Investment in Thailand

Despite several major investment disputes in 2009, Thailand continues to maintain an open, market-oriented economy and encourages foreign direct investment as a means of promoting economic development, employment, and technology transfer. Thailand continues to welcome investment from all countries and seeks to avoid dependence on any one country as a source of investment.

In order to apply for a work permit, a foreigner must enter Thailand on a non-immigrant visa (issued at Thai embassies and consulates) for a stay of three months or, for foreigners with well-defined work or business plans, for a stay of one year.

Openness to Foreign Investment

In recent decades, Thailand has been a major destination for foreign direct investment, and hundreds of U.S. companies have invested here successfully. Thailand continues to welcome investment from all countries and seeks to avoid dependence on any one country as a source of investment.

In 2009, most investors remained cautiously hopeful that the political situation would become less tumultuous and allow the government to pursue more business-friendly policies. Unfortunately, the November 2008 closure of Bangkok’s airports, widely watched political protests in April, and the onset of the global economic crisis made it difficult for Prime Minister Abhisit to restore the business and investor confidence in Thailand’s economy after several years of political turmoil.

By the end of the year, the dominant issues with regard to Thailand’s investment climate revolved around the court-ordered shutdown of 65 construction projects at Map Ta Phut, one of Thailand’s most important industrial estates, over allegations that the government failed to follow the 2007 Constitution’s requirements for environmental and health impact assessments when approving the new industrial projects. However, implementing legislation for these constitutional provisions had never been finalized — a significant legal quandary that the government hopes to resolve in 2010. The affected companies, including many major foreign investors, remain concerned about how and when the dispute will be resolved.

After posting 4.8 percent growth (year-on-year) in the first nine months of 2008, the Thai economy dropped 4.2 percent in the last quarter — the first contraction of the economy since the 1997-98 Asian Financial Crisis. The global financial crisis of 2008 and the continued political tension in Thailand led to a 2.6 percent drop in GDP in 2008, much lower than the 5 percent average growth of recent years.

This slippage continued in 2009, with the economy contracting by 5 percent (year-on-year) through September. The hardest hit sectors were exports and private investment, both of which represent around 80 percent of GDP. As the global markets recover from the recessions, the Thai government revised its projections for 2009 to negative 3 percent, with a turnaround in the last quarter of 2009. The government estimates GDP growth of 3 to 4 percent in 2010.

In the wake of the 1997-98 Asian Financial Crisis, Thailand embarked on an International Monetary Fund (IMF)-sponsored economic reform program designed in part to foster a more competitive and transparent climate for foreign investors. Legislation establishing a new bankruptcy court, reforming bankruptcy and foreclosure procedures, and allowing creditors to pursue payment from loan guarantors was enacted in 1999.

Other 1999 reforms include amendments to the Land Code, Condominium Act, and the Property Leasing Act, all of which liberalized restrictions on property ownership by non-Thais. The Foreign Business Act (FBA) of 1999 governs most investment activity by non-Thai nationals and opened limited additional business sectors to foreign investment. Nevertheless, foreign investment in most service sectors is limited to 49 percent ownership.

Many U.S. businesses, however, enjoy investment benefits through the U.S.-Thailand Treaty of Amity and Economic Relations (AER), originally signed in 1833. The 1966 iteration of the Treaty allows U.S. citizens and businesses incorporated in the U.S., or in Thailand that are majority-owned by U.S. citizens, to engage in business on the same basis as Thai companies, exempting them from most of the restrictions on foreign investment imposed by the Foreign Business Act.

Under the Treaty, Thailand restricts American investment only in the fields of communications, transport, fiduciary functions, banking involving depository functions, the exploitation of land or other natural resources, and domestic trade in agricultural products. Prospective U.S. investors who would like to benefit from the Treaty must first verify their nationality by obtaining a certified letter from the U.S. Embassy in Bangkok. The investor must then present the letter to the Ministry of Commerce, along with an application form for a business operation certificate. This process typically takes less than one month. Notwithstanding their Treaty rights, many Americans choose to form joint ventures with Thai partners, allowing the Thai side to hold the majority stake because of the advantages that come from familiarity with the Thai economy and local regulations.

