Relaxation of Foreign Business Act requirements for certain businesses
The Council of State has approved a draft Ministerial Regulation, which had previously been approved by the Thai Cabinet in July 2016. This Regulation will allow foreigners to conduct certain businesses without being required to obtain a foreign business license (“FBL”) under the Foreign Business Act (“the FBA”). This change to the FBA is expected to be put into effect before the end of 2016.
The draft regulation lifts the restrictions on foreigners operating a representative office or a regional office. Currently, if a foreign company operates either of these types of offices, the office is only allowed to provide limited non-revenue earning activities in Thailand after it has obtained an FBL. A representative or regional office is not a legal entity separate from its head office, which differs from the Regional Operating Headquarters and International Headquarters incentive schemes, which are only granted to companies registered in Thailand which are profit generating.
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. For tax purposes, although both a representative and regional office are non-profit-generating entities where all expenditures are borne by the head office, they are still required to comply with Thai tax regulations, including filing corporate income tax returns, which would always show them in a loss position for tax purposes.
The businesses which are also included in this draft as services no longer restricted for foreigners are services related to banking including acting as an agent for the collection of insurance premiums, providing hire-purchase and leasing arrangements, and certain legislated asset management services. Although the relaxation under the FBA is welcome, due to other current Thai licensing requirements and regulations in the banking, insurance and asset management industries, the relaxation is not expected to have a significant impact on these service categories.
In addition to the abovementioned business types, an FBL is also not required for a foreign service contractor under an agreement with a Thai governmental agency or state enterprise. The relaxation to exempt FBLs for service contractors working under agreements with government agencies and/or state enterprises is a step in the right direction. It allows government ministeries and departments, as well as state enterprises, expedite work with foreigners who may not necessarily have operations in Thailand, but who are best placed to provide services which the country requires. This leniency does not pose any threat to the Thai service sector because foreign contractors may only perform work as stipulated in their respective government contracts. The bidding for such services is always open to Thai service contractors. The measure could eventually promote Thailand’s image in the field of international trade.
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