Nov 27, 2012

Thailand - Doing business in the AEC and the Thai foreign business ACT

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Asean countries are embarking on a framework to strengthen their political and security affairs, social and cultural ties as well as the regional economy. The culmination of this is the Asean Economic Community (AEC), which will formally take shape at the end of 2015 as a single regional common market, and an international organisation under the Asean Charter.

Within the region there has been continued economic development. It started with the establishment of the Asean Free Trade Area (Afta), followed by the Asean Framework Agreement on Services and the Asean Investment Area, leading toward the AEC to allow for easier and freer mobility in five areas: investment, services, goods, skilled labour and capital.

Out of the above five areas, only free flows of investment and services will be directly associated with the liberalisation of business operations in Thailand that are under the control of the Department of Business Development (DBD). These will be subject to terms and conditions negotiated by the Department of Trade Negotiations with Asean countries. Once concluded, these terms and conditions will be automatically enforced by the Commerce Ministry through regulatory controls, conditions and procedures for applying for privileges and protection under the Foreign Business Act (FBA).

The FBA is a law controlling the business operations of foreigners. It reserves certain businesses for Thais, categorised into three lists. List One businesses are closed to foreigners for special reasons related to Thai heritage and culture. List Two businesses are open to foreigners only if they have permission from the commerce minister, with the approval of the cabinet under specific conditions. Foreigners may operate businesses in List Three only after they have obtained permission from the director-general of the DBD, with approval of the Foreign Business Committee.

Free flow of investment: In light of the free flow of investment, Thailand will initially allow Asean countries to engage in five industrial operations _ mining, agriculture, fisheries, forestry, and manufacturing _ under the Asean Comprehensive Investment Agreement (ACIA). Of those listed, manufacturing has long been open to foreigners.

Further, the proportion of Asean investment in certain activities in these five industrial sectors has been raised from the 49% ceiling to any percentage between 51% through joint investment with Thai partners, and 100% provided that Asean investors apply for a foreign business certificate. This process is detailed in the DBD announcement on general criteria and qualifications issued under the FBA and ACIA in August 2012. The ceilings and activities are:

- 60% for onshore and offshore mining;

- 100% for flour production from rice and farm plants;

- 51% for marine animal culture specifically tuna, sea cage culture, and spiny lobster;

- 51% for onion cultivation as well as onion propagation.

In addition to the above ceilings, the DBD stipulates further conditions, such as the debt-to-equity ratio, the minimum number of Thai directors, minimum capital, and requirement of licences or permits from related government authorities, i.e. the Industry and Agriculture ministries.

Persons who are eligible to apply for a foreign business certificate with the Bureau of Foreign Business Administration under this scheme are juristic persons under the law of Thailand and Asean citizens with proof of nationality with the embassy of their country in Thailand.

Free flow of services: The Asean Framework Agreement on Services calls for Thailand has to remove all restrictions for cross-border supply in all service sectors mentioned by the World Trade Organization. It also must increase the percentage of foreign shareholding to 70% in four priority integration sectors  - air transport, ICT, healthcare and tourism - by 2012 and up to 100% in all other businesses by 2015.

According to negotiations concluded so far, the following service sectors will be opened up to a ceiling for Asean shareholding of 70%:

- professional services, e.g. accounting, legal, architecture and engineering;

- construction, e.g. general construction of industrial plants;

- brokers or agents, specifically for medical goods;

- trading services, e.g. wholesale and retail of medical goods;

- advertising, specifically the sale of internet advertising space;

- hotel, tourism and travel-related services, e.g. superior deluxe or six-star plus rated hotels, hotel management, outbound travel information service;

- computers and related services, e.g. hardware and software consultancy, maintenance and repair services for office machinery and equipment including computers;

- research and development focusing on physical sciences, linguistics and languages, and interdisciplinary research;

- real estate services: specifically, residential condominium management;

- rental or leasing services: specifically, space transport equipment, computer servers, furniture, and equipment for building construction or demolition;

- distribution services: specifically, franchises for fast-food businesses;

- educational services: specifically, science and technology;

- environmental services, e.g. hazardous waste treatment and disposal, marine environmental protection;

- healthcare, related and social services, e.g. private hospitals, specialised medical services in private hospitals, nursing department services in hospitals, day-care services for children;

- recreational, cultural and sporting services, e.g. amusement parks, private libraries, sports event promotion and organisation.

Despite the negotiation and conclusion of the above services, the DBD has not yet issued any announcements about its enforcement under Thai laws to ensure Thailand's smooth transition into the AEC in order to improve its competitiveness.

Vunnipa Ruamrangsri

Business & Investment Opportunities
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