DBD Proposes Amendments To Thailand’s Foreign Business Act – Déjà Vu For The Foreign Business Community

As reported in the Bangkok Post, Thailand’s Department of Business Development (DBD) is proposing to amend Thailand’s Foreign Business Act (FBA), purportedly to bring  it in line with changing economic conditions and to strike a balance between protecting Thai investors and promoting foreign investment.  The proposed amendments would include changes to the FBA’s penalty provisions as well as the scope of services covered by the FBA’s list 3. Most controversial for members of Thailand’s foreign business community, however, is a proposed amendment to the definition of the term “alien” to include foreign voting and management control in order to tackle the nominee problem.  According to Kulanee Issadisai, the Director-General of the DBD, the DBD will refer to similar laws in other countries and the model law from the United Nations Commission for International Trade Law in drafting a revised definition of “alien”.

Longstanding members of the foreign business community will be familiar with this issue.  The FBA’s definition of “alien” refers only to ownership of share capital and makes no reference to management authority or voting control of a company.  When the FBA was enacted in 1999 to replace NEC decree no. 281 (a decree issued by a military government in 1972, which was often referred to as the “alien business law”), proposals were made to include foreign voting and management control in the definition of an “alien” company.  These proposals, however, were rejected because of fears that they would make Thailand less competitive in an increasingly competitive world.   Since then, however, similar proposals have resurfaced from time to time, most notably in 2007 and 2014.  In each instance, there was considerable opposition from the foreign business community, many arguing that the use of such criteria would constitute a compulsory divestiture or expropriation of foreign owned assets.  Concerns were also raised about whether such measures were consistent with Thailand’s obligations under the WTO and its bi-lateral investment treaties.  Fears were also expressed over how such measures would affect Thailand’s reputation among foreign investors. Ultimately, these proposed amendments were dropped.

Unlike past proposals, which were initiated by the Ministry of Commerce or government leadership, the current proposals are being raised directly by the DBD, and so there will be a number of hurdles that will need to be cleared before the amendments become law.  According to Ms. Kulanee, the DBD’s plans to amend the FBA are likely to finish in April or May, at which time the proposed amendments would be submitted to the Ministry of Commerce for approval, and then to the cabinet, the Council of State and finally the National Legislative Assembly.  This may prove too tight a time frame given that national elections are scheduled for early next year.