of other third countries.
It should also be noted that the right to own land is not
granted by the treaty. Thus, although pursuant to American law foreigners of
good standing may own land in the United States, under current Thai law,
with few exceptions, foreigners, including Americans and Amity Companies,
may not own land in Thailand.
Finally, although the Treaty would permit an Amity
Company to engage in most businesses in Thailand including those most
generally restricted by the FBA, the Treaty itself does include exceptions.
Therefore, the Treaty does not grant the right to an Amity Company to engage
in any of the following businesses in Thailand:
(1) Communications;
(2) Transportation;
(3) Fiduciary functions;
(4) Banking involving depository functions;
(5) Exploitation of land or natural resources;
(6) Domestic trade in indigenous agricultural products.
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Note: Duensing Kippen is a multi-service
boutique law firm specializing in property and corporate/commercial
matters and is also the only such firm in Thailand that compliments
its property and corporate/commercial legal expertise with a core
tax law practice. Duensing Kippen can be reached at:
[email protected] or for more information please visit them
at: www.dktaxandlaw.com. |
Pornpimol
Phuengkhuankhan
The 1991 Condominium Act is counterproductive to the
wants and needs of the Thai property market.
With economies and property markets booming across Asia,
many question why foreign demand for Thai properties has yet to return.
During the pre-crisis period before 2008, foreign purchasers accounted for
up to 35% of the demand for condominiums in Bangkok’s central business
district. That figure included foreign purchasers from overseas, foreigners
working in Thailand and permanent residents.
Today, foreign demand is below 20%. The obvious reasons
for this include the weak recovery of the US and European economies, the
strength of the Thai baht and a negative foreign view of Thai politics.
Another factor that has always limited interest in the Thai condominium
market is the lack of mortgage facilities from local banks for foreign
purchasers.
The lack of mortgage facilities is shutting the door on
demand from a large regional market of buyers who would have considered
purchasing condominiums in Thailand for investment or as second homes, but
who are unable to put 100% of a unit’s asking price down. Even cash-rich
investors often utilise mortgage facilities to leverage their investments.
It would be incorrect to say that local mortgage
facilities are completely unavailable for foreign purchasers, but to truly
understand this issue one needs to understand the complexities of the Thai
property and banking laws and how the two are intertwined.
Under the 1991 Condominium Act, foreigners are allowed to
purchase freehold condominium units at up to 49% of the total saleable area
of a building, but as non- residents they must transfer the funds to pay for
the property from overseas. In order to transfer ownership of property at
the Lands Department, a non-resident is required to provide a Foreign
Exchange Transaction Form, a document certifying the transfer of funds from
overseas in a foreign currency for the purpose of purchasing the property.
This law makes it impossible for foreigners to obtain the
Foreign Exchange Transaction Form using mortgage facilities from local banks
as those funds would be released in Thai baht and banks would therefore be
unable to provide the document that is required to complete the transaction.
The document can only be issued if Thai banks issue the funds through their
overseas branches, which some Thai banks have done in the past, but don’t
any more.
For this reason, mortgage facilities are unavailable to
foreign purchasers, unless they are permanent residents of Thailand and able
to borrow locally. In this case, they are not required to submit the Foreign
Exchange Transaction Form on transfer of ownership.
Even for expatriates being paid in Thai baht, the process
is also complex. They are entitled to borrow locally in Thai baht providing
they have a work permit, an ongoing employment contract and have been living
and working in Thailand between three and five years. However, only 40-50%
of their salary deposited into a non-resident account can be contributed to
the property purchase; the remaining funds still must be from overseas. So
in effect, they are allowed to borrow, but the law prohibits them from
transferring ownership of the property unless part of the funding is
transferred from overseas.
In today’s market, this law implemented 20 years ago is
obsolete. It is inconsistent and counterproductive to the wants and needs of
the local property market because it blocks out foreign demand for Thai
properties. A more flexible law should be enacted to open up opportunities
for foreign investment, one which eliminates the requirement of overseas
funding or allows local borrowing by foreigners for up to 50% of the
property value.
One of the reasons there is substantial demand to invest
in markets such as Hong Kong, Singapore and other financial centres is the
availability of mortgage facilities for foreign investors. Allowing
foreigners to purchase without a requirement to transfer funds from overseas
will not only increase demand for Thai properties but also allow local banks
to lend to foreign purchasers and stimulate the local banking industry. Each
bank must of course perform thorough credit checks and have stringent
lending requirements.
At present three foreign banks with local branches offer
foreign purchasers mortgage facilities - Standard Chartered, UOB and HSBC -
whereby the funds are released from their overseas branches in foreign
currencies and a Foreign Exchange Transaction Form is issued to the
purchaser.
However, the mortgage facilities offered by these banks
also have limitations. For example, the UOB mortgage is available only to
Malaysian and Singaporean nationals, and for HSBC and Standard Chartered,
the borrower must be an existing private banking customer with a savings
deposit in an overseas or local branch of the bank.
Thailand has a large reserve of potential foreign
purchasers and the property market certainly has significant potential to
grow both in terms of demand and prices. However, this will happen only if
obsolete laws are done away with and investor-friendly laws and bank
policies that facilitate market demand are appropriately implemented.
One of the reasons there is substantial demand to invest
in markets such as Hong Kong, Singapore and other financial centres is the
availability of mortgage facilities for foreign investors.
Note: Pornpimol Phuengkhuankhan is the Director of
Residential Sales Services at CB Richard Ellis Thailand.
