Relaxation of Foreign Business Act for additional service businesses – new law is nearly issued
Further to the Thai Cabinet’s approval on 12 July 2016 of the draft Ministerial Regulation to allow foreigners to conduct certain service businesses without the requirement to obtain a foreign business license (“FBL”) under the Foreign Business Act (“FBA”), it is expected that such Regulation may be issued in the next few months (according to relevant authorities).
In terms of the draft Ministerial Regulation, the following six service businesses are no longer restricted for foreigners under the FBA:
1. Services related to or necessary for commercial banks (including acting as an agent for the collection of insurance premiums, providing hire-purchase and leasing arrangements, etc.)
2. Certain legislated asset management services
3. A representative office
4. A regional office
5. A service contractor under an agreement with a governmental agency and
6. A service contractor under an agreement with a state enterprise.
Although the relaxation under the FBA is welcomed, due to the other Thai licensing requirements and regulations in the banking, insurance and asset management industries, it is not expected that the relaxation will have a significant impact for these service categories as specific licenses under those laws may still be required.
Currently, under a representative office and a regional office structure, a foreign company is entitled to provide limited non-revenue earning activities in Thailand once it has obtained a FBL. The key distinction between a representative office and a regional office is the nature of the activities which can be provided for the benefit of the head office, and in some instances, its affiliates. These business structures are quite restrictive and mostly used in the preliminary stages when a foreigner is still considering whether to create a business presence in Thailand or not. It is not generally a recommended structure when a company is expanding its revenue-generating services and business operations in Thailand. Since the nature of the activities under a representative office and a regional office are limited and do not generate revenue in Thailand, it makes sense that a FBL is no longer required in this instance.
One point to note is that a representative and regional office is not a separate legal entity from its head office. It therefore differs to the Regional Operating Headquarter and International Headquarter incentives which will only be granted to companies registered in Thailand and that are profit generating.
The relaxation to exempt FBL’s for service contractors working under agreements with government agencies and/or state enterprises is a step in the right direction. It allows government ministries and departments, as well as entities which are majority-owned by the Thai government, to work more swiftly with foreigners who do not necessarily have existing operations in Thailand, but who are best placed to provide the required services. Given that the state enterprises are governed by several laws, we recommend that the service contractors request official confirmation from its customer on whether it is a state enterprise or not in order to rely on the FBL exemption after the regulation has been announced.
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