Americans planning to invest in Thailand are advised to obtain qualified legal advice.

Such advice is particularly important given the fact that Thai business regulations are governed predominantly by criminal law, not civil law. While foreigners rarely are jailed for improper business activities, violation of Thai business regulations can carry heavy criminal penalties.

Thailand has removed tax disincentives on buying domestic financial institutions. The Financial Institutions Act passed at the end of 2007 gave power to the Bank of Thailand (the country’s central bank) to raise the foreign ownership limit in a local bank from 25 percent to 49 percent on a case-by-case basis. The Act also allows the Minister of Finance to authorize foreign ownership above 49 percent. In January 2009, the Ministry of Finance allowed Malaysian’s CIMB Group to hold majority shares (around 93 percent) in BankThai Bank, the country’s ninth largest commercial bank.

Under the Bank of Thailand’s new five-year Financial Sector Master Plan Phase II (FSMP II), which was approved by the Cabinet in early November 2009, foreign banks, which were restricted to a single branch, will be allowed to open two more additional branches from 2010. The FSMP II will also allow existing foreign full branches to upgrade to subsidiaries and open a maximum of 20 branches and 20 off-premise ATMs.

Details of the FSMP II are available in English at http://www.bot.or.th/.

The 2008 Life Insurance Act and the 2008 Non-Life Insurance Act requires that an insurance company must have Thai shareholders who possess more than 75 percent of total number of ‘voting’ share sold. Foreign ownership is therefore capped to 25 percent of voting share sold. The 2008 laws provide a five-year compliance period until February 2013.

If companies do not comply by 2013, they will be unable to open new branches and can be fined up to 200,000 Thai baht (approximately US$6,000) plus daily fines of up to 10,000 Thai baht (approximately US$300). However, the new laws also allow the government insurance regulator (the Office of Insurance Commission) to authorize foreign ownership up to 49 percent on a case-by-case basis. The Minister of Finance, with a recommendation from the Office of Insurance Commission, could grant approval to allow foreign ownership limit to exceed 49 percent.

Business Registration: Any entity wishing to do business in Thailand must register with the Department of Business Development at the Ministry of Commerce. Firms engaging in production activities need to register with the Ministries of Industry and Labor and Social Welfare. If the entity falls under the definition of non-Thai national as defined by the Foreign Business Act, they have to obtain a ‘foreign business license’ (or a certificate for US investors as mentioned above), which must be approved by the Council of Ministers (Cabinet) or Director-General of Department of Business Development at the Ministry of Commerce depending on types of restricted businesses.

Work Permits: U.S. citizens can enter Thailand without a visa for visits of up to thirty days.

In order to apply for a work permit, a foreigner must enter Thailand on a non-immigrant visa (issued at Thai embassies and consulates) for a stay of three months or, for foreigners with well-defined work or business plans, for a stay of one year. Issuance of the three-month visa usually is completed within two or three days; the one-year visa requires approval from the Immigration Bureau of the Royal Thai Police in Bangkok. Upon obtaining a work permit, a holder of a three-month visa may apply for a one-year visa, which generally can be extended every year. Foreigners holding nonimmigrant visas who have lived in Thailand for at least three consecutive years may apply for permanent residence in Thailand if they meet strict criteria regarding investment or professional skills.

Many occupations are reserved exclusively for Thai nationals, including professional services such as accounting, architecture, law, and engineering. The 2008 Alien Occupation Act, which lists these prohibited occupations, also states that all non-Thai persons working in Thailand must possess a work permit issued by the Ministry of Labor. Some foreigners already working in Thailand are exempted through a “grandfather” clause. Factors that influence the granting of work permits include the degree of specialization required by the position; the size of the firm in terms of number of employees and registered capitalization; and the ratio of Thai nationals to foreigners employed by the firm.

Foreigners working for the Thai government or working on projects promoted by the Board of Investment (BOI) usually have little difficulty obtaining work permits and typically receive their permits within seven days of application. The duration of the work permit is generally tied to the length of stay permitted by the person’s visa. Government policy creates a preference for Thai nationals in the hiring of government consultants, although the government continues to hire foreign consultants. Work permits in other areas are sometimes difficult to obtain, despite the fact that senior manager and technical personnel are in short supply.

