Foreign Business Act Amendments

FBA proposed amendments

Voting rights to determine foreign firms. Compliance schedule still under discussion

Source: Bangkok Post - 27 December 2006

Voting rights will be used as a key criterion in defining foreign ownership under the planned revision of the 1999 Foreign Business Act. A Commerce Ministry committee chaired by Pramon Sutivong finalized the new definition yesterday. Mr. Pramon, who also chairs the Thai Chamber of Commerce, said the revised law that companies controlled by foreigners in terms of voting rights would be classified as foreign, even if their direct shareholdings were in a minority. ‘The new criteria could affect a number of companies that would now be in violation of the Foreign Business Act', he acknowledged.

The Commerce Ministry had previously used direct shareholdings in assessing compliance with the Foreign Business Act, which limits foreign shareholdings to 49% in a number of key service sectors.

But the ministry's Business Development Department, which oversees corporate registrations, ruled earlier this year that Singapore's Temasek Holdings was allegedly in violation of the Foreign Business Act through the use of nominee structures to hold shares of the telecom giant Shin Corp.

A later investigation of more than a dozen other large companies found widespread use of nominee companies ostensibly owned by a Thai majority, but which were actually controlled by foreign owners.

The foreign business community is watching this case closely, as thousands of foreign joint ventures could be forced to restructure their shareholdings under the new nominee definition.

Mr. Pramon said the drafting committee proposed several options to allow companies time to comply with the new rule. One option would be to have companies in breach of the new rule immediately register as foreign companies with the Commerce Ministry. Another proposal would allow foreign companies one or two years to sell down shares to a minority stake before they are considered Thai according to the Foreign Business Act.

‘Larger companies might take longer than that, but we will leave this to Commerce Minister Krirk-Krai Jirapet to decide', Mr Pramon Said. The recommendations will be forwarded to Mr. Krirk-Krai this week.

A third proposal would be to allow foreign companies under the new definition to continue to operate under the new definition to operate in List 3 sectors, which comprise services such as construction, law and accounting. The companies could continue, but would have to register with ministry.

Foreign companies would still be banned from List 1 sectors, which involve businesses such as media, rice farming and forestry, as well as List 2 sectors, which involves culture and handicrafts.

Mr Pramonsaid said the committee considered that service such as finance and securities, insurance and tourism would be bound under separate laws.

For the retail sector, the committee agreed foreign companies operating in Thailand should have explicit permission from the commerce minister and operate under the retail law. Retailing is now classified under List 3 for operations with capital less than 100 million baht.

Foreign Business / Nominees

Up to one year to sell down holdings

Source: Bangkok Post 26 December 2006

The Commerce Ministry is likely to give companies with nominee problems between six months and one year to sell down shares to comply with the Foreign Business Act, minister Krirk-krai Jirapaet said yesterday. ‘It is highly possible that the schedule will be varied based on factors of each business sector, and the size of capital of individual companies', said Mr Krirk-krai.

Companies with low registered capital between 300 million and 500 million baht might need a shorter time to divest their foreign shareholdings, but those with capital between one billion and ten billion baht need more time, he said. The legal changes, he added, would not hurt foreign investors confidence. ‘We are altering the law and it has nothing to do with investors confidence, and I believe that confidence will grow when the rule is corrected' he said.

Krirk-krai: Changes won't hurt confidence. ‘Those who breach the law should now confirm to it. This problem is a critical one for Thailand as nominees have been widely used to do business that are prohibited for foreigners'.

The Ministry expected to finalize revisions to the 1999 Foreign Business Act this week, including changes in foreign shareholding limits and the definition of nominees. The adjustments period might not take as long as three years as foreign investors requested, he said. ‘Anyway, we will consider the draft from the committee before making a decision', Mr Krirk-krai said. Concerns about foreign ownership and the complex structures used by some companies have been a major issue since the takeover of Shin Corp in January by Temasak Holdings of Singapore.

The Ministry is now waiting for the revised draft prepared by a committee chaired by Pramon Sutivong, who also serves as chairman of the Thai Chamber of Commerce. The committee is scheduled to conclude revisions on Thursday. According to Mr Pramon, the law would be changed to give a clearer definition of ‘nominees'. And the timeframe for companies with nominee problems to adjust. In addition, the committee would specify which businesses foreigners can invest, and which remain exclusively for Thais.

‘But all disputed issues will be concluded (today) with options for the ministry', said Mr Pramon. Besides the Foreign Business Act, the Commerce Ministry is also amending the Retail Act. Both drafts will be submitted for cabinet consideration next month.