Thai Cabinet okays Business Act amendments

April 12th, 2007 by admin

Thai Cabinet okay’s Business Act amendments

NOTE: New rules for foreign business still have to clear National Assembly Foreign Business Act

The Cabinet yesterday approved the revised amendments to the Foreign Business Act, but it remains uncertain whether the bill will pass the National Legislative Assembly.

The assembly will debate the amendments on April 18. Some 50 of its members have been up in arms against the changes, saying they jeopardize foreign investment.

Commerce Minister Krirk-Krai Jirapaet said he was ready to bring the amendments to the assembly.

The Cabinet approved the new draft of the Foreign Business Law after the Commerce Ministry agreed to revise it to make it friendlier to foreign investment. An earlier draft submitted for Cabinet approval in February was rejected.

There are six key amendments:

First: the new draft will focus on the voting rights of foreign shareholders. If a company is 49 per cent foreign owned but foreigners hold more than 50 per cent of its voting rights the company will be defined as a foreign one.

Second: it will take out more businesses covered under Annex III. This will allow these businesses, such as insurance and non-commodity futures market, to be covered by specific laws.

Third: the new draft will remove the amnesty for those violating the nominee law.

Fourth: the draft will increase the penalty for those violating the Foreign Business Law - from three to five years in jail, and from Bt100,000 to Bt1 million in fines to Bt500,000 to Bt5 million.

Fifth: it will expand the period from two to three years for foreign companies operating in Annex I and Annex II to revise their ownership structure to conform to the new law. Moreover, foreign companies in Annex III must inform the Commerce Ministry within one year that they have foreign ownership status before continuing to operate as normal.

Sixth: a 17-member committee will be formed to rule whether a company is Thai or foreign owned in case of a dispute.

The Commerce Ministry says the amendments create more transparency by clearly defining foreign ownership and delineating the types of businesses that are open to foreigners.

It is also aiming to make it clear once and for all that using nominees to circumvent foreign-ownership caps is prohibited.

The draft is a compromise between an earlier version from the Commerce Ministry and those of the Council of State and the assembly.

The assembly can reject it and introduce its own for a vote.

However, the Commerce Ministry insists that its draft is better than those from the assembly and the Council of State.

The ministry’s new draft takes into account key concerns raised by the Cabinet and the foreign business community, said Skol Harnsuthivarin, secretary to Krirk-Krai.

The draft maintains the clause on voting rights, which is a major concern of the Thai government.

However, the draft will not focus on management control as the Council of State suggested, as the government considers that it would be too stringent for foreign investors, Skol said.

The new draft removes the amnesty clause because it would like to create fairness for Kularb Keaw, now under police investigation over allegations it acted as nominee for Singapore’s Temasek Holdings in the Shin Corp takeover.

Another 14 companies are also facing a complaint that they might have used nominees to circumvent the foreign business law. They are now being investigated by the Commerce Ministry.

Pramon Suthivong, chairman of the Board of Trade of Thailand and Thai Chamber of Commerce, said most businesses affected would find the latest draft more satisfying but there would be some who might be unhappy with it.

“It is impossible to satisfy all parties, particularly foreign investors. But since it is necessary to amend the law, the government has to go ahead and do it” Pramon said.

Asked about the impact of the new draft on foreign investors’ confidence, Pramon said he believed they would not withdraw from the Kingdom.

All existing businesses will be able to operate freely under the new draft, but new ones might need time to study it more closely, he said.

Board of Trade deputy secretary-general Pornsilp Patcharintanakul said the private sector was delighted with the government’s move to put all companies on an equal footing.

Keisuke Matsumoto, secretary-general of the Japanese Chamber of Commerce in Bangkok, said Japanese investors were still concerned about voting rights as the change would force many to restructure their companies.

However, Keisuke said Japanese investors expected the government to become more flexible and hold discussions with them before implementing the new rules.

FOREIGN OWNERSHIP
Cabinet exempts telecoms, retail, hotel businesses from FBA
Wednesday April 11, 2007 - Bkk Post

Foreign companies using illegal nominees could face five years in jail under a plan to toughen foreign ownership rules.

Cabinet ministers yesterday endorsed the revisions to the Foreign Business Act, which also increases fines by five-fold to up to five million baht, according to Commerce Minister Krirk-krai Jirapaet.

”The cabinet agreed to raise the penalty for violations, both in terms of fines and prison terms,” he said.

The original FBA draft approved by the cabinet on Jan 9 called for maximum sentences of three years and fines of up to one million baht.

The government also scrapped a proposed amnesty that would allow foreign-controlled businesses operating in List 3 sectors to maintain minority voting rights.

The Council of State, the government’s legal advisory body, noted that the ”grandfather” clause was unfair to other companies.

But companies will be given three years instead of two to comply with the law.

Critically, the cabinet yesterday exempted businesses in the telecommunications, retail and hotel sectors from the FBA rules, under the principle that these businesses operated under their own separate laws.

Companies in these sectors can continue to operate with foreigners holding majority voting rights until they cease operations.

The 1999 FBA outlines 43 types of businesses restricted to foreign companies.

List 1 represents businesses banned to foreigners, including media and rice farming. List 2 sectors, which include firearms production and transport, are restricted for national security reasons, while List 3 covers most service sectors.

Pramon Sutivong, the chairman of the Thai Chamber of Commerce, cautioned that the latest changes did not necessarily represent the final version of the final law, as the National Legislative Assembly was likely to set up a separate panel to consider the draft.
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