Foreigners who want to do volunteer work are also required to obtain work permits according to the law. Foreigners found to be working (including volunteers) without work permits could be imprisoned up to five years and/or fined between 2,000 and 100,000 Thai baht (approximately US$60 to US$3,000). However, the law does not apply to individuals in officially recognized delegations (e.g. diplomatic or consular); persons performing duties or missions in accordance with an agreement between the Royal Thai Government and foreign governments or international agencies; person performing duties or missions to the benefit of education, culture, arts, sports or other activities stipulated by Thai laws; or persons otherwise authorized by the Council of Ministers.

The law allows migrant workers from Burma, Laos and Cambodia to work as manual labor in certain industries such as textiles. Under the Alien Occupation Act, employers of unskilled workers are required to deduct a certain amount (to be specified by a Ministerial regulation issued by the Ministry of Labor) from salaries of their foreign workers and submit to a newly established ‘Deportation Fund’ which will be managed by a committee. The amount is made in a single payment and can vary depending on the associated cost of deporting such foreign workers back to their native country if necessary. If the amount is not fully collected from the foreign workers, employers are ultimately responsible for the payments. Foreign workers will be given receipts and will be reimbursed within 30 days after they have returned to their home country at their own expense. However, foreign workers must make a reimbursement claim with receipts within two years after their departure from any immigration check-point. Interest (7.5 percent per annum) will be paid only if the refund process exceeds 30 days after a claim.

Land Ownership: In general, non-Thai businesses and citizens are not permitted to own land in Thailand

unless the land is on government-approved industrial estates. Under the 1999 amendment to the Land Code Act, foreigners who invest a minimum of 40 million Baht (approximately US$1.2 million) are permitted to buy up to 1,600 square meters of land for residential use with the permission of the Ministry of Interior. If the required land is not used as a residence within two years from the date of acquisition and registration, the Ministry has the power to dispose of the land. Petroleum concessionaires may own land necessary for their activities. Rather than purchasing, many foreign businesses instead sign long-term leases, and then construct buildings on the leased land. Under the 1999 Condominium Act, non-Thais were allowed to own up to 100 percent of a condominium building if they purchased the unit between April 28, 1999 and April 28, 2004. Under the newer Condominium Act of 2007, foreign ownership in a condominium building, when added together, must not exceed 49 percent of the total space of all units in the building, except for those purchased between 1999 and 2004.

Privatization: With the aim of encouraging capital inflows and relieving resource constraints in many key sectors of the economy, the previous government of Thaksin Shinawatra eagerly embarked on a privatization program for state-owned economic enterprises and state monopolies. The interim government that followed the September 2006 coup considered privatization too controversial and put these plans on hold. Other than the Petroleum Authority of Thailand (PTT), the Airport Authority of Thailand (later renamed Airports of Thailand (AOT)) and the Mass Communication Organization of Thailand (MCOT), few significant privatizations have occurred. The 1999 State Enterprise Corporatization Act provides the framework for the conversion of state enterprises into stock companies, and corporatization is viewed as an intermediate step toward eventual privatization. (Note: “corporatization” describes the process by which an SOE adjusts its internal structure to resemble a publicly-traded enterprise; “privatization” means that a majority of the SOE’s shares is sold to the public, and “partial privatization” refers to a situation in which less than half a company’s shares are sold to the public.) The current State Enterprise Policy Office under the Ministry of Finance does not have a power to regulate all SOEs, but the Ministry of Finance is in the process of drafting a comprehensive bill to set up a new regulatory and policy body to supervise all SOEs including those with partial privatization.

Investment Climate Statements provide a thorough description of the overseas environments in which U.S. investors must operate. The statements cover general characteristics, such as openness to foreign investment and treatment of foreign investors, as well as details about procedures for licensing and similar administrative matters. The statements are updated each year as Chapter 7 in the Country Commercial Guides, a series to be found by country at the U.S. Department of Commerce’s website: http://www.export.gov